<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AVI BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OREGON 93-0797222
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
ONE S.W. COLUMBIA, SUITE 1105, PORTLAND, OR 97258
(503) 227-0554
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
DENIS R. BURGER, PH.D.
PRESIDENT & CHIEF EXECUTIVE OFFICER
AVI BIOPHARMA, INC.
ONE S.W. COLUMBIA, SUITE 1105, PORTLAND, OR 97258
(503) 227-0554
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------------
COPY TO:
BYRON W. MILSTEAD, ESQ.
ATER WYNNE LLP
222 S.W. COLUMBIA, SUITE 1800, PORTLAND, OR 97201-6618
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
(a) Common Stock, $.0001 par value(2)....... 714,290 shares $5.34375 $3,816,987 $1,008
(b) Common Stock, $.0001 par value(3)(4).... 214,287 shares $5.34375 $1,145,096 $302
TOTAL................................... $4,962,083 $1,310
</TABLE>
(1) The offering price is estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) using the average of the
high and low price reported by the Nasdaq National Market for the Common
Stock on December 15, 1999, which was approximately $5.34375 per share.
(2) An indeterminate number of shares of Common Stock are registered under this
Registration Statement that may be issued, as provided in the Purchase
Agreement to prevent dilution resulting from stock splits, stock dividends
or similar transactions. No additional registration fee is included for
these shares.
(3) Issuable upon the exercise of Common Stock Purchase Warrants held by
existing shareholders of AVI BioPharma, Inc. who are the selling
shareholders under this Registration Statement.
(4) An indeterminate number of shares of Common Stock are registered under this
Registration Statement that may be issued, as provided in the Common Stock
Purchase Warrants to prevent dilution resulting from stock splits, stock
dividends or similar transactions. No additional registration fee is
included for these shares.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THEIR COMMON SHARES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON
SHARES AND IT IS NOT SOLICITING AN OFFER TO BUY COMMON SHARES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SELLING SHAREHOLDERS'
PROSPECTUS
AVI BIOPHARMA, INC.
928,577 COMMON SHARES
NASDAQ NATIONAL MARKET
AVII
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE RISK FACTORS
BEGINNING ON PAGE 10.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE COMMON SHARES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- This is an offering of Common Shares by existing shareholders of AVI
BioPharma, Inc.
- The selling shareholders will receive all of the proceeds from the sale of
the Common Shares, less any commissions or discounts paid to brokers or
other agents. We will not receive any of the proceeds from the sale of the
Common Shares.
- The selling shareholders may offer and sell the Common Shares on the
Nasdaq National Market at prevailing market prices, or in privately
negotiated transactions at prices other than the market price. On
December 15, 1999, the closing sale price for our Common Shares on the
Nasdaq National Market was $5.75.
- The Common Shares were obtained by the selling shareholders in
transactions that were exempt from the registration requirements of the
Securities Act of 1933, as amended, and represent approximately 6% of the
Company's outstanding Common Stock.
December 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
SUMMARY..................................................... 4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 7
RISK FACTORS................................................ 9
INFORMATION ABOUT THE COMPANY............................... 15
PRIVATE PLACEMENT TO SELLING SHAREHOLDERS................... 19
OUR SELLING SHAREHOLDERS.................................... 20
PLAN OF DISTRIBUTION........................................ 21
DESCRIPTION OF CAPITAL SHARES............................... 23
LEGAL MATTERS............................................... 25
EXPERTS..................................................... 25
ADDITIONAL INFORMATION......................................
</TABLE>
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which we filed with the Securities and Exchange
Commission are incorporated by reference in this Prospectus:
(1) our Annual Report on Form 10-KSB for the year ended December 31, 1998,
which we refer to in the rest of this document as our Annual Report; and
(2) our Report on Form 10-QSB dated November 12, 1999, for the quarter ended
September 30, 1999.
In addition, all documents which we file with the Securities and Exchange
Commission ("Commission") pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), after the date of the
Registration Statement and before termination of the offering of Common Shares,
including all annual reports on Form 10-KSB, and all filings on Forms 10-QSB and
8-K, will be deemed to be incorporated by reference in this Prospectus and to be
a part of this Prospectus from the date those documents are filed. Any statement
contained in a document which is incorporated, or deemed to be incorporated, by
reference into this Prospectus, shall be considered modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is, or is
deemed to be, incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
You may request a copy of any document incorporated by reference in this
Prospectus at no cost. To receive a copy, write or call us at
AVI BioPharma, Inc., One S.W. Columbia, Suite 1105, Portland, Oregon 97258,
Attention: Mr. Alan P. Timmins, (503) 227-0554.
We are subject to the informational requirements of the Exchange Act and
file reports and other information with the Commission. Reports and other
information which we file with the Commission, including the Registration
Statement on Form S-3 of which this Prospectus is a part, may be inspected and
copied at the public reference facilities of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
The Commission's telephone number is 1-800-SEC-0330. These materials may be
obtained electronically by visiting the Commission's web site on the Internet at
http://www.sec.gw. Our Common Stock is listed on the Nasdaq National Market.
Reports, proxy statements and other Company materials also can be inspected at
1735 K Street, N.W., Washington, D.C. 20006-1506.
3
<PAGE>
SUMMARY
MANY OF THE MATTERS SET FORTH IN THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH HEREIN. WE REFER YOU TO
CAUTIONARY INFORMATION CONTAINED ELSEWHERE HEREIN AND IN OTHER DOCUMENTS WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
<TABLE>
<S> <C>
BUSINESS.................................. AVI BioPharma, Inc. (AVI) is an emerging
biopharmaceutical company developing therapeutic
products using two distinct platform technologies:
</TABLE>
<TABLE>
<S> <C> <C>
Cancer Immunotherapy......... Avicine clinical
Xactin pre-clinical
Gene-targeted drugs
(NEUGENES)................. Resten-NG IND filed
Oncomyc-NG pre-clinical
</TABLE>
<TABLE>
<S> <C>
Our principal focus is the treatment of life-threatening
diseases, most notably cancer and heart disease.
Currently approved drugs or other therapies often prove
to be ineffective in treating advanced stages of these
diseases or produce numerous unwanted side-effects. Our
two leading platforms, Cancer Immunotherapy and
NEUGENEs, are specifically aimed at solving the
challenges faced by today's pharmaceutical products.
Each of these products represents large market
opportunities. It is estimated that the world-wide
market for therapeutic cancer vaccines exceeds
$2 billion.
CANCER IMMUNOTHERAPY (VACCINES)........... Avicine, a therapeutic vaccine, represents our most
advanced product opportunity, having completed a
Phase II human clinical trial for colorectal cancer.
Therapeutic cancer vaccines operate under the rationale
that active immunization can stimulate an immune
response that can be effective in fighting an existing
cancer. The therapeutic benefit of the vaccine hinges on
the existence of specific target sites, called tumor
antigens, on cancer cells.
The target for Avicine is human chorionic gonadotropin
(hCG). Not only is hCG responsible for stimulating fetal
development during pregnancy, but it is also a tumor
antigen on cancer cells of all major types including
cancer of the colon, pancreas, prostate, lung and
breast. It is believed that the role of hCG in pregnancy
and cancer is similar. In both cases, it (i) serves as a
growth factor encouraging rapid cell division,
(ii) fosters the formulation of blood vessels,
(iii) stimulates invasion of other tissues, and
(iv) dampens the immune system to allow the fetus, or
the tumor, to avoid rejection. Avicine is based on an
anti-hCG approach to treating cancer.
Avicine has completed five clinical studies in cancer,
in which a total of 172 patients received treatment.
From these studies, we believe that the vaccine is a
safe and essentially non-toxic therapy and capable of
producing a specific immune response in most patients.
Further, the patients who mounted an immune
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
response to hCG lived longer than patients treated with
other conventional therapies. We intend to investigate
further the use of Avicine alone or in conjunction with
other approved therapies in Phase II and Phase III
licensing trials.
CANCER IMMUNOTHERAPY
(XACTIN MONOCLONAL ANTIBODIES).......... We are also combating cancer by utilizing antibodies
that have activity against cancer cells that display the
hCG hormone marker. We licensed XenoMouse-TM- technology
from Abgenix Inc. and have produced human monoclonal
antibodies against critical hCG tumor antigen targets.
These high affinity, stable clones recognize the key
epitopes in our cancer vaccine. The Xactin antibodies
are both companion products to Avicine and independent
cancer therapeutics and are now in pre-clinical
development.
GENE-TARGETED DRUGS (NEUGENES)............ We have developed third generation gene-inactivating
compounds that we believe are more stable, specific,
efficacious, and cost effective than other antisense or
ribozyme agents. Our NEUGENE compounds are distinguished
by a novel backbone which replaces the natural or
modified backbones of competing antisense or ribozyme
technologies.
NEUGENE use synthetic polymers to block the function of
certain genetic sequences involved in the disease
process. Targeting specific genetic sequences provides
for greater selectivity than available through
conventional drugs. NEUGENEs have the potential to
provide safe and effective treatment for a wide range of
human diseases.
We have completed pre-clinical studies using our NEUGENE
compounds in the treatment of bone cancer and
restenosis, the blockage of arteries following balloon
angioplasty. We recently filed an IND with the FDA for
Resten-NG for restenosis and expect to begin a
Phase I/II clinical trial by year-end.
STRATEGY.................................. We have the experience and resources to initiate drug
discovery and development, and move drug candidates
through pre-clinical development and into early stage
clinical trials (Phase I and Phase II). Our strategy
for the near-term (2 to 5 years) is to license the
marketing rights for our product candidates to phar-
maceutical partners after Phase II clinical trials or
co-develop product candidates with strategic partners.
In this manner, expensive, late-stage clinical
development and marketing will be the responsibility of
the licensee. With adequate resources we may consider
assuming greater responsibility for the late-stage
clinical development and marketing opportunities of
future product candidates.
</TABLE>
5
<PAGE>
CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
PRODUCT CANDIDATE PRE-CLINICAL PHASE I PHASE II PHASE III
- ----------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Avicine
(Colorectal Cancer Vaccine).................. Completed Completed Completed 2000
Avicine
(Pancreatic Cancer Vaccine).................. Completed Completed In progress
Avicine
(Prostate Cancer Vaccine).................... Completed Completed 1999
Resten-NG
(Gene-Targeted Drug for Restenosis).......... Completed 1999 2000
Oncomyc-NG
(Gene-Targeted Drug for Cancer).............. Completed 2000
Xactin
(Human Monoclonal Antibody).................. In progress 2000
</TABLE>
6
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements regarding our plans,
expectations, estimates and beliefs. Our actual results could differ materially
from those discussed in, or implied by, these forward-looking statements.
Forward-looking statements are identified by words such as "believe,"
"anticipate," "expect," "intend," "plan," "will," "may," and other similar
expressions. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-
looking statements. We have based these forward-looking statements largely on
our expectations. Forward-looking statements in this Prospectus include, but are
not necessarily limited to, those relating to:
- our intention to introduce new products
- FDA or other regulatrory approval for our products
- our expectations about the markets for our products
- acceptance of our products in the marketplace
- our future capital needs
- success of our patent applications
- the status of Year 2000 compliance efforts
Forward-looking statements are subject to risks and uncertainties, certain
of which are beyond our control. Actual results could differ materially from
those anticipated as a result of the factors described in the "Risk Factors,"
including among others:
- delays in obtaining, or our inability to obtain, approval by the FDA or
other regulatory authorities for our products
- delays in developing, or the failure to develop, our products
- the development of competing or more effective products by other parties
- uncertainty of market acceptance of our products
- problems that we may face in manufacturing, marketing, and distributing
our products
- our inability to raise additional capital when needed
- delays in the issuance of, or the failure to obtain, patents for certain
on our products and technologies
- problems with important suppliers and business partners
We do not undertake any obligation to update or revise any forward-looking
statements contained in this Prospectus or incorporated by reference, whether as
a result of new information, future events or otherwise. Because of these risks
and uncertainties, the forward-looking events and circumstances discussed in
this Prospectus might not transpire. Factors that cause actual results or
conditions to differ from those anticipated by these and other froward-looking
statements include those more fully described in the "Risk Factors" section and
elsewhere in this Prospectus.
7
<PAGE>
NOTES TO READERS OF THIS PROSPECTUS
We were incorporated in Oregon in 1980. When we refer to "us," "we," "our,"
"the Company" and "AVI" in this Prospectus, we mean AVI BioPharma, Inc., and its
consolidated subsidiaries. Our executive offices are located at One S.W.
Columbia, Suite 1105, Portland, Oregon 97258. Our telephone number at that
location is (503) 227-0554. Information contained on our websites does not
constitute part of this Prospectus.
We are subject to the informational requirements of the Exchange Act and
file reports and other information with the Commission. Reports and other
information which we file with the Commission, may be inspected and copied at
the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The
Commission's telephone number is 1-800-SEC-0330. These materials may be obtained
electronically by visiting the Commission's website on the Internet at
http://www.sec.gov. Reports, proxy statements and other Company materials also
can be inspected at 1735 K Street, N.W., Washington, D.C. 20006-1506 or obtained
directly from the Company at the address and telephone listed above.
This Prospectus includes our trademarks and registered trademarks, including
Avicine-TM-, NEUGENE-Registered Trademark-and Xactin-TM-. Each other trademark,
trade name or service mark appearing in this Prospectus belongs to its holder.
8
<PAGE>
RISK FACTORS
The Shares offered by this Prospectus are speculative and involve a high
degree of risk. Before making an investment, you should carefully read this
entire Prospectus and consider the following risk factors.
RISKS RELATING TO OUR BUSINESS
HISTORY OF OPERATING LOSSES AND ANTICIPATED FUTURE LOSSES
We incurred a net operating loss of $26.7 million in 1998, which included a
one-time charge of $19.5 million relating to our acquisition of ImmunoTherapy
Corporation. We incurred a $5.9 million loss for the first nine months of 1999.
"Net operating loss" represents the amount by which our expenses (other than
interest expense) exceed revenues. As of September 30, 1999, our accumulated
deficit was $48.7 million. Our losses have resulted principally from expenses
incurred in research and development of our technology and products and from
selling, general and administrative expenses that we have incurred while
building our business infrastructure. We expect to continue to incur significant
operating losses in the future as we continue our research and development
efforts and seek to obtain regulatory approval of our products. Our ability to
achieve profitability depends on our ability to complete development of our
products, obtain regulatory approvals and market our products. It is uncertain
when, if ever, we will become profitable.
EARLY STAGE OF PRODUCT DEVELOPMENT
Although we began operations in 1980, except for Avicine, we are only in the
early stages of the development of our pharmaceutical products. We have devoted
almost all of our time to research and development of our technology and
products, protecting our proprietary rights and establishing strategic
alliances. Our proposed products are in the pre-clinical or clinical stages of
development and will require significant further research, development, clinical
testing and regulatory clearances. We have no products available for sale,
except for research reagents, and we do not expect to have any products
available for sale for several years. Our proposed products are subject to
development risks. These risks include the possibilities that any of the
products could be found to be ineffective or toxic, or could fail to receive
necessary regulatory clearances. Although we have obtained favorable results in
Phase II using Avicine to treat colorectal cancer patients, we cannot assure
that we will obtain similar results in the contemplated Phase III protocol. We
have not received any significant revenues from the sale of products and we
cannot assure investors that we will successfully develop marketable products,
that our sales will increase or that we will become profitable. Third parties
may develop superior or equivalent, but less expensive, products.
LACK OF OPERATING EXPERIENCE
We have engaged solely in the development of pharmaceutical technology.
Although some of our management have experience in biotechnology company
operations, we have limited experience in manufacturing or selling
pharmaceutical products. We also have only limited experience in negotiating and
maintaining strategic relationships, and in conducting clinical trials and other
later-stage phases of the regulatory approval process. We cannot assure
investors that we will successfully engage in any of these activities.
NEED FOR FUTURE CAPITAL AND UNCERTAINTY OF ADDITIONAL FUNDING
Since we began operations, we have obtained operating funds primarily by
selling shares of our company. Based on our current plans, we believe that
current cash balances including the anticipated proceeds from this Offering will
be sufficient to meet our operating needs for approximately the next eighteen
months. Furthermore, the actual amount of funds that we will need will be
determined by many factors, some of which are beyond our control. These factors
include the success of our research and development efforts, the status of our
pre-clinical and clinical testing, costs relating to securing regulatory
9
<PAGE>
approvals and the costs and timing of obtaining new patent rights, regulatory
changes, competition and technological developments in the market. We may need
funds sooner than currently anticipated.
We anticipate that we will need to obtain additional funds during or at the
end of this eighteen-month period. If necessary, potential sources of additional
funding include strategic relationships, public or private sales of shares of
our common stock or debt or other arrangements. We do not have any committed
sources of additional financing at this time. It is uncertain whether we can
obtain additional funding when we need it on terms that will be acceptable to us
or at all. If we raise funds by selling additional shares of our common stock or
securities convertible into our common stock, the ownership interest of our
existing shareholders will be diluted. If we are unable to obtain financing when
needed, our business and future prospects would be materially adversely
affected.
DEPENDENCE ON OTHERS FOR CLINICAL TESTING, MANUFACTURING AND MARKETING
We do not intend to conduct late-stage (Phase III) human clinical trials
ourselves. We anticipate entering into relationships with larger pharmaceutical
companies to conduct later pharmaceutical trials and to market our products and
we also plan to continue to use contract manufacturing for our products. We may
be unable to enter into corporate partnerships that could impede our ability to
bring our products to market. We cannot assure investors that any corporate
partnerships, if entered, will be on favorable terms or will result in the
successful development or marketing of our products. If we are unsuccessful in
establishing advantageous clinical testing, manufacturing and marketing
relationships, we are not likely to generate significant revenues and become
profitable.
LIMITED MANUFACTURING CAPABILITY
While we believe that we can produce materials for clinical trials at our
existing facilities, we will need to expand our commercial manufacturing
capabilities for products in the future if we elect not to or cannot contract
with others to manufacture our products. This expansion may occur in stages,
each of which would require regulatory approval, and product demand could at
times exceed supply capacity. We have not selected a site for any expanded
facilities and cannot predict the amount we will expend for construction of such
facilities. We cannot assure if or when the FDA will determine that such
facilities comply with Good Manufacturing Practices. The projected location and
construction of any facilities will depend on regulatory approvals, product
development, pharmaceutical partners and capital resources, among other factors.
We have not obtained regulatory approvals for any productions facilities for our
products, nor can we assure investors that we will be able to do so.
GOVERNMENTAL REGULATION; LACK OF ASSURANCE OF REGULATORY APPROVALS
All of our products are subject to extensive regulation by the United States
Food and Drug Administration and by comparable agencies in other countries. The
FDA and comparable agencies require new pharmaceutical products to undergo
lengthy and detailed clinical testing procedures and other costly and
time-consuming compliance procedures. Except for Avicine, none of our products
have been tested in humans. We cannot predict when we will initiate and
complete our clinical trials or when we will be able to submit our products for
regulatory review. Even if we submit a new drug application, there may be delays
in obtaining regulatory approvals, if we obtain them at all. Sales of our
products outside the United States will also be subject to regulatory
requirements governing clinical trials and product approval. These requirements
vary from country to country and could delay introduction of our products in
those countries. We cannot assure you that any of our products will receive
marketing approval from the FDA or comparable foreign agencies.
10
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Our success will depend to a large extent on the abilities and continued
service of several key employees, including Drs. Denis Burger, Patrick Iversen,
and Dwight Weller. The loss of any of these key employees could significantly
delay the achievement of our goals. Competition for qualified personnel in our
industry is intense, and our success will be dependent on our ability to attract
and retain highly skilled personnel.
COMPETITION
The biotechnology industry is highly competitive. We compete with companies
in the United States and abroad that are engaged in the development of
pharmaceutical technologies and products. They include:
- biotechnology, pharmaceutical, chemical and other companies;
- academic and scientific institutions;
- governmental agencies; and
- public and private research organizations.
Many of these companies and many of our other competitors have much greater
financial and technical resources and production and marketing capabilities than
we do. Our industry is characterized by extensive research and development and
rapid technological progress. Competitors may successfully develop and market
superior or less expensive products which render our products less valuable or
unmarketable.
PATENTS AND PROPRIETARY RIGHTS
Our success will depend on our existing patents and licenses, and our
ability to obtain additional patents in the future. We have filed 46 patent
applications in the United States, Canada, Europe, Australia and Japan and 43
patents have been issued. We license the composition, manufacturing and use of
Avicine in all fields except fertility regulation from The Ohio State
University.
We cannot assure investors that our pending patent applications will result
in patents being issued in the United States or foreign countries. In addition,
we cannot guarantee that patents which have been or will be issued will afford
meaningful protection for our technology and products. Competitors may develop
products similar to ours which do not conflict with our patents. Others may
challenge our patents and, as a result, our patents could be narrowed or
invalidated. The patent position of biotechnology firms generally is highly
uncertain, involves complex legal and factual questions, and has recently been
the subject of much litigation. No consistent policy has emerged from the United
States Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under biotechnology patents. In
addition, there is a substantial backlog of biotechnology patent applications at
the USPTOs and the approval or rejection of patents may take several years.
Our success will also depend partly on our ability to operate without
infringing upon the proprietary rights of others, as well as our ability to
prevent others from infringing on our proprietary rights. We may be required at
times to take legal action in order to protect our proprietary rights and,
despite our best efforts, we may be sued for infringing on the patent rights of
others. Patent litigation is costly and, even if we prevail, the cost of such
litigation could adversely affect our financial condition. If we do not prevail,
in addition to any damages we might have to pay, we could be required to stop
the infringing activity or obtain a license. We cannot be certain that any
required license would be available to us on acceptable terms, or at all. If we
fail to obtain a license, our business might be materially adversely affected.
11
<PAGE>
To help protect our proprietary rights in unpatented trade secrets, we
require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection if confidential information is used or disclosed
improperly. In addition, in some situations, these agreements may conflict with,
or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets.
POTENTIAL PRODUCT LIABILITY
The use of our products will expose us to the risk of product liability
claims. Although we intend to obtain product liability insurance coverage, we
cannot guaranty that product liability insurance will continue to be available
to us on acceptable terms or that our coverage will be sufficient to cover all
claims against us. A product liability claim, even one without merit or for
which we have substantial coverage, could result in significant legal defense
costs, thereby increasing our expenses, lowering our earnings and, depending on
revenues, potentially result in additional losses.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT
In addition to obtaining regulatory approval, the successful
commercialization of our products will depend on our ability to obtain
reimbursement for the cost of the product and treatment. Government authorities,
private health insurers and other organizations, such as health maintenance
organizations are increasingly challenging the prices charged for medical
products and services. Also, the trend toward managed health care in the United
States, the growth of healthcare organizations such as HMOs, and legislative
proposals to reform healthcare and government insurance programs could
significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for our products. The cost
containment measures that healthcare providers are instituting and any
healthcare reform could affect our ability to sell our products and may have a
material adverse effect on our operations. We cannot assure investors that
reimbursement in the United States or foreign countries will be available for
any of our products, that any reimbursement granted will be maintained, or that
limits on reimbursement available from third-party payors will not reduce the
demand for, or the price of, our products. The lack or inadequacy of third-party
reimbursements for our products would have a material adverse affect on our
operations. We cannot forecast what additional legislation or regulation
relating to the healthcare industry or third-party coverage and reimbursement
may be enacted in the future, or what effect the legislation or regulation would
have on our business.
RISKS RELATED TO SHARE OWNERSHIP
OUR PREFERRED SHARES, CLASSIFIED BOARD OF DIRECTORS AND OREGON LAWS COULD
PROHIBIT TAKEOVERS
Our authorized capital consists of 50,000,000 shares of common stock and
2,000,000 preferred shares. The Board of Directors, without any further vote by
the shareholders, has the authority to issue preferred shares and to determine
the price, preferences, rights and restrictions, including voting and dividend
rights, of these shares. The rights of the holders of shares of common stock may
be affected by the rights of holders of any preferred shares that the Board of
Directors may issue in the future. For example, the Board of Directors may allow
the issuance of preferred shares with more voting rights, higher dividend
payments or more favorable rights upon dissolution, than the shares of common
stock. If preferred shares are issued in the future, it may also be more
difficult for others to acquire a majority of our outstanding voting shares. See
"Description on Capital Shares."
In addition, we have a "classified" Board of Directors, which means that
only one-half of our directors are eligible for election each year. Therefore,
if shareholders wish to change the composition of the Board of Directors, it
could take at least two years to remove a majority of the existing directors or
to change all
12
<PAGE>
directors. Having a classified Board of Directors may, in some circumstances,
deter or delay mergers, tender offers or other possible transactions which may
be favored by some or a majority of our shareholders.
The Oregon Control Share Act and Business Combination Act limit parties who
acquire a significant amount of voting shares from exercising control over us.
The Act may lengthen the period for a proxy contest or for a person to vote
their shares to elect the majority of our Board.
VOLATILITY OF STOCK PRICE
Historically, the market price of our stock has been highly volatile. The
following types of announcements could have a significant impact on the price of
our common stock:
- positive or negative results of testing and clinical trials
- delays in entering into corporate partnerships
- technological innovations or commercial product introductions by ourselves
or competitors
- changes in government regulations
- developments concerning proprietary rights, including patents and
litigation matters
- public concern relating to the commercial value or safety of any of our
products
- general stock market conditions
Further, the stock market has in recent months experienced and may continue
to experience significant price and volume fluctuations. These fluctuations have
particularly affected the market prices of equity securities of many
biopharmaceutical companies that are not yet profitable. Often, the effect on
the price of such securities is unrelated or disproportionate to the operating
performance of such companies. These broad market fluctuations may adversely
affect the ability of a shareholder to dispose of his shares at a price equal to
or above the price at which the shares were purchased.
FUTURE SALE OF ELIGIBLE SHARES MAY LOWER THE PRICE OF OUR COMMON STOCK
We have outstanding 16,235,845 shares of common stock and 14,092,988 are
eligible for sale under Rule 144 or are otherwise freely tradeable. We intend to
promptly file a registration statement covering an additional 2,142,857 shares,
which will make those shares freely tradeable. In addition:
- Our employees and others hold options to buy a total of 144,277 shares of
common stock. The shares of common stock to be issued upon exercise of
these options, have been registered, and therefore may be freely sold when
issued;
- There are outstanding warrants to buy 5,826,554 shares of common stock.
The shares issuable upon exercise of 4,631,101 warrants are registered.
These shares may be freely sold when issued. We also intend to file a
registration statement covering an additional 342,857 warrants. The
holders of warrants covering 400,000 shares have incidental registration
rights to have the shares issuable upon the exercise of their warrants
registered. Once registered, those shares may be freely sold when issued,
for so long as the registration statement is effective and current. The
remaining warrants have no registration rights.
- We may issue options to purchase up to an additional 170,499 shares of
common stock under our stock option plans, which also will be fully
saleable when issued.
Sales of substantial amounts of shares into the public market could lower
the market price of our common stock.
13
<PAGE>
RIGHTS OF CERTAIN HOLDERS TO ADDITIONAL STOCK OR REDEMPTION OF SHARES
Holders of 1,857,147 shares of our common stock enjoy the right to receive
additional shares of common stock from the Company without additional payment to
the Company if the Company sells shares of common stock, or engages in similar
financing transactions, at a price of less than $3.49 per share prior to
December 16, 2002, or 33 months have passed since the effective date of the
registration statement relating to this Prospectus. If additional shares of our
common stock are issued under this obligation, the ownership interest of other
existing shareholders will be diluted.
Under certain circumstances, the Company may be required to redeem shares to
be issued to the holders who enjoy this right. Specifically, if the holdings of
the Company's stock by any holder who enjoys this right will exceed their pro
rata share of 20 percent of the Company's outstanding common stock due to the
issuance of new shares, the Company must redeem the new shares to be issued at a
price equal to 110 percent of the price originally paid for these shares. This
redemption obligation could materially adversely affect the business and future
prospects of the Company if it arises.
ABSENCE OF DIVIDENDS
We have never paid dividends on our shares of common stock and do not intend
to pay dividends in the foreseeable future.
YEAR 2000 RISKS
Many currently installed operating systems and software products are coded
only to accept two digit entries in the date code field. Consequently, they are
unable to distinguish 21st century dates from 20th century dates. As a result,
the computer systems and software used by many companies may need to be upgraded
to prevent problems that would result from misreading the entries in the date
code field. Failure to correct systems to become "Year 2000 compliant" may
result in systems failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process data, send
invoices or engage in similar normal business activities.
We are currently reviewing the potential impact of Year 2000 issues on our
business and attempting to mitigate or eliminate those issues. The primary risks
to us are those of business continuity. We are determining which equipment we
own needs to be replaced. We have also begun communicating with our significant
suppliers, financial institutions, insurance companies and other parties that
provide us significant services, including clinical trial sites, to determine
whether they anticipate Year 2000 problems in their operations. If we or our
significant vendors or suppliers are unable to become Year 2000 compliant in
time, this could have a material adverse affect on our ability to continue our
operations.
14
<PAGE>
INFORMATION ABOUT THE COMPANY
FOR A DETAILED DESCRIPTION OF OUR BUSINESS AND INFORMATION ABOUT OUR
MANAGEMENT, SEE OUR ANNUAL REPORT WHICH IS INCORPORATED INTO THIS PROSPECTUS BY
REFERENCE. THE FOLLOWING INFORMATION SUPPLEMENTS OR SUPERSEDES, AS MAY BE
APPROPRIATE, THE INFORMATION CONTAINED IN OUR ANNUAL REPORT:
PRODUCT DEVELOPMENT OVERVIEW
I. CANCER IMMUNOTHERAPY
A. AVICINE THERAPEUTIC CANCER VACCINE
TECHNICAL OVERVIEW
The therapeutic vaccine approach is among the newer strategies being
investigated for treating cancer. Historically, vaccines were developed and used
to induce an immune response in order to prevent a disease. This is contrasted
with a therapeutic vaccine where the disease entity is known or suspected to be
present at the time of vaccination. The rationale employed with a therapeutic
approach is that active immunization against a specific pathogenic agent can
stimulate an immune response against the existing disease.
In order for a therapeutic vaccine to be effective in fighting a disease
such as cancer, it is necessary to identify specific target sites on the tumor
cells, called tumor-associated antigens. The more selective that the antigen is
to the tumor, the greater likelihood of attacking only the cancer cells. The
identification of an appropriate target has been one of the greatest challenges
in the development of a useful cancer vaccine.
AVI BioPharma's therapeutic cancer vaccine, Avicine, is designed to produce
an immune response against a well-characterized target, human chorionic
gonadotropin (hCG). hCG is a hormone produced during pregnancy that plays a
variety of roles in fostering the development of a fetus. Through extensive
research, scientists found that hCG is also present in most cancers. In fact,
cancer is believed to be the only significant exception to the normal hCG
function during pregnancy. Given the selective production of hCG, we believe it
represents a highly specific target for a therapeutic cancer vaccine.
The use of hCG as a cancer vaccine target may offer advantages over other
potential tumor associated antigens.
- It is not usually found on normal cells with the exception of those
present during a pregnancy. This means that it is highly selective.
- It is widely expressed by and found on many types of cancer, including
colon, pancreas, prostate, lung and breast.
- hCG expression has been correlated with tumor aggressiveness. In other
words, the higher the level of hCG, the more aggressive the rate of growth
or spread of the cancer.
- Antibodies to hCG are believed to block the same hormonal functions that
hCG plays in pregnancy and cancer, including rapid cell division, the
formulation of blood vessels, invasion of other tissues, and dampening of
the immune responses.
Since hCG is a natural human protein, people will not mount an immune
response to it unless they are actively immunized. Once immunized, the mechanism
of action of an anti-hCG vaccine can be viewed as a two-pronged attack. First,
it directs an immune response against the tumor, and second, it neutralizes the
hormonal benefits provided by hCG.
The hCG component in Avicine is a small peptide from this hormone. The
peptide is joined to a carrier, diphtheria toxoid, to enhance the immune
response. Diphtheria toxoid was selected since most of the world's population
has been vaccinated against it and there is significant experience with it as a
vaccine
15
<PAGE>
component in man. The combination provides for an existing immune response to
the carrier which is believed to be important in stimulating an immune response
to the hCG peptide.
AVICINE DISTINGUISHING CHARACTERISTICS
- Fully-characterized synthetic vaccine
- Capable of being produced inexpensively in large quantities
- Targets a widely-expressed tumor antigen (hCG)
- Ready for Phase III clinical testing in colorectal patients
- Applicable to most cancer types in multiple clinical settings
- Twenty years of research and development and safety data
AVICINE CLINICAL TRIALS
We have completed three Phase I clinical trials using Avicine in 87 patients
with cancer. Overall, these studies showed Avicine to be safe and essentially
non-toxic. These early clinical trials showed the vaccine to be effective in
stimulating an immune response to hCG in most patients. Moreover, apparent
survival benefits and some tumor regressions were noted.
PANCREATIC AND PROSTATE CANCER TRIALS
We recently completed a pilot Phase II study using Avicine in 10 patients
with advanced pancreatic cancer. For the 10 patients treated, the median
survival was approximately 33 weeks. Patients with advanced pancreatic cancer
are currently treated with chemotherapy and have a median survival of
approximately 18 to 25 weeks. Although we believe these results to be
encouraging, we hesitate to draw conclusions from such a small study other than
to use these results to design additional trials.
Two additional Phase II trials were scheduled for the fourth quarter of
1999. The first Phase II study of 50 patients with pancreatic cancer was
initiated in October 1999. In addition, we plan to initiate a Phase II clinical
trial in 24 patients with prostate cancer before year-end.
COLORECTAL CANCER TRIALS
A multicenter Phase II study of Avicine was conducted on in 77 patients with
advanced colorectal cancer. The objectives of this trial were to determine
whether administration of Avicine would induce an immune response in patients
with metastatic colorectal cancer and to measure safety and efficacy in these
patients. Overall, 51 of the 77 patients responded to our vaccine by producing
antibodies to hCG. The patients that were antibody responders had a median
survival of 42 weeks. Patients that did not respond immunologically had a median
survival of just 17 weeks.
Further analysis of the multicenter Phase II data showed that patients who
produced antibodies to two targets on the hCG peptide had a median survival of
66 weeks. Camptosar-Registered Trademark-, the current standard of care for
treating advanced colorectal cancer patients, produces a median survival of
37-40 weeks. Through additional research efforts, we believe we have learned how
to stimulate production of antibodies to the two hCG targets in most patients.
Overall, these clinical data suggest that the patients that received Avicine
and responded by making hCG antibodies had improved median survival compared to
patients treated with chemotherapeutic drugs. Avicine was found to be safe and
did not exhibit the toxicity associated with cytotoxic drug treatment. Based on
these data, we plan to initiate a Phase III pivotal trial in 500 patients with
metastatic colorectal cancer in 2000. This trial randomizes patients receiving
first-line therapy for metastatic colorectal cancer to
16
<PAGE>
one of two treatment arms: combination chemotherapy or combination chemotherapy
plus Avicine. The end points in the trial are time to disease progression and
median survival.
AVICINE CLINICAL TRIALS
<TABLE>
<CAPTION>
TRIAL DESCRIPTION & TYPE PATIENTS STATUS
- ----- ------------------ ---------- -----------
<C> <S> <C> <C>
1 Phase I safety study........................... 43 treated Completed
2 Phase I metastatic cancer...................... 21 treated Completed
3 Phase Ib metastatic cancer..................... 23 treated Completed
4 Phase II pancreatic and extension.............. 10 treated Completed
5 Phase II colorectal............................ 77 treated Completed
6 Phase II pancreatic............................ 50 In progress
7 Phase II prostate.............................. 24 1999
8 Phase III colorectal licensing trial........... 500 2000
</TABLE>
B. XACTIN--HUMAN MONOCLONAL ANTIBODY FOR CANCER
We are also combating cancer by administering antibodies that have activity
against cancer cells that display the hCG hormone marker. We licensed XenoMouse
technology from Abgenix Inc. and have produced human monoclonal antibodies
against critical hCG tumor antigen targets. These high affinity, stable clones
recognize the key epitopes in our cancer vaccine. The Xactin antibodies are both
companion products to Avicine and independent cancer therapeutics and are now in
pre-clinical development.
II. GENE-TARGETED DRUGS--NEUGENE TECHNOLOGY
TECHNICAL OVERVIEW
Most human diseases arise from the function or dysfunction of genes within
the body, either those of pathogens, such as viruses, or of one's own genes. New
techniques in molecular biology have led to the identification of the genes
associated with most of the major human diseases and to the determination of the
sequence of their genetic codes. Using modern methods of chemical synthesis,
compounds can be prepared that recognize target gene sequences in a pathogen or
pathogenic process. When these compounds bind tightly to the disease-causing
sequence, the genetic process is inhibited, and thus the pathogen or pathogenic
process is disabled. This is called ANTISENSE technology since the SENSE of the
genetic code is blocked.
Limitations of then-existing antisense technology in the late 1980s led us
to pursue a different approach than many of our competitors. This effort
culminated in our development of a class of third-generation agents, known as
NEUGENE compounds. In pre-clinical studies, our patented compounds display
advantageous pharmaceutical properties over second-generation compounds now in
clinical trials by others. Such improvements include stability, specificity,
potency, low toxicity and effectiveness.
NEAR-TERM PRODUCT DEVELOPMENT--CANCER AND RESTENOSIS
The first application of our antisense technology is designed to treat
diseases involving abnormal cell division, such as cancer, certain
cardiovascular and inflammatory diseases, psoriasis, polycystic kidney disease
and chronic graft rejection. The NEUGENE target for these diseases is the gene
component named c-myc. We have finished the pre-clinical development of two
NEUGENE compounds, Resten-NG and Oncomyc-NG, and hope to file an IND and
initiate a Phase I clinical trial in 1999 for restenosis and cancer.
17
<PAGE>
The table below page summarizes our broader development program for NEUGENE:
NEUGENE ANTISENSE DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
ANTISENSE TARGET CLINICAL INDICATION
- ---------------- -------------------------------------------------
<S> <C>
Cancer, restenosis, psoriasis, chronic graft
C-myc.......................... rejection
Telomerase..................... Cancer
BCL2........................... Cancer
TNF alpha...................... Arthritis, septic shock, asthma
NF kappa B..................... Crohn's Disease, chronic inflammation
ICAM-1......................... Arthritis, chronic graft rejection
Hepatitis C virus.............. Hepatitis
</TABLE>
18
<PAGE>
PRIVATE PLACEMENT TO SELLING SHAREHOLDERS
On December 17, 1999, the Selling Shareholders bought 714,290 Shares and
warrants to purchase an additional 217,287 Shares.
The purchase agreement and warrants contain protective provisions for the
Selling Shareholders if we sell any other Shares (with limited exceptions) at a
lower price than what the Selling Shareholders paid. The period during which
this provision is in effect runs until either 36 months from the closing date of
the purchase transaction or 33 months from the effective date of this
registration statement, whichever occurs later.
Under these protective provisions, the Selling Shareholders receive
additional shares and warrants to acquire additional Shares and a reduced strike
price for all Shares acquired with the warrants if we sell Shares for less than
the $3.50 price paid by Selling Shareholders.
The number of additional Shares received by a Selling Shareholder is
calculated by the following steps:
- aggregate purchase price by the Selling Shareholder for all Shares
purchased under the purchase agreement is divided by the new lower per
Share sales price causing the adjustment;
- from this new number of shares is subtracted the number of Shares already
delivered to the Selling Shareholder; and
- the difference is the number of additional Shares we will issue to the
Selling Shareholder.
The purchase agreement also contains the provision that if the Selling
Shareholder owns at least 250,000 of the Shares bought pursuant to the purchase
agreement, it receives the adjustment based on all the Shares it originally
bought. However, if the Selling Shareholder owns less than 250,000 of the
originally purchased Shares, it only receives an adjustment based on the number
of Shares it still owns.
Similarly, the warrants provide for an adjustment, both of the exercise
price and number of Shares subject to the warrants.
The Selling Shareholders received warrants to purchase three Shares for
every seven Shares of stock they purchased. The exercise price of the warrants
was set at 115% of the original per Share purchase price. That calculates to an
exercise price of $4.025, based on a $3.50 Share price.
If Shares are sold for less than the exercise price (again with certain
exceptions), then
- warrant price is reduced to 115% of the price of the newly sold Shares;
and
- the number of warrants is increased proportionately so that the Selling
Shareholders will still receive warrants for three Shares for every
10 Shares they either purchased or received because of the protective
provision adjustment.
The following chart sets forth an example of how this might work for a
hypothetical Selling Shareholder:
<TABLE>
<S> <C>
Original aggregate Share purchase price..................... $1,050,000
Original number of Shares................................... 300,000
Original per Share price.................................... $ 3.50
Newly sold Share price...................................... $ 3.00
Original aggregate Share purchase price
divided by newly sold Share price
($1,050,000 DIVIDED BY $3.00)
= 350,000 Shares
Original number of Shares minus adjusted number equals new
Shares we will issue...................................... 50,000
</TABLE>
19
<PAGE>
For the options:
<TABLE>
<S> <C>
New Share price times 115% ($3.00 x 1.15) is new strike
price = $3.45
Original number of Shares covered by warrant was three for
ten shares
(3 X
30,000) = 90,000
The after adjustment number of Shares is 350,000 --
three warrant Shares for ten Shares is 3
x 35,000 = 105,000
That is, the Shares subject to the warrant now total 105,000
with a strike price of $3.45
</TABLE>
In addition to the Shares covered by this registration statement, we are
obligated to register any Shares issued pursuant to the adjustment described
above and any Shares issued following exercise of any new options granted
following an adjustment.
However, the purchase agreement and warrants do contain the restriction that
we may not issue any new Shares or warrants if that would cause a Selling
Shareholder to beneficially own more than 9.90% of the total outstanding Shares
of our common stock. The adjustment must be delayed until it can be done without
exceeding the 9.90% limitation.
OUR SELLING SHAREHOLDERS
The following table provides certain information with respect to the Shares
held by each Selling Shareholder as of December 17, 1999. Except as otherwise
noted, all of the Common Shares owned by each Selling Shareholder are registered
for sale pursuant to this Prospectus. The Selling Shareholders, however, are not
under any obligation to sell all of any portion of their Shares, nor are the
Selling Shareholders obligated to sell any of their Shares immediately under
this Prospectus. We will not receive any proceeds from any sales of Shares by
the Selling Shareholders.
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES SHARES OWNED
BENEFICIALLY AFTER OFFERING(1)
OWNED BEFORE SHARES -------------------
SELLING SHAREHOLDER OFFERING(1) OFFERED NUMBER PERCENT
- ------------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C>
Castle Creek Healthcare Partners LLC................ 557,141(2) 557,141 -- --
Michael T. Jackson Trust,
New Technologies Fund............................. 185,718(3) 185,718 -- --
JALAA Equities LP................................... 185,718(4) 185,718 -- --
--------- ------- ------- -----
928,577 928,577 -- --
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options and warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of December 17, 1999, are deemed beneficially
owned and outstanding for computing the percentage of the person holding
such securities, but are no considered outstanding for computing the
percentage of any other person.
(2) Includes 128,571 shares subject to warrants exercisable within 60 days of
December 17, 1999.
(3) Includes 42,858 shares subject to warrants exercisable within 60 days of
December 17, 1999.
(4) Includes 42,858 shares subject to warrants exercisable within 60 days of
December 17, 1999.
20
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may sell the common stock:
- through one or more underwriters or dealers for public offering and sale,
- directly to investors, or
- through agents.
The selling stockholders may distribute the common stock from time to time
in one or more transactions at a fixed price or prices, which may be changed
from time to time:
- at market prices prevailing at the times of sale,
- at prices related to those prevailing market prices, or
- at negotiated prices.
We will not receive any proceeds from the sale of the common stock.
The distribution of the common stock may be effected in one or more of the
following methods:
- ordinary brokers' transactions, which may include long or short sales,
- transactions involving cross or block trades, or otherwise on the Nasdaq
National Market,
- purchases by brokers, dealers or underwriters as principal and resale by
those purchasers for their own accounts pursuant to this prospectus,
- "at the market" to or through market makers or into an existing market for
the common stock,
- in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
- through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise),
- pursuant to Rule 144 under the Securities Act, or
- any combination of the foregoing, or by any other legally available means.
In addition, the selling stockholders or their successors in interest may
enter into hedging transactions with broker-dealers who may engage in short
sales of common stock in the course of hedging the positions they assume with
the selling stockholders. The selling stockholders or their successors in
interest may also enter into option or other transactions with broker-dealers
that require the delivery by those broker-dealers of the common stock, which
common stock may be resold thereafter pursuant to this prospectus. In connection
with any sales, the selling stockholders and any brokers or dealers
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling stockholders and/or purchasers of the shares
offered hereby (and, if it acts as agent for the purchaser of those shares, from
that purchaser). Usual and customary brokerage fees will be paid by the selling
stockholders. Broker-dealers may agree with the selling stockholders to sell a
specified number of shares at a stipulated price per share, and, to the extent
the broker-dealer is unable to do so acting as agent for a selling stockholders,
to purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the selling stockholders. Broker-dealers who acquire
shares as principal may thereafter resell the shares from time to time in
transactions (which may involve cross and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market
21
<PAGE>
prices prevailing at the time of sale or at negotiated prices, and in connection
with the resales may pay to or receive from the purchasers of those shares
commissions computed as described above.
We have advised the selling stockholders that Regulation M promulgated under
the Securities Exchange Act, may apply to their sales in the market, have
furnished the selling stockholders with a copy of this regulation and have
informed the selling stockholders of the need for delivery of copies of this
prospectus. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of those shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal. We have agreed to
indemnify the selling stockholders against certain liabilities, including
liabilities under the Securities Act.
We are required by the Purchase Agreement and Registration Rights Agreement
to register for resale by the selling stockholders and keep registered the
number of shares of common stock they are purchasing or may receive because of a
price adjustment described above under heading "Private Placement to Selling
Shareholders" and 100% of the shares of common stock for which the warrants are
exercisable, including original warrants and warrants received following an
adjustment. We have agreed to and are paying the costs and fees of registering
the common stock. The selling stockholders will pay any brokerage commissions,
discounts or other expenses relating to the sale of the common stock.
Any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
There can be no assurance that the selling stockholders will sell any or all
of the shares of common stock offered by them hereunder.
22
<PAGE>
DESCRIPTION OF CAPITAL SHARES
Our authorized capital consists of 50,000,000 shares of common stock, par
value $0.0001 per share, and 2,000,000 shares of preferred stock, par value
$0.0001 per share.
TRANSFER AGENT
Our transfer agent and registrar is ChaseMellon Shareholder Services, LLC.
COMMON STOCK
We are authorized to issue 50,000,000 shares of common stock. As of
December 17, 1999, 16,235,845 shares of common stock were outstanding and were
held of record by approximately 950 shareholders. Holders of common stock are
entitled to one vote for each share at all meetings of our shareholders. Subject
to preferences of Preferred Stockholders, common stockholders are entitled to
receive ratably dividends declared by our Board. Common Stockholders have no
preemptive, subscription, redemption or conversion rights. If we are liquidated
or dissolved, common stockholders would share equally in our assets remaining
after the payment of all our liabilities and the liquidation preference of any
preferred stockholders.
Holders of 1,857,147 shares of our common stock enjoy the right to receive
additional shares of common stock from the Company without additional payment to
the Company if the Company sells shares of common stock, or engages in similar
financing transactions, at a price of less than $3.49 per share prior to
December 16, 2002, or 33 months have passed since the effective date of the
registration statement relating to this Prospectus. Under certain circumstances,
the Company may be required to redeem shares to be issued to the holders who
enjoy this right. Specifically, if the holdings of the Company's stock by any
holder who enjoys this right will exceed their pro rata share of 20 percent of
the Company's outstanding common stock due to the issuance of new shares, the
Company must redeem the new shares to be issued at a price equal to 110 percent
of the price originally paid for these shares.
PREFERRED STOCK
Our Board of Directors is authorized to issue up to 2,000,000 shares of
undesignated preferred stock. No shares of preferred stock have been issued. Our
Board has the authority to issue preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of the preferred stock,
as well as fix the number of shares, without any further vote or action by the
shareholders. Our Board, without shareholder approval, may issue preferred stock
with voting and conversion rights superior to the voting rights of shares of
common stock. The preferred stock may also decrease the amount of earnings and
assets distributed to Common Stockholders. Issuance of preferred stock may delay
or prevent a change in control.
WARRANTS
IPO REPRESENTATIVES' WARRANTS. We issued Representatives' Warrants to the
underwriters of our initial public offering to purchase 400,000 shares of our
common stock. The Representatives' Warrants entitle the holder to acquire up to
200,000 units, each unit consisting of a share of common stock and a Warrant to
purchase a share of common stock for $10.80 per unit and are exercisable until
June 3, 2002. The warrant initially entitles the holder to purchase one share of
common stock at a price of $13.50.
NASDAQ WARRANTS. We have outstanding warrants to purchase 2,300,000 shares
of common stock that were issued in our initial public offering and are traded
on the Nasdaq National Market under the symbol AVIIW. These warrants are
exercisable until June 3, 2002. We may redeem them at a price of $0.25 per
warrant if the closing bid price of our common stock has been at least 200% of
the warrant exercise price for twenty (20) consecutive trading days. The initial
exercise price of these warrants is $13.50.
23
<PAGE>
ITC MERGER WARRANTS. We have outstanding warrants to purchase 2,116,814
shares of the common stock that were issued in connection with our acquisition
of ImmunoTherapy Corporation. These warrants are exercisable after
September 15, 2000 and until May 15, 2003 at a price of $13.50. We may redeem
them at a price of $0.25 per warrant if the closing bid price of our common
stock has been at least 200% of the exercise price for twenty (20) consecutive
trading days and the warrants have been exercisable. These warrants will be
traded under the symbol AVIIZ.
OFFERING WARRANTS. We have issued certain investors 557,144 Warrants. Such
Warrants are exercisable until December 19, 2004 at a price of $4.025 per share
of Common Stock.
OTHER WARRANTS. We have also issued warrants to purchase 81,967 shares of
common stock. These warrants are currently exercisable and do not have a
termination date.
AGENT WARRANTS. We have issued to a Placement Agent 71,429 Warrants. Such
Agent Warrants have a term of five years and are exercisable at a price of $4.20
per share.
STOCK OPTIONS
A total of 2,200,000 shares of our common stock are reserved for issuance
under our 1992 Stock Incentive Plan. As of December 13, 1999, we had outstanding
26,941 options to purchase shares under the 1992 Stock Incentive Plan.
In 1998, we assumed the obligations under the 1997 Stock Option Plan of
ImmunoTherapy Corporation. After the acquisition of ImmunoTherapy Corporation
and as of December 13, 1999, 217,336 options to purchase shares of our common
stock were outstanding under the 1997 plan.
OREGON CONTROL SHARES AND BUSINESS COMBINATION STATUTES
We are subject to the Oregon Control Share Act (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20.0%, 33.3% or 50.0% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares it acquires in the Control Share Acquisition ("control shares") unless
voting rights are accorded to the control shares by (i) a majority of each
voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the control shares held by the Acquiring
Person and shares held by our officers and inside directors. The term "Acquiring
Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to us a statement
setting forth certain information about the Acquiring Person and its plans with
respect to us. The statement may also request that we call a special meeting of
shareholders to determine whether voting rights will be accorded to the control
shares. If the Acquiring Person does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual meeting or special meeting of shareholders. If the Acquiring
Person's control shares are accorded voting rights and represent a majority or
more of all voting power, shareholders who do not vote in favor of voting rights
for the control shares will have the right to receive the appraised "fair value"
of their shares which may not be less than the highest price per share by the
Acquiring Person for the control shares.
We are subject to certain provisions of the Oregon Business Corporation Act
that govern business combinations between corporations and interested
shareholders (the "Business Combination Act"). The Business Combination Act
generally provides that if a person or entity acquires 15% or more of the voting
stock of an Oregon corporation (an "Interested Shareholder"), the corporation
and the Interest Shareholder, or any affiliated entity of the Interested
Shareholder, may not engage in certain business combination transactions for
three years following the date the person became an Interested Shareholder.
24
<PAGE>
Business combination transactions for this purpose include (a) a merger or plan
of share exchange, (b) any sale, lease, mortgage or other disposition of 10% or
more of the assets of the corporation, and (c) certain transactions that result
in the issuance of capital stock of the corporation to the Interested
Shareholder. These restrictions do not apply if (i) the Interested Shareholder,
as a result of the transaction in which such person became an Interested
Shareholder, owns at least 85% of the outstanding voting stock of the
corporation (disregarding shares owned by directors who are officers and certain
employee benefit plans), (ii) the Board of Directors approves the share
acquisition or business combination before the Interested Shareholder acquires
15% or more of the corporation's outstanding voting stock or (iii) the Board of
Directors and the holders of at least two-thirds of the outstanding voting stock
of the corporation (disregarding shares owned by the Interested Shareholder)
approve the transaction after the Interested Shareholder acquires 15% or more of
the corporation's voting stock. See "RISK FACTORS--Anti-Takeover Effects of
Certain Charter Provisions and Oregon Law."
LEGAL MATTERS
Ater Wynne LLP, 222 S.W. Columbia, Suite 1800, Portland, Oregon 97201, our
attorneys, have opined that the Common Shares are duly and validly issued, fully
paid and nonassessable.
EXPERTS
The audited financial statements in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 1,310
Nasdaq Listing Fee.......................................... 17,500
Accountant's Fees and Expenses.............................. 5,000
Legal Fees and Expense...................................... 5,000
Miscellaneous............................................... --
-------
Total....................................................... 28,810
=======
</TABLE>
- ------------------------
* Represents expenses related to the distribution by the Selling Shareholders
pursuant to the Prospectus prepared in accordance with the requirements of
Form S-3. These expenses will be borne by the Company on behalf of the
Selling Shareholders. All amounts are estimates except for the SEC
Registration Fee and the Nasdaq listing fees.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide for indemnification of the
officers and directors of the Company to the fullest extent permitted by law.
The Oregon Business Corporation Act, permits a corporation to limit, under
certain circumstances, a director's liability for monetary damages in actions
brought by the corporation or its stockholders. As an Oregon corporation, the
Company is subject to the OBCA and the exculpation from liability and
indemnification provision contained therein. Pursuant to
Section 60.047(2)(d) of the OBCA, Article II of the Company's Fifth Restated
Articles of Incorporation (the "Articles") eliminates the liability of the
Company's directors to the Company or its stockholders for monetary damages,
except for any liability related to breach of the duty of loyalty, actions not
in good faith and certain other liabilities.
Section 60.387, ET SEQ., of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had not reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnity against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breached of the duty of loyalty. The OBCA mandates indemnification against all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claims was by or in the right of the corporation.
Finally, a court may order indemnification if it determines that the director or
officer is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances whether or not the director or officer met the good faith
and reasonable belief standards or conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, voce of
stockholders or otherwise.
The Company's Articles also provide for the elimination of liability of
directors for monetary damages to the full extent permitted by the Oregon
Business Corporations Act.
The Company has entered into indemnification agreements with its directors
and certain of its officers.
26
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER EXHIBITS
- ------ --------
<C> <S>
4.1 Purchase Agreement, dated December 15, 1999, by and between
AVI BioPharma, Inc. and certain Investors
4.2 Registration Rights Agreement, dated December 15, 1999, by
and between AVI BioPharma, Inc. and certain Investors
4.3 Form of Common Stock Purchase Warrant
5.1 Opinion of Ater Wynne LLP
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Ater Wynne LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-3)
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
changes to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities shall be deemed to be in the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification is against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Beaverton,
State of Oregon, on December 17, 1999.
<TABLE>
<S> <C> <C>
AVI BIOPHARMA, INC.
By: /s/ DENIS R. BURGER
-----------------------------------------
Denis R. Burger, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Denis R. Burger and Alan P. Timmins, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendment to this Registration Statement
on Form S-3 and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ DENIS R. BURGER, PH.D. Officer and Chairman of
------------------------------------------- the Board (Principal December 17, 1999
Denis R. Burger, Ph.D. Executive Officer)
Chief Operating Officer,
/s/ ALAN P. TIMMINS Chief Financial Officer
------------------------------------------- and Director (Principal December 17, 1999
Alan P. Timmins Financial and Accounting
Officer)
Senior Vice President of
/s/ DWIGHT D. WELLER, PH.D. Chemistry and
------------------------------------------- Manufacturing And December 17, 1999
Dwight D. Weller, Ph.D. Development and Director
/s/ PATRICK L. IVERSON, PH.D. Senior Vice President of
------------------------------------------- Research and Development December 17, 1999
Patrick L. Iverson, Ph.D. and Director
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY L. LILLARD
------------------------------------------- Vice President and Director December 17, 1999
Jeffrey L. Lillard
/s/ BRUCE L. A. CARTER, PH.D.
------------------------------------------- Director December 17, 1999
Bruce L. A. Carter, Ph.D.
/s/ NICK BUNICK
------------------------------------------- Director December 17, 1999
Nick Bunick
/s/ JOSEPH RUBINFELD
------------------------------------------- Director December 17, 1999
Joseph Rubinfeld
</TABLE>
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER
- ------
<C> <S>
4.1 Purchase Agreement, dated December 15, 1999, by and between
AVI BioPharma, Inc. and certain Investors
4.2 Registration Rights Agreement, dated December 15, 1999, by
and between AVI BioPharma, Inc. and certain Investors
4.3 Form of Common Stock Purchase Warrant
5.1 Opinion of Ater Wynne LLP
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Ater Wynne LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-3)
</TABLE>
30
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Purchase Agreement") is made as of the
15th day of December, 1999 by and between AVI BioPharma, Inc., a corporation
organized under the laws of Oregon, with headquarters located at Portland,
Oregon (the "Company"), and the persons identified on the signature pages
hereto (each an "Investor" and collectively, the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering
this Purchase Agreement in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D ("Regulation D"), as
promulgated by the U.S. Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended;
B. The Investors wish to purchase, and the Company wishes to
sell and issue to the Investors, upon the terms and conditions stated in this
Purchase Agreement, up to 2.0 million shares of the Company's Common Stock,
par value $.0001 per share (the "Common Stock") and up to 600,000 warrants to
acquire shares of Common Stock in the form attached hereto as EXHIBIT A (the
"Warrants"); and
C. Contemporaneous with the execution and delivery of this
Purchase Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as EXHIBIT B (the
"Registration Rights Agreement"), pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and applicable
state securities laws;
In consideration of the mutual promises made herein and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Purchase Agreement, the
following terms shall have the meanings here set forth:
1.1 "AFFILIATE" means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person.
1.2 "AGREEMENTS" means this Purchase Agreement, the Registration
Rights Agreement, the Warrant Agreement and the Escrow Agreement.
1
<PAGE>
1.3 "CLOSING" means the consummation of the transactions
contemplated by this Agreement, and "CLOSING DATE" means the date of such
Closing.
1.4 "CONTROL" means the possession , direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
1.5 "MATERIAL ADVERSE EFFECT" means a material adverse effect on
the (i) condition (financial or otherwise), business, assets, or results of
operations of the Company and its subsidiaries, taken as a whole; (ii)
ability of the Company to perform any of its material obligations under the
Agreements; or (iii) rights and remedies of the Investor under the Agreements.
1.6 "PERSON" means an individual, corporation, partnership,
trust, business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.7 "SEC FILINGS" has the meaning set forth in Section 4.6.
1.8 "SECURITIES" means the Shares, the Warrants and the Warrant
Shares (defined below).
1.9 "SHARES" means the shares of Common Stock being purchased by
the Investor hereunder.
1.10 "WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of or otherwise pursuant to the Warrants.
1.11 "1933 ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
1.12 "1934 ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2. PURCHASE AND SALE OF THE SHARES AND WARRANTS. Subject to the terms
and conditions of this Purchase Agreement, each Investor severally hereby
agrees to purchase and the Company hereby agrees to sell and issue to such
Investor, the number of Shares and Warrants to purchase the number of shares
of Common Stock set forth on such Investor's Counterpart Execution Page
attached hereto. The number of Shares to be purchased by such Investor shall
be determined by dividing such Investor's aggregate purchase price (as the
aggregate purchase price is set forth on such Investor's signature page
attached hereto), by $3.50 per share. The number of shares of Common Stock
purchasable by the Investor pursuant to the Warrants shall be equal to 30% of
the number of Shares purchased by the Investor, with an initial exercise
price equal to $4.025.
2
<PAGE>
3. CLOSING AND DELIVERY.
3.1 ESCROW OF PURCHASE PRICE. Each Investor understands
and agrees that upon the execution and delivery hereof, the Investor shall
deposit the purchase price for the Securities subscribed for, in immediately
available funds, with the Escrow Agent under that certain Escrow Agreement
dated December 15, 1999, by and among the Company, Cruttenden Roth
Incorporated and City National Bank, a form of which is attached hereto as
EXHIBIT C (the "Escrow Agreement"). The Company will use its best efforts to
satisfy all of the conditions to the Closing (as defined herein) within five
(5) business days of the receipt of funds by the Escrow Agent. If the Closing
does not occur within five (5) business days of the receipt of funds into
escrow, the Investors shall have the right to request the return of their
deposits together with any interest income generated thereon and this
Purchase Agreement will be terminated and have no force or effect after such
date except to the Company's obligation to return to each Investor the
purchase price together with interest thereon. In addition, Investors will be
entitled to receive, on a pro-rata basis based on the number of days held by
the Escrow Agent, interest income generated on their cash balances held by
the Escrow Agent prior to the Closing. It will be the responsibility of
Cruttenden Roth Incorporated to calculate the "pro rata" amounts of interest
income due each Investor and the responsibility of the Company to return the
interest income to each Investor within five (5) business days of the Closing.
3.2 CLOSING. The escrow account described in Exhibit C to this
Purchase Agreement will remain open until five o'clock P.M. on December 31,
1999, unless extended by the Company to a date no later than January 31,
2000, or unless the offering is closed. The closing of the purchase and sale
of Securities pursuant to this Purchase Agreement (the "Closing") shall be
held as soon as practicable after the satisfaction or waiver of all
conditions to Closing, including the filing of the Registration Statement (as
defined herein) with the Securities and Exchange Commission (the "SEC"), at
10:00 a.m. (Pacific Time) at the offices of the Company, located at One S.W.
Columbia Street, Suite 1105, Portland, Oregon 97258, or on such other date
and place as may be agreed to by the Company and the Investors. Prior to the
Closing, each Investor shall execute any related agreements or other
documents required to be executed hereunder.
3.3 DELIVERY OF SHARES AT THE CLOSING. Proximate to the Closing,
the Company shall deliver to each Investor stock certificate(s) and Warrant
Agreement(s) registered in the name of such Investor, or in such nominee
name(s) as designated by such Investor, representing the Shares and Warrants
to be purchased by such Investor at the Closing as set forth on each
Counterpart Execution Page hereto, against payment of the Purchase Price.
The name(s) in which the stock certificate(s) and Warrant Agreement(s) are to
be issued to each Investor are set forth in the Investor's Counterpart
Execution Page hereto, as completed by each Investor.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investors that:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of Oregon
3
<PAGE>
and has all requisite power and authority to carry on its business and own
its properties as now conducted and owned. The Company is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or licensing necessary unless
the failure to so qualify or be licensed would not have a Material Adverse
Effect. SCHEDULE 4.1 lists all subsidiaries of the Company. Except when the
context otherwise requires, representations and warranties in this Section 4
by the Company shall be deemed to include representations and warranties as
to its subsidiaries as well.
4.2 AUTHORIZATION. The Company has full power and authority and
has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Agreements, (ii) the performance of all obligations of the
Company hereunder or thereunder, and (iii) the authorization, issuance (or
reservation for issuance) and delivery of the Securities. The Agreements
constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally.
4.3 CAPITALIZATION. Set forth on SCHEDULE 4.3 hereto is (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the
number of shares of capital stock issuable and reserved for issuance pursuant
to securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock. All of the
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. Except as set forth on SCHEDULE 4.3, no Person is
entitled to preemptive or similar statutory or contractual rights with
respect to any securities of the Company, including the Shares, the Warrants
and the Warrant Shares. Except as set forth on SCHEDULE 4.3, there are no
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company is or may
be obligated to issue any equity securities of any kind, or to transfer any
equity securities of any kind, and except as contemplated by this Agreement,
the Company does not have any present plan or intention to issue any equity
securities of any kind, or to transfer any equity securities of any kind
owned by it. Except as set forth on SCHEDULE 4.3, the Company does not know
of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities held by them.
Except as set forth on SCHEDULE 4.3, the Company has not granted any Person
the right to require the Company to register any securities of the Company
under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the
account of any other Person.
4.4 VALID ISSUANCE. The Company has reserved a sufficient number
of shares of Common Stock for issuance pursuant to this Agreement and upon
exercise of the Warrants. The Company will take such steps as may be necessary
to reserve sufficient shares for issuance pursuant to Section 7 below when such
issuance is determinable. The Shares and Warrants are duly authorized, and such
Securities, along with the Warrant Shares when issued in accordance
4
<PAGE>
herewith and with the terms of the Warrants, will be duly authorized, validly
issued, fully paid, non-assessable and free and clear of all encumbrances and
restrictions, except for restrictions on transfer imposed by applicable
securities laws.
4.5 CONSENTS. The execution, delivery and performance by the
Company of the Agreements and the offer, issuance and sale of the Securities
require no consent of, action by or in respect of, or filing with, any
Person, governmental body, agency, or official other than (i) filings that
have been made pursuant to applicable state securities laws and the
requirements of the Nasdaq Stock Market and (ii) post-sale filings pursuant
to applicable state and federal securities laws and the requirements of the
Nasdaq Stock Market which the Company undertakes to file within the
applicable time periods.
4.6 DELIVERY OF SEC FILINGS; BUSINESS. The Company has provided
each Investor with copies of the Company's most recent Annual Report on Form
10K for the fiscal year ended December 31, 1998, and all other reports filed
by the Company pursuant to the 1934 Act since the filing of the Annual Report
on Form 10K (collectively, the "SEC Filings"). In addition, the Company has
not distributed any other offering materials in connection with the Offering
other than the Private Placement Memorandum dated November 19, 1999 (the
"Memorandum"). The Company has filed in a timely manner all documents that
the Company was required to file with the SEC under Sections 13, 14(a) and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), during the twelve months preceding the date of this Purchase
Agreement. The Company is engaged only in the business described in the SEC
Filings and the SEC Filings contain a complete and accurate description of
the business of the Company. The Company has not provided to any Investor
(i) any information required to be filed under the 1934 Act that has not been
so filed or (ii) any non-public information.
4.7 USE OF PROCEEDS. The proceeds of the sale of the Securities
hereunder shall be used by the Company for working capital and general
corporate purposes.
4.8 NO MATERIAL ADVERSE CHANGE. Since the filing of the
Company's most recent Annual Report on Form 10K or as otherwise identified
and described in subsequent reports filed by the Company pursuant to the 1934
Act, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected
in the financial statements included in the Company's most recent Report on
Form 10Q, other than continuing operating losses that have not exceeded $2.3
million from the most recent financial statements reported in such Form 10Q
and except for changes in the ordinary course of business which have not had,
in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of
the Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company or any of
its subsidiaries;
5
<PAGE>
(iv) any waiver by the Company of a valuable right or of a
material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
taken as a whole (as such business is presently conducted and as it is
proposed to be conducted);
(vi) any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or
properties is bound or subject;
(vii) any labor difficulties or labor union organizing
activities with respect to employees of the Company;
(viii) any transaction entered into by the Company other than
in the ordinary course of business; or
(ix) any other event or condition of any character that
might have a Material Adverse Effect.
4.9 SEC FILINGS; MATERIAL CONTRACTS.
(a) As of its filing date, each report filed by the
Company with the SEC pursuant to the 1934 Act, complied as to form in all
material respects with the requirements of the 1934 Act and did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment thereto
filed by the Company pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did 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; and each prospectus filed pursuant to Rule 424(b) under the 1933
Act, as of its issue date and as of the closing of any sale of securities
pursuant thereto did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading.
(c) Except as set forth on SCHEDULE 4.3 hereto, there are
no agreements or instruments currently in force and effect that constitute a
warrant, option, convertible security or other right, agreement or
arrangement of any character under which the Company is or may be obligated
to issue any material amounts of any equity security of any kind, or to
transfer any material amounts of any equity security of any kind.
4.10 FORM S-3 ELIGIBILITY.
6
<PAGE>
The Company is currently eligible to register the resale of its
Common Stock on a registration statement on Form S-3 under the 1933 Act.
4.11 NO CONFLICT, BREACH, VIOLATION OR DEFAULT. (a) The
execution, delivery and performance of the Agreements by the Company and the
issuance and sale of the Securities will not conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under (i) the Company's Certificate of Incorporation ("Articles") or
Bylaws, each as in effect on the date hereof, or (ii) except where it would
not have a Material Adverse Effect, (a) any statute, rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any of its properties, or (b) any
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company are subject.
(b) Except as set forth on SCHEDULE 4.11 hereto, or where
it would not have a Material Adverse Effect, the Company (i) is not in
violation of any statute, rule or regulation applicable to the Company or its
assets, (ii) is not in violation of any judgment, order or decree applicable
to the Company or its assets; and (iii) is not in breach or violation of any
agreement, note or instrument to which it or its assets are a party or are
bound. The Company has not received notice from any Person of any claim or
investigation that, if adversely determined, would render the preceding
sentence untrue or incomplete.
4.12 TAX MATTERS. The Company has correctly and timely prepared
and filed or timely obtained extensions for, all tax returns required to have
been filed by it with all appropriate governmental agencies and timely paid
all taxes owed by it. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments of the
Company nor, to the knowledge of the Company, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits
by any federal, state or local taxing authority except such as which are not
material. All material taxes and other assessments and levies that the
Company is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third
party. There are no tax liens or claims pending or threatened against the
Company or any of its assets or property. There are no outstanding tax
sharing agreements or other such arrangements between the Company and any
other corporation or entity.
4.13 TITLE TO PROPERTIES. Except as disclosed in the SEC Filings,
the Company has good and marketable title to all real properties and all
other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company
holds any leased real or personal property under valid and enforceable leases
with no exceptions that would materially interfere with the use made or
currently planned to be made thereof by them.
4.14 CERTIFICATES, AUTHORITIES AND PERMITS. The Company possesses
adequate certificates, authorizations or permits issued by appropriate
governmental agencies or bodies necessary to conduct its business as presently
operated and has not received any written notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
7
<PAGE>
that, if determined adversely to the Company, would individually or in the
aggregate have a Material Adverse Effect.
4.15 NO LABOR DISPUTES. No labor dispute with the employees of
the Company or any subsidiary exists or, to the knowledge of the Company, is
imminent.
4.16 INTELLECTUAL PROPERTY. The Company owns or possesses
adequate trademarks and trade names and have all other rights to inventions,
know-how, patents, copyrights, trademarks, trade names, confidential
information and other intellectual property (collectively, "Intellectual
Property Rights"), free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims, necessary to conduct the
business now operated by it, or presently employed by it, and presently
contemplated to be operated by it, and has not received any notice of
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property Rights. SCHEDULE 4.16 sets forth a list by serial
number and title of the patents and/or patent applications owned or possessed
by the Company. No proprietary technology of any Person was used in the
design or development by the Company of (or otherwise with respect to) any of
the Intellectual Property Rights, which technology was not properly acquired
by the Company from such Person.
4.17 ENVIRONMENTAL MATTERS. The Company is not in violation of
any statute, rule, regulation, decision or order of any governmental agency
or body or any court, U.S. or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "Environmental Laws"), does not own or operate any
real property contaminated with any substance that is subject to any
Environmental Laws, is not liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is not subject to any claim relating
to any Environmental Laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation that might lead to such
a claim.
4.18 LITIGATION. Except as disclosed in the SEC Filings, there
are no pending actions, suits or proceedings against or affecting the
Company, or any of its properties that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect or would materially and adversely affect the ability of the Company to
perform its obligations under the Agreements, or which are otherwise material
in the context of the sale of the Securities; and to the Company's knowledge,
no such actions, suits or proceedings are threatened or contemplated.
4.19 FINANCIAL STATEMENTS. The financial statements included in
each SEC Filing present fairly and accurately the consolidated financial
position of the Company as of the dates shown and its results of operations
and cash flows for the periods shown, and such financial statements have been
prepared in conformity with generally accepted accounting principles applied
on a consistent basis. Except as set forth on SCHEDULE 4.19 or in the
financial statements of the Company included in the SEC Filings filed prior
to the date hereof, the Company has no liabilities, contingent or otherwise,
except those which individually or in the aggregate are not material to the
financial condition or operating results of the Company.
8
<PAGE>
4.20 INSURANCE COVERAGE. The Company maintains in full force and
effect insurance coverage that is customary for comparably situated companies
for the business being conducted, and properties owned or leased, by the
Company, and the Company reasonably believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is
customary for comparably situated companies to insure.
4.21 COMPLIANCE WITH NASDAQ CONTINUED LISTING REQUIREMENTS. The
Company is in compliance with all applicable Nasdaq continued listing
requirements for the Nasdaq Stock Market and is listed in good standing on
the Nasdaq Stock Market. There are no proceedings pending or, to the
Company's knowledge, threatened against the Company relating to the continued
listing of the Company's Common Stock on the Nasdaq Stock Market and the
Company has not received any notice of, nor to the knowledge of the Company
is there any basis for, the delisting of the Common Stock from the Nasdaq
Stock Market.
4.22 ACKNOWLEDGEMENT OF DILUTION. The number of shares of Common
Stock issuable pursuant to this Agreement may increase significantly. The
Company's executive officers and directors have studied and fully understand
the nature of the transactions being contemplated hereunder and recognize
that they have a potential dilutive effect.
4.23 BROKERS AND FINDERS. The Investors shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this Agreement or the transactions
contemplated by this Agreement by virtue of any agreement made by the Company
to a third party, and except as set forth in Section 11.5 below.
4.24 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION. Neither
the Company nor, to its knowledge, any Person acting on its behalf has
conducted any general solicitation or general advertising (as those terms are
used in Regulation D) in connection with the offer or sale of any of the
Securities.
4.25 NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would adversely affect reliance
by the Company on Section 4(2) for the exemption from registration for the
transactions contemplated hereby or would require registration of the
Securities under the 1933 Act; or would require the integration of this
offering with any other offering of securities for purposes of determining
the need to obtain shareholder approval of the transactions contemplated
hereby under the rules of the Nasdaq Stock Market.
4.26 DISCLOSURES. No representation or warranty made under any
Section hereof and no information furnished by the Company pursuant hereto,
or in any other document, certificate or statement furnished by the Company
to the Investors or any authorized representative of any of the Investors,
pursuant to the Agreements or in connection therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the respective statements contained herein or therein, in light of the
circumstances under which the statements were made, not misleading.
9
<PAGE>
4.27 CORPORATE PARTNER FINANCING. In the fourth quarter of
calendar year 1999, the Company closed a transaction with a strategic
investor which included the purchase by such investor of 1.0 million shares
of Common Stock at $5.00 per share. The Company has received the full $5.0
million investment, and the 1.0 million shares have been issued and are
outstanding.
4.28 NO DEFAULTS. Neither the Company nor any of its subsidiaries
is (a) in violation of its certificate of Incorporation or bylaws or (b) in
default (upon notice or lapse of time or both) in the performance or
observance of any obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness, or in any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which it is a party or by which its
properties may be bound, or (c) in violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
the Company, any of its subsidiaries or their properties except in the case
of (b) or (c) for any default or violation not reasonably likely to have a
Material Adverse Effect.
4.29 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement ("Consents") except for (a) such
Consents which are not material, (b) compliance with the securities and Blue
Sky laws in the states and other jurisdictions in which Securities are
offered and/or sold, which compliance will be effected in accordance with
such laws, (c) Consents required by the NMS and the SEC, and (d) the filing
of the Registration Statement with the SEC. The Company has not been
advised, and has no reason to believe, that either it or any of its
subsidiaries is not conducting business in compliance in all material
respects with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including but not limited to, all
applicable federal, Canadian, state, provincial and local environmental laws
and regulations, except for any failure to comply which is not reasonably
likely to have a Material Adverse Effect.
4.30 INVESTMENT COMPANY ACT. The Company has been advised
concerning the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations thereunder, and is not, and intends in the
future to conduct its and its subsidiaries' affairs in such a manner as to
ensure that it is not and will not become, an "investment company" within the
meaning of the 1940 Act and such rules and regulations.
4.31 NO ILLEGAL CONTRIBUTIONS. Neither the Company nor any of its
subsidiaries has at any time during the last five (5) years (i) made any
unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
4.32 NO MANIPULATION. Neither the Company nor any of its
subsidiaries has taken, and neither the Company nor any of its subsidiaries
will take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of Shares.
10
<PAGE>
4.33 TRANSACTIONS WITH AFFILIATES. There are no outstanding
loans, advances (except normal advances for business expenses in the ordinary
course of business) or guarantees of indebtedness by the Company or any of
its subsidiaries to or for the benefit of any of the officers or directors of
the Company or any of its subsidiaries or any shareholder who owns
beneficially more than five percent (5%) of the Common Stock of the Company
or any of the members of the families of any of them, except as disclosed in
the Memorandum or except as disclosed on Schedule 4.19. No relationship,
direct or indirect, exists between or among the Company or any of its
subsidiaries on the one hand and the directors, officers, shareholders,
customers or suppliers of the Company or any of its subsidiaries on the other
hand, that is required by the Securities Act or the Exchange Act or the Rules
and Regulations promulgated thereunder to be described in the Registration
Statement or documents incorporated by reference therein (as of the date
hereof) that is not described in the Memorandum.
4.34 REGULATORY MATTERS.
(a) The Company is not aware of any rule making or similar
proceedings before the United States Food and Drug Administration ("FDA") or
comparable federal, state, local or foreign government bodies which involve
or affect the Company or any of its subsidiaries which, if the subject of an
action unfavorable to the Company or any of its subsidiaries, would have a
Material Adverse Effect.
(b) The descriptions of the results of tests or
evaluations contained in the Memorandum are accurate and complete in all
material respects, and the Company has no knowledge of any other tests or
evaluations, the results of which reasonably call into question the results
described or referred to in the Memorandum. Except as set forth in Schedule
4.34, neither the Company nor any of its subsidiaries has received any
notices or correspondence from the FDA or any other governmental agency
requiring the termination, suspension or modification of any tests or
evaluations conducted on behalf of the Company or any of its subsidiaries
that are described in the Memorandum or the results of which are referred to
in the Memorandum.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Each Investor
hereby severally represents and warrants to the Company as to itself that:
5.1 ORGANIZATION AND EXISTENCE. The Investor is a validly
existing company and has all requisite corporate or limited liability company
power and authority to invest in the Securities pursuant to this Purchase
Agreement.
5.2 AUTHORIZATION. The execution, delivery and performance by
the Investor of the Agreements have been duly authorized and the Agreements
will each constitute the valid and legally binding obligation of the
Investor, enforceable against the Investor in accordance with their terms.
5.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be
received by the Investor hereunder will be acquired for the Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of securities laws, and the
Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same in violation of securities laws.
11
<PAGE>
5.4 INVESTMENT EXPERIENCE. The Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities
and has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the investment
contemplated hereby.
5.5 DISCLOSURE OF INFORMATION. The Investor has had an
opportunity to receive documents related to the Company and to ask questions
of and receive answers from the Company regarding the Company, its business
and the terms and conditions of the offering of the Securities. Neither such
inquiries nor any other due diligence investigation conducted by the Investor
shall modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Purchase Agreement or made
pursuant to this Purchase Agreement.
5.6 RESTRICTED SECURITIES. The Investor understands that the
Securities are characterized as "restricted securities" under the U.S.
federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration
under the 1933 Act only in certain limited circumstances.
5.7 LEGENDS. It is understood that, until registration for
resale pursuant to the Registration Rights Agreement or until sales under
Rule 144 are permitted, certificates evidencing the Securities will bear one
or all of the following legends or legends substantially similar thereto:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH
RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT."
Upon registration for resale pursuant to the Registration Rights
Agreement, or when sales under Rule 144 are permitted, the Company shall
promptly cause certificates evidencing the Shares previously issued hereunder
to be replaced with certificates which do not bear such restrictive legends.
5.8 ACCREDITED INVESTOR. The Investor is an accredited investor
as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
5.9 NO GENERAL SOLICITATION. The Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
6. REGISTRATION RIGHTS AGREEMENT. The parties acknowledge and agree that
part of the inducement for the Investors to enter into this Purchase Agreement
is the Company's execution and delivery of the Registration Rights Agreement.
The parties acknowledge and
12
<PAGE>
agree that simultaneously with the execution hereof, the Registration Rights
Agreement is being duly executed and delivered by the parties thereto.
7. COVENANTS AND AGREEMENTS OF THE COMPANY.
7.1 SUBSEQUENT SALE AT LOWER PRICE.
(a) REQUIRED ADJUSTMENTS. Subject to the exclusions
contained in Section 7.1(f) below, if during the period ending on the later
of (i) thirty-six (36) months following the Closing Date or (ii) thirty-three
(33) months following the effective date of the Registration Statement
contemplated by the Registration Rights Agreement (the "MFN Period"), the
Company sells any shares of its Common Stock at a per share selling price
("Per Share Selling Price") lower than the Purchase Price per share set forth
in Section 2 hereof, the Purchase Price per share of the Shares originally
sold to an Investor hereunder shall be adjusted downward to equal such lower
Per Share Selling Price and such Investor shall be entitled to receive the
additional shares as provided by Section 7.1(c); provided, however, in the
event the Investor then owns less than 250,000 Shares, such Investor shall be
entitled to additional shares only with respect to the number of Shares
originally acquired and then owned by the Investor as provided in Section
7.1(c). For so long as such Investor owns at least 250,000 Shares originally
acquired by such Investor hereunder, the Investor shall be entitled to the
full benefit of the Purchase Price adjustment required by this Section 7.1.
The Company shall give to each Investor written notice of any such sale
within 24 hours of the closing of any such sale and shall within such 24 hour
period issue a press release announcing such sale.
(b) DEFINITIONS.
(i) For the purposes of this Section 7.1, the term
"Per Share Selling Price" as used in this Section 7.1 shall mean the amount
actually paid by third parties for each share of Common Stock. A sale of
shares of Common Stock shall include the sale or issuance of rights, options,
warrants or convertible securities ("derivative securities") under which the
Company is or may become obligated to issue shares of Common Stock, and in
such circumstances the sale of Common Stock shall be deemed to have occurred
at the time of the issuance of the derivative securities and the Per Share
Selling Price of the Common Stock covered thereby shall also include the
exercise or conversion price thereof (in addition to the consideration per
underlying share of Common Stock received by the Company upon such sale or
issuance of the derivative security, less the fee amount as provided above).
In case of any such security issued within the MFN Period in a "Variable Rate
Transaction" or an "MFN Transaction" (each as defined below), the Per Share
Selling Price shall be deemed to be the lowest conversion or exercise price
at which such securities are converted or exercised or might have been
converted or exercised in the case of a Variable Rate Transaction, or the
lowest adjustment price in the case of an MFN Transaction. If shares are
issued for a consideration other than cash, the per share selling price shall
be the fair value of such consideration as determined in good faith by the
Board of Directors of the Company.
(ii) The term "Variable Rate Transaction" shall mean
a transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares
13
<PAGE>
of Common Stock either (x) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the Common Stock at any time after the initial issuance of
such debt or equity securities, or (y) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock (but excluding standard
stock split anti-dilution provisions), or (b) any securities of the Company
pursuant to an "equity line" structure which provides for the sale, from time
to time, of securities of the Company which are registered for resale
pursuant to the 1933 Act.
(iii) The term "MFN Transaction" shall mean a
transaction in which the Company issues or sells any securities in a capital
raising transaction or series of related transactions (the "New Offering")
which grants to an investor (the "New Investor") the right to receive
additional shares based upon future transactions of the Company on terms more
favorable than those granted to the New Investor in the New Offering.
(iv) The term "MFN Period" shall have the meaning set
forth in Section 7.1(a), above.
(c) ADJUSTMENT MECHANISM. If an adjustment of the
Purchase Price is required pursuant to Section 7.1(a), the Company shall
deliver to the Investor within eight calendar days of the closing of the
transaction giving rise to the adjustment or by such other date as may be
required by Section 7.1(d) ("Delivery Date") the Investor's share of such
number of additional shares of Common Stock equal to (i) the aggregate
Purchase Price paid by the Investor divided by the adjusted Per Share
Purchase Price as required under Section 7.1(a), minus (ii) the total number
of shares of Common Stock previously delivered to the Investor hereunder;
PROVIDED HOWEVER, that the Company shall delay effecting such adjustment, in
whole or in part, to the extent required by Section 7.1(d). In the event the
Company fails to deliver the additional shares by the applicable Delivery
Date, the Company shall be liable to the Investor for a delay payment equal
to 2% of the Purchase Price per month payable in Common Stock or cash, at the
Investor's election. If at the time of any adjustment the proviso of the
first sentence of Section 7.1(a) is applicable, then the number of additional
shares otherwise determined as deliverable under this Section 7.1(c) shall be
adjusted so that it is equal to such number, multiplied by a fraction, the
numerator of which is the number of Shares acquired on the Closing Date and
still owned at the time of the adjustment and the denominator is the total
number of Shares acquired on the Closing Date.
(d) LIMITATION ON NUMBER OF SHARES.
(i) If by way of any adjustment required by this
Section 7.1, the Investor would receive a number of shares of Common Stock
such that the total number of such shares beneficially owned (within the
meaning of Section 13(d) of the 1934 Act) by the Investor as of the date of
such adjustment would be greater than 9.90% of the total outstanding shares
of Common Stock of the Company, then the Company shall not effect the
adjustment required by this Section to the extent necessary to avoid causing
the aforesaid limitation to be exceeded and shall agree to effect such
adjustment at the earliest possible time when such adjustment would not
exceed the aforementioned limitations. This limitation may not be
14
<PAGE>
amended except with the consent of the stockholders of the Company and they
are intended third-party beneficiaries of this provision.
(ii) In no event shall the Company issue to an
Investor additional shares pursuant to an adjustment required by this Section
7.1 such that the total number of shares issued to such Investor (when added
to the Warrant Shares actually received upon exercise of Warrants by such
Investor) would exceed such Investor's "pro rata" share of the Shares
acquired through this Purchase Agreement (the "allocation") (subject to
appropriate adjustment for stock splits or stock dividends). Instead, the
Company shall redeem excess shares at 110% of the Per Share Purchase Price,
as adjusted. At such time as an Investor owns neither any Shares that were
originally acquired pursuant to this Agreement nor any Warrants, it shall
notify the Company, who shall then notify the other Investors. At such time,
to the extent such Investor's allocation has not been exhausted, it shall be
divided pro rata, among the remaining Investors. An Investor's pro rata share
shall be the portion determined by dividing its aggregate Purchase Price by
the total Purchase Price of all Investors holding shares at the time the pro
rata share is being determined. Each Investor's initial allocation is listed
on the signature page for such Investor. Only Shares acquired pursuant to
this Agreement or upon exercise of Warrants will be included in determining
whether the limitations would be exceeded for purposes of this Section
7.1(d)(iii).
(e) 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 Section 7.1
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof.
(f) EXCLUSIONS. Section 7.1(a) shall not apply to (i)
sales of shares of Common Stock by the Company upon conversion or exercise of
any convertible securities, options or warrants outstanding prior to the date
hereof; or (ii) sales of shares of Common Stock by the Company pursuant to
the provisions of any shareholder-approved option or similar plan heretofore
adopted by the Company.
(g) RULE 144. The Company agrees to take the position
that, for purposes of determining the holding period under Rule 144 for
shares of Common Stock issued pursuant to Section 7.1(a), the holding period
of such shares shall be tacked to the holding period of the Shares.
7.2 LIMITATION ON TRANSACTIONS.
(a) From the Closing through the expiration of the MFN
Period contemplated by the Registration Rights Agreement, without the prior
written consent of the Investors (which consent may be withheld in each
Investor's discretion), the Company shall not (i) issue or sell or agree to
issue or sell any securities for cash in a non-public MFN Transaction; (ii)
issue or sell, or agree to issue or sell, any securities for cash in a
non-public Variable Rate Transaction.
(b) From the Closing until three (3) months after the date
of
15
<PAGE>
effectiveness of the Registration Statement contemplated by the Registration
Rights Agreement, without the prior written consent of the Investors (which
consent may be withheld in each Investor's discretion), the Company shall not
issue or sell or agree to issue or sell any shares or securities convertible
into shares of Common Stock at a price per share below the average closing
bid price for the five (5) trading days immediately preceding such issuance
or sale.
(c) Except as contemplated by the Supplement to the
Memorandum dated December 16, 1999, the Company shall not issue any
securities in any transaction that would be integrated with the Securities
issued pursuant to this Agreement.
(d) For a period of one-year following the Closing, the
Company agrees that it will not enter into any agreement for the issuance of
securities pursuant to an "equity line" financing (as described in Section
7.1(b)(ii) above).
7.3 RIGHT OF INVESTOR TO PARTICIPATE IN FUTURE TRANSACTIONS. The
Company agrees that during the MFN Period the Investor will have a right to
participate in future non-public capital raising transactions as set forth in
this Section 7.3. The Company shall give not less than ten business (10)
days advance written notice to each Investor prior to any offer or sale of
any of its equity securities or any securities convertible into or
exchangeable or exercisable for such securities in a non-public capital
raising transaction. Prior to the closing of any such transaction, each
Investor shall have the right to participate in its pro rata share of up to
50% of such new offering (or in the case of a Variable Rate Transaction, up
to 75% of such new offering) and purchase such securities for the same
consideration and on the same terms and conditions as contemplated for such
third-party sale. In order to exercise this right, an Investor must give
written notice to the Company of the Investor's election to participate and
such notice must be given within ten business (10) days following receipt of
the notice from the Company. In the event the Company gives notice to the
Investor of an expected transaction pursuant to this Section 7.3 but cannot
consummate such transaction, the Company will give the Investor prompt
written notice of the cancellation of such transaction. If, subsequent to
the Company giving notice to the Investor hereunder, the terms and conditions
of the proposed third-party sale are changed in any way, the Company shall be
required to provide a new notice to the Investor hereunder and the Investor
shall have the right to participate in the offering on such changed terms and
conditions as provided hereunder.
7.4 RESERVATION OF COMMON STOCK PURSUANT TO SECTION 7.1 AND
EXERCISE OF WARRANTS. The Company hereby agrees, at all times with respect
to shares issuable upon exercise of the Warrants, and at all appropriate
times with respect to shares issuable pursuant to Section 7.1, to reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the additional issuance(s) of Common
Stock pursuant to Section 7.1 and exercise of the Warrants, such number of
shares of Common Stock as shall from time to time equal the number of shares
sufficient to permit the issuance, if any, required pursuant to Section 7.1
plus the number of shares of Common Stock as shall be necessary to permit the
exercise of the Warrants in accordance with the terms of the Warrants.
7.5 REPORTS. Within one week of filing the following reports
with the SEC, or in the absence of such filing within the time periods
specified below, the Company shall send a copy of the following reports to
each Investor by regular mail:
16
<PAGE>
(a) QUARTERLY REPORTS. As soon as available the Company's
quarter-annual report on Form 10-Q or, in the absence of such report,
consolidated balance sheets of the Company and its subsidiaries as at the end
of such period and the related consolidated statements of operations,
stockholders' equity and cash flows for such period and for the portion of
the Company's fiscal year ended on the last day of such quarter, all in
reasonable detail and certified by a principal financial officer of the
Company to have been prepared in accordance with generally accepted
accounting principles, subject to year-end and audit adjustments.
(b) ANNUAL REPORTS. As soon as available after the end of
each fiscal year of the Company, the Company's Form 10K or, in the absence of
a Form 10K, consolidated balance sheets of the Company and its subsidiaries
as at the end of such year and the related consolidated statements of
earnings, stockholders' equity and cash flows for such year, all in
reasonable detail and accompanied by the report on such consolidated
financial statements of an independent certified public accountant selected
by the Company and reasonably satisfactory to the Investor.
(c) SECURITIES FILINGS. As promptly as practicable and in
any event within one week after the same are issued or filed, copies of (i)
all notices, proxy statements, financial statements, reports and documents as
the Company or any subsidiary shall send or make available generally to its
stockholders or to financial analysts, and (ii) all periodic and special
reports, documents and registration statements which the Company or any
subsidiary furnishes or files, or any officer or director of the Company or
any of its subsidiaries (in such person's capacity as such) furnishes or
files with the SEC.
(d) OTHER INFORMATION. Such other information relating to
the Company or its subsidiaries as from time to time may reasonably be
requested by the Investor provided the Company produces such information in
its ordinary course of business, and further provided that the Company,
solely in its own discretion, determines that such information is not
confidential in nature and disclosure to the Investor would not be harmful to
the Company.
(e) RULE 144. The Company agrees to make publicly
available on a timely basis the information necessary to enable Rule 144 to
be available for resale.
7.6 PRESS RELEASES. Any press release or other publicity
concerning this Purchase Agreement or the transactions contemplated by this
Purchase Agreement shall be submitted to the Investor for comment at least
two (2) business days prior to issuance, unless the release is required to be
issued within a shorter period of time by law or pursuant to the rules of a
national securities exchange. The Company shall issue a press release
concerning the fact and material terms of this Purchase Agreement within one
business day of the Closing.
7.7 NO CONFLICTING AGREEMENTS. The Company will not, and will
not permit its subsidiaries to, take any action, enter into any agreement or
make any commitment that would conflict or interfere in any material respect
with the obligations to the Investor under the Agreements.
7.8 INSURANCE. For so long as any Investor beneficially owns any
of the Securities, the Company shall, and shall cause each subsidiary to, have
in full force and effect (a)
17
<PAGE>
insurance reasonably believed to be adequate on all assets and activities of
a type customarily insured, covering property damage and loss of income by
fire or other casualty, and (b) insurance reasonably believed to be adequate
protection against all liabilities, claims and risks against which it is
customary for companies similarly situated as the Company and the
subsidiaries to insure.
7.9 COMPLIANCE WITH LAWS. For so long as any Investor
beneficially owns any of the Securities, the Company will use reasonable
efforts, and will cause each of its subsidiaries to use reasonable efforts,
to comply with all applicable laws, rules, regulations, orders and decrees of
all governmental authorities, except to the extent non-compliance (in one
instance or in the aggregate) would not have a Material Adverse Effect.
7.10 LISTING OF UNDERLYING SHARES AND RELATED MATTERS. The
Company hereby agrees, promptly following the Closing of the transactions
contemplated by this Purchase Agreement, to take such action to cause the
Shares, the Warrant Shares and the shares of Common Stock issuable under
Section 7.1(a) hereof to be listed on the Nasdaq Stock Market as promptly as
possible but no later than the effective date of the registration
contemplated by the Registration Rights Agreement. The Company further
agrees that if the Company applies to have its Common Stock or other
securities traded on any other principal stock exchange or market, it will
include in such application the Common Stock underlying the Warrants, and
will take such other action as is necessary to cause such Common Stock to be
so listed. The Company will take all action necessary to continue the
listing and trading of its Common Stock on the Nasdaq Stock Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange, as applicable, to
ensure the continued eligibility for trading of the Shares and the Warrant
Shares thereon.
7.11 CORPORATE EXISTENCE. So long as any Investor beneficially
owns any of the Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (a) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith, regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to fulfill its obligations hereunder and effect the
exercise in full of all Warrants outstanding as of the date of such
transaction; (b) has no legal, contractual or other restrictions on its
ability to perform the obligations of the Company hereunder and under the
agreements and instruments entered into in connection herewith; and (c) (i)
is a publicly traded corporation whose common stock and the shares of capital
stock issuable upon exercise of the Warrants are (or would be upon issuance
thereof) listed for trading on the Nasdaq Stock Market, New York Stock
Exchange or American Stock Exchange, or (ii) if not such a publicly traded
corporation, then the buyer agrees that it will, at the election of the
Investor, purchase such Investor's Shares (and Warrant Shares) at a price
equal to 120% of the Per Share Purchase Price of such Shares.
7.12 COMPETING FINANCINGS. Except for the issuance of securities
described in the Supplement to the Memorandum dated December 16, 1999, the
Company will not enter into, or agree to enter into, any agreement related to
a financing transaction prior to the Closing of the transactions contemplated
hereunder.
18
<PAGE>
8. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING. Each
Investor's obligation to accept delivery of and to pay for the Securities
shall be subject to the following conditions (to the extent not waived by
such Investor in writing):
8.1 REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered the Registration Rights Agreement, substantially in
the form attached hereto as Exhibit B.
8.2 THE WARRANT AGREEMENT. The Company shall have executed and
delivered the Warrant Agreement, substantially in the form attached hereto as
Exhibit A.
8.3 ESCROW AGREEMENT. The Escrow Agreement shall have been
executed and delivered by all of the parties thereto in the form attached in
Exhibit C.
8.4 REGISTRATION STATEMENT FILED. The Company shall have filed
with the SEC a registration statement covering the Common Shares and the
shares of Common Stock underlying the Warrants (the "Registration Statement").
8.5 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 4 shall be true and correct
when made and as of the Closing and each Investor shall have received a
certificate signed by the chief executive officer and president of the
Company, or such other officers of the Company as agreed upon by the parties
hereto, that each of such representations and warranties, as appropriate, is
true and correct in all material respects on and as of the Closing with the
same effect as though such representations and warranties had been made or
given on and as of the Closing (except for any representations and warranties
given as of a specified date), and that the Company has performed and
complied in all material respects with all of its obligations under this
Purchase Agreement which are to be performed or complied with on or prior to
the Closing.
8.6 LEGAL OPINIONS (SCHEDULE 8.6).
(a) Investors shall have received from Ater Wynne LLP,
counsel to the Company, an opinion letter addressed to the Investors, dated
as of the date of the Closing, in a form reasonably acceptable to Cruttenden
Roth Incorporated (the "Placement Agent") and its counsel, covering customary
matters and subject to customary assumptions and qualifications.
(b) Investors shall have received from Dehlinger &
Associates, counsel to the Company, an opinion letter relating to
intellectual property matters addressed to the Investors, dated as of the
date of the Closing, in a form reasonably acceptable to the Placement Agent
and its counsel, subject to customary assumptions and qualifications.
9. SURVIVAL. All representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements as of the date hereof and shall survive
the execution and delivery of this Purchase Agreement.
19
<PAGE>
10. ARBITRATION.
10.1 SCOPE. Resolution of any and all disputes arising from or in
connection with the Agreements, whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Disputes"), shall be
exclusively governed by and settled in accordance with the provisions of this
Section 10; provided, that the foregoing shall not preclude equitable or
other judicial relief to enforce the provisions hereof or to preserve the
status quo pending resolution of Disputes hereunder.
10.2 BINDING ARBITRATION. The parties hereby agree to submit all
Disputes to arbitration for final and binding resolution. Either party may
initiate such arbitration by delivery of a demand therefor (the "Arbitration
Demand") to the other party. The arbitration shall be conducted in New York,
New York by a sole arbitrator selected by agreement of the parties not later
than 10 days after delivery of the Arbitration Demand, or, failing such
agreement, appointed pursuant to the Commercial Arbitration Rules of the
America Arbitration Association, as amended from time to time (the "AAA
Rules"). If the arbitrator becomes unable to serve, his successor(s) shall
be similarly selected or appointed.
10.3 PROCEDURE. The arbitration shall be conducted pursuant to
the Federal Arbitration Act and such procedures as the parties may agree or,
in the absence of or failing such agreement, pursuant to the AAA Rules.
Notwithstanding the foregoing, (a) each party shall have the right to conduct
limited discovery of information relevant to the Dispute; (b) each party
shall provide to the other, reasonably in advance of any hearing, copies of
all documents that a party intends to present in such hearing; (c) all
hearings shall be conducted on an expedited schedule; and (d) all proceedings
shall be confidential, except that either party may at its expense make a
stenographic record thereof.
10.4 TIMING. The arbitrator shall use best efforts to complete
all hearings not later than 90 days after his or her selection or
appointment, and shall use best efforts to make a final award not later than
30 days thereafter. The arbitrator shall apportion all costs and expenses of
the arbitration, including the arbitrator's fees and expenses, and fees and
expenses of experts ("Arbitration Costs") between the prevailing and
non-prevailing party as the arbitrator shall deem fair and reasonable. In
circumstances where a Dispute has been asserted or defended against on
grounds that the arbitrator deems manifestly unreasonable, the arbitrator may
assess all Arbitration Costs against the non-prevailing party and may include
in the award the prevailing party's attorney's fees and expenses in
connection with any and all proceedings under this Section 10.
Notwithstanding the foregoing, in no event may the arbitrator award multiple
or punitive damages.
11. MISCELLANEOUS.
11.1 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned
by a party hereto without the prior written consent of the other party
hereto, except that without the prior written consent of the Company, but
after notice duly given, an Investor may assign its rights hereunder in whole
or in part to any purchaser of Securities from the Investor. The terms and
conditions of this Purchase Agreement shall inure to the benefit of and be
binding upon the respective permitted successors and assigns of the parties.
Nothing in this Purchase Agreement,
20
<PAGE>
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Purchase
Agreement, except as expressly provided in this Purchase Agreement.
11.2 COUNTERPARTS. This Purchase Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.3 TITLES AND SUBTITLES. The titles and subtitles used in this
Purchase Agreement are used for convenience only and are not to be considered
in construing or interpreting this Purchase Agreement.
11.4 NOTICES. Unless otherwise provided, any notice required or
permitted under this Purchase Agreement shall be given in writing and shall
be deemed effectively given only upon delivery to each party to be notified
by (i) personal delivery, (ii) telex or telecopier, upon receipt of the
electronically generated confirmation of delivery, or (iii) a recognized
overnight air courier, addressed to the party to be notified at the address
as follows, or at such other address as such party may designate by ten days'
advance written notice to the other party:
If to the Company:
AVI BioPharma, Inc.
One SW Columbia Street, Suite 1105
Portland, Oregon 97258
Telephone: (503) 227-0554
Telefax: (503) 227-0751
Attention: Alan P. Timmins
Chief Financial Officer
with a copy to:
Ater Wynne LLP
222 SW Columbia St., Suite 1800
Portland, Oregon 97201
Telephone: (503) 226-1191
Facsimile: (503) 226-0079
Attention: Byron Milstead
If to the Investor:
To the address specified therefor on the applicable Counterpart
Execution Page.
11.5 FEES AND EXPENSES.
(a) Except as set forth below, the parties hereto shall pay
their own costs and expenses in connection herewith.
21
<PAGE>
(b) European American Securities, Inc. (EASI), a member firm
of the NASD, and a regulated entity of the Securities and Futures Authority
of Great Britain, will act as agent for the Tail Wind Inc. in the
transaction. EASI shall be entitled to a fee equal to $0.28 per share, which
shall be paid by the Company at the Closing.
(c) Cruttenden Roth Incorporated was retained by the Company
as placement agent and shall be entitled to a placement fee as described in
the Memorandum, which shall be paid by the Company at the Closing.
(d) Tail Wind Inc. shall receive an expense allowance to
cover due diligence expenses and legal expenses, in an amount equal to 1% of
the aggregate Purchase Price (not to exceed $40,000) less the portion of the
expense allowance previously paid ($13,000). Such expense allowance shall be
paid by the Company at the Closing.
11.6 AMENDMENTS AND WAIVERS. Any term of this Purchase Agreement
may be amended and the observance of any term of this Purchase Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and 75% in interest (based on pro rata share) of the Investors. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Purchase
Agreement at the time outstanding, each future holder of all such securities,
and the Company.
11.7 SEVERABILITY. If one or more provisions of this Purchase
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Purchase Agreement and the balance of this
Purchase Agreement shall be interpreted as if such provision were so excluded
and shall be enforceable in accordance with its terms.
11.8 ENTIRE AGREEMENT. This Purchase Agreement, including the
Exhibits and Schedules hereto, and the Registration Rights Agreement
constitute the entire agreement among the parties hereof with respect to the
subject matter hereof and thereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to
the subject matter hereof and thereof.
11.9 FURTHER ASSURANCES. The parties shall execute and deliver
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby
and to evidence the fulfillment of the Agreements herein contained.
11.10 APPLICABLE LAW. This Purchase Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
without regard to principles of conflicts of laws.
11.11 REMEDIES.
(a) The Investors shall be entitled to specific performance
of the Company's obligations under the Agreements.
(b) The representations, warranties, agreements and
covenants of the
22
<PAGE>
Company in this Purchase Agreement shall survive the Closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
the Investors. The Company agrees to indemnify and hold harmless the
Investors and each of the Investors' officers, directors, shareholders,
members, employees, partners, agents and affiliates and any direct or
indirect investors, shareholders, officers, directors, agents, partners,
employees, members, agents or affiliates of any of the foregoing for loss or
damage arising as a result of or related to (a) any breach by the Company of
any of its representations or covenants set forth herein or the
unenforceability or invalidity of any provision of any of the Agreements, (b)
any cause of action, suit or claim brought or made against such indemnitee
(other than directly by the Company solely for breach of this Purchase
Agreement, the Warrant, or the Registration Rights Agreement by the
indemnitee or by governmental or regulatory authorities), and arising out of
or resulting from (whether in whole or in part) the execution, delivery,
performance or enforcement of the Agreements or any other instrument,
document or agreement executed pursuant hereto or thereto or contemplated
hereby or thereby (including without limitation the acquisition of the
Warrants and/or the Warrant Shares), any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities or the status of the purchaser as an investor
in the Company, except to the extent that such actual loss or damage directly
results from a breach by such indemnitee of the Agreements or from a
violation of law, or (c) any characterization concerning any of the
Agreements other than as expressly provided herein or therein, as the case
may be, including, without limitation, any characterization that the exercise
of Investor rights and remedies under any of the Agreements (or through a
combination results in an Investor acting (or agreeing to act) other than
independently and on its own behalf. The right to indemnification shall
include the right to advancement of expenses as they are incurred.
11.12 KNOWLEDGE. The phrases "knowledge," "to the Company's
knowledge," "to our knowledge" and similar language as used herein shall mean
the actual knowledge and current awareness, or knowledge which a reasonable
person would have acquired following a reasonable investigation.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
23
<PAGE>
If this Purchase Agreement is satisfactory to you, please so
indicate your acceptance by signing the Counterpart Execution Pages to this
Purchase Agreement and returning such pages to the Company whereupon this
Purchase Agreement will become binding between us in accordance with its
terms.
AVI BIOPHARMA, INC.
an Oregon corporation
By: /s/ Denis R. Burger
---------------------------------
Name: Denis R. Burger
-------------------------------
Title: CEO
------------------------------
24
<PAGE>
PURCHASE AGREEMENT
COUNTERPART EXECUTION PAGE
______________________________________________________________________
By signing below, the undersigned agrees to the terms of the AVI BIOPHARMA, INC.
Purchase Agreement and to purchase the number of Common Shares and Warrants set
forth below.
The undersigned acknowledge that City National Bank is acting solely as Escrow
Holder in connection with the Offering and makes no recommendation with respect
thereto. City National Bank has made no investigation regarding the offering,
the partnership, general partner or any other person or entity involved in the
offering.
Number of shares of Common Stock being purchased:
428,570
------------------------------------
Number of Warrants being purchased:*
128,571
------------------------------------
INVESTOR:
Castle Creek Heathcare Partners LLC
------------------------------------
By: Castle Creek Partners LLC
---------------------------------
Its: Investment Manager
--------------------------------
Name: /s/ John O. Ziegelman
-------------------------------
Title: Managing Member
------------------------------
Facsimile: 312-449-6999
--------------------------
*THREE WARRANTS FOR EVERY TEN SHARES OF COMMON STOCK PURCHASED. THE TERMS AND
CONDITIONS OF THE WARRANTS ARE CONTAINED IN EXHIBIT A.
25
<PAGE>
Please complete the following:
1. The exact name that your
Securities are to be registered in
(this is the name that will appear on
your certificates for both the shares
of Common Stock and Warrants.) You
may use a nominee name if Castle Creek Healthcare Partners LLC
appropriate: -----------------------------------
2. The relationship between the
purchaser of the Securities and the
Registered Holder listed in response Same
to item 1 above: ---------------------------------
3. The mailing address and 77 West Wacker Dr., Suite 4040
facsimile number of the Registered ---------------------------------
Holder listed in response to item 1 Chicago, Illinois 60601
above (if different from above): ---------------------------------
Facsimile: 312-499-6999
-----------------------
4. (For United States Investors:)
The Social Security Number or Tax
Identification Number of the
Registered Holder listed in the 52-2137654
response to item 1 above: ---------------------------------
26
<PAGE>
PURCHASE AGREEMENT
COUNTERPART EXECUTION PAGE
______________________________________________________________________
By signing below, the undersigned agrees to the terms of the AVI BIOPHARMA, INC.
Purchase Agreement and to purchase the number of Common Shares and Warrants set
forth below.
The undersigned acknowledge that City National Bank is acting solely as Escrow
Holder in connection with the Offering and makes no recommendation with respect
thereto. City National Bank has made no investigation regarding the offering,
the partnership, general partner or any other person or entity involved in the
offering.
Number of shares of Common Stock being purchased:
146,860
------------------------------------
Number of Warrants being purchased:*
42,858
------------------------------------
INVESTOR:
/s/ Michael T. Jackson TTE
------------------------------------
By:
---------------------------------
Name: Michael T. Jackson
-------------------------------
Title: Trustee
------------------------------
Facsimile: 415-732-9645
--------------------------
*THREE WARRANTS FOR EVERY TEN SHARES OF COMMON STOCK PURCHASED. THE TERMS AND
CONDITIONS OF THE WARRANTS ARE CONTAINED IN EXHIBIT A.
27
<PAGE>
Please complete the following:
1. The exact name that your
Securities are to be registered in
(this is the name that will appear on
your certificates for both the shares
of Common Stock and Warrants.) You Michael T. Jackson Trustee,
may use a nominee name if New Technology Fund
appropriate: ---------------------------------
2. The relationship between the
purchaser of the Securities and the
Registered Holder listed in response Trustee
to item 1 above: ---------------------------------
3. The mailing address and 1 Embarcadero Center, Suite 2410
facsimile number of the Registered ---------------------------------
Holder listed in response to item 1 San Francisco, CA 94111
above (if different from above): ---------------------------------
Facsimile: 415-732-9645
-----------------------
4. (For United States Investors:)
The Social Security Number or Tax
Identification Number of the
Registered Holder listed in the ###-##-####
response to item 1 above: ---------------------------------
28
<PAGE>
PURCHASE AGREEMENT
COUNTERPART EXECUTION PAGE
______________________________________________________________________
By signing below, the undersigned agrees to the terms of the AVI BIOPHARMA, INC.
Purchase Agreement and to purchase the number of Common Shares and Warrants set
forth below.
The undersigned acknowledge that City National Bank is acting solely as Escrow
Holder in connection with the Offering and makes no recommendation with respect
thereto. City National Bank has made no investigation regarding the offering,
the partnership, general partner or any other person or entity involved in the
offering.
Number of shares of Common Stock being purchased:
142,860
------------------------------------
Number of Warrants being purchased:*
42,858
------------------------------------
INVESTOR:
JALAA Equities, LP
------------------------------------
By: /s/ Jason Aryeh
---------------------------------
Name: Jason Aryeh
-------------------------------
Title: General Partner
------------------------------
Facsimile: (203) 618-9218
--------------------------
*THREE WARRANTS FOR EVERY TEN SHARES OF COMMON STOCK PURCHASED. THE TERMS AND
CONDITIONS OF THE WARRANTS ARE CONTAINED IN EXHIBIT A.
29
<PAGE>
Please complete the following:
1. The exact name that your
Securities are to be registered in
(this is the name that will appear on
your certificates for both the shares
of Common Stock and Warrants.) You
may use a nominee name if JALAA Equities, LP
appropriate: ---------------------------------
2. The relationship between the
purchaser of the Securities and the
Registered Holder listed in response (Same)
to item 1 above: ---------------------------------
3. The mailing address and 140 Greenwich Ave. (4th Flr)
facsimile number of the Registered ---------------------------------
Holder listed in response to item 1 Greenwich, CT 06830
above (if different from above): Attn. Marybeth
---------------------------------
Facsimile: (203) 618-9218
-----------------------
4. (For United States Investors:)
The Social Security Number or Tax
Identification Number of the
Registered Holder listed in the 06-1489682
response to item 1 above: ---------------------------------
30
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Registration Rights
Agreement") is made and entered as of this 15th day of December, 1999 by and
between AVI BioPharma, Inc., a corporation organized under the laws of Oregon
(the "Company"), and the persons identified as Investors pursuant to a Purchase
Agreement of even date herewith by and between the Company and such persons (the
"Purchase Agreement").
The parties hereby agree as follows:
1. CERTAIN DEFINITIONS
As used in this Registration Rights Agreement, the following
terms shall have the following meanings:
"ADDITIONAL REGISTRABLE SECURITIES" shall mean the shares of
Common Stock, if any, issued to the Investors pursuant to Section 7.1 of the
Purchase Agreement.
"COMMON STOCK" shall mean the Company's shares of Common Stock,
par value $.0001 per share.
"INVESTOR" shall mean each person so identified in the Purchase
Agreement, and any subsequent holder of any Common Stock, Warrant or Registrable
Securities.
"PROSPECTUS" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities and Additional Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration made by preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as defined below), and the declaration
or ordering of effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" shall mean the shares of Common Stock
issued and issuable to the Investors pursuant to the Purchase Agreement (other
than additional shares of Common Stock issuable pursuant to Section 7.1 of the
Purchase Agreement) and issuable upon the exercise of the Warrants, and any
securities issued with respect to, or in exchange for, such securities.
"REGISTRATION STATEMENT" shall mean any registration statement
filed under the 1933 Act of the Company that covers the resale of any of the
Registrable Securities or Additional Registrable Securities pursuant to the
provisions of this Agreement, amendments and
1
<PAGE>
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
"1933 ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"WARRANTS" mean the warrants to purchase shares of Common Stock
issued to the Investor pursuant to the Purchase Agreement.
Other capitalized terms used herein but not defined herein shall
have the meaning provided therefor in the Purchase Agreement.
2. REGISTRATION.
(a) REGISTRATION STATEMENT. On the date of the closing of the
transactions contemplated by the Purchase Agreement (the "Closing Date"), the
Company shall prepare and file with the SEC one Registration Statement on Form
S-3 (or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of the Registrable Securities, subject to the Investor's consent) covering the
resale of the Registrable Securities. Such Registration Statement shall cover,
to the extent allowable under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities. No securities shall be included in the
Registration Statement without the consent of the Investors other than the
Registrable Securities. The Company agrees that prior to the effectiveness of
the Registration Statement(s) covering the securities contemplated by the
Supplement to the Memorandum dated December 16, 1999, it will not file any other
registration statement.
(b) EXPENSES. The Company will pay all expenses associated with the
registration and in addition shall pay the reasonable fees of single counsel to
the Investors relating thereto in an amount of $5,000, excluding discounts,
commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals. EXCEPT ONLY AS SPECIFICALLY PROVIDED HEREIN,
ALL EXPENSES INCIDENT TO THE PERFORMANCE UNDER OR COMPLIANCE WITH THIS
REGISTRATION RIGHTS AGREEMENT BY THE COMPANY SHALL BE BORNE BY THE COMPANY,
REGARDLESS OF WHETHER THE REGISTRATION STATEMENT BECOMES EFFECTIVE, INCLUDING,
WITHOUT LIMITATION, (i) ALL REGISTRATION AND FILING FEES AND EXPENSES (INCLUDING
FILINGS MADE WITH THE NATIONAL ASSOCIATION OF SECURITIES DEALERS ("NASD"), IF
APPLICABLE); (ii) FEES AND EXPENSES (INCLUDING FEES AND EXPENSES OF COUNSEL FOR
THE COMPANY) OF COMPLIANCE WITH FEDERAL SECURITIES AND STATE BLUE SKY OR OTHER
SECURITIES LAWS; (iii) EXPENSES OF PRINTING, MESSENGER AND DELIVERY SERVICES,
DUPLICATION, WORD PROCESSING AND TELEPHONE INCURRED BY THE COMPANY (BUT NOT BY
THE HOLDERS OF REGISTRABLE SECURITIES); (iv) FEES AND DISBURSEMENTS OF COUNSEL
FOR THE COMPANY; (v) ALL APPLICATION AND FILING FEES IN CONNECTION WITH LISTING
SHARES
2
<PAGE>
OF THE COMPANY'S COMMON STOCK ON A NATIONAL SECURITIES EXCHANGE OR AUTOMATED
QUOTATION SYSTEM PURSUANT TO THE REQUIREMENTS HEREOF; AND (vi) ALL FEES AND
DISBURSEMENTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY
(INCLUDING THE EXPENSES OF ANY SPECIAL AUDIT AND "COLD COMFORT" LETTERS
REQUIRED BY OR INCIDENT TO SUCH PERFORMANCE). THE COMPANY WILL, IN ANY
EVENT, BEAR ITS OWN INTERNAL EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL
SALARIES AND EXPENSES OF ITS OFFICERS AND EMPLOYEES PERFORMING LEGAL OR
ACCOUNTING DUTIES), THE EXPENSES OF ANY ANNUAL AUDIT AND THE FEES AND
EXPENSES OF ANY PERSON, INCLUDING SPECIAL EXPERTS, RETAINED BY THE COMPANY.
THE HOLDERS SHALL BEAR THEIR OWN LEGAL FEES AND EXPENSES AND ANY UNDERWRITING
FEES OR BROKERAGE COMMISSIONS INCIDENT TO THEIR DISPOSITION OF THE REGISTERED
SECURITIES.
(c) EFFECTIVENESS.
(i) The Company shall use its best efforts to have the
Registration Statement declared effective as soon as practicable. If (A) the
Registration Statement is not declared effective by the SEC within 90 days
following the Closing Date (the "Registration Date"), or (B) after the
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement for any reason but except as excused
pursuant to subparagraph (ii) below, then the Company will make payments to each
Investor, as damages and not as a penalty, for any 30 day period or portion
thereof following the Registration Date during which any of the events described
in (A) or (B) above occurs and is continuing (the "Blackout Period") in an
amount equal to 2% of the aggregate Purchase Price paid by such Investor to the
Company on the Closing Date. The amounts payable as damages pursuant to this
paragraph shall be payable in lawful money of the United States and shall be
paid on demand from time to time following the commencement of the Blackout
Period until the termination of the Blackout Period. The same remedy and
penalty interest shall be available in the case of any failure to timely issue
Warrant Shares upon exercise of the Warrant, or in the case of any suspension
from trading or delisting from the Nasdaq Stock Market. If at any time a
payment due hereunder remains unpaid for more than sixty (60) days after demand,
the rate of damage payments shall thereafter be increased for all purposes to a
rate equal to 3% per 30 day period. The remedies set forth in this section are
not intended to be exclusive, and shall be in addition to any other remedies
available at law or in equity. Amounts payable as damages hereunder to an
Investor shall cease when the Investor no longer holds Warrants or Registrable
Securities, or Additional Registrable Securities, as applicable.
(ii) The Company may suspend the use of a prospectus under
the Registration Statement contemplated by this Section for up to two (2)
periods of not more than twenty (20) days in the aggregate in any consecutive
twelve (12) months, if the Company shall deliver to the Investor a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would (A) be seriously detrimental
to the business of the Company for such registration to be effected or remain
effective at such time, (B) interfere with any proposed or pending material
corporate transaction involving the Company or any of its subsidiaries, or (C)
result in any premature disclosure thereof. In such a case, the Company shall
not disclose to the Investor any facts or circumstances constituting material
non-public information, without the prior written consent of Investor. The
duration of the MFN Period provided for in the Purchase Agreement will be
3
<PAGE>
extended by the number of days of any termination or suspension of the
effectiveness of any registration or suspension of the use of any prospectus
contemplated by this Section 2.
(d) UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investor shall have the right to select an investment banker and
manager to administer the offering, which investment banker or manager shall be
reasonably satisfactory to the Company. An underwritten offering will not be
conducted without the consent of 50% of the Investors.
(e) Promptly following the issuance of any Additional
Registrable Securities, the Company shall file a Registration Statement and use
its best efforts to have such Registration Statement covering the Additional
Registrable Securities declared effective as soon as possible. All time
periods, provisions and remedies covering the registration of Registrable
Securities shall apply, MUTATIS MUTANDIS, to the registration of the Additional
Registrable Securities.
3. COMPANY OBLIGATIONS. The Company will use its best efforts to
effect the registration of the Registrable Securities and Additional Registrable
Securities in accordance with the terms hereof, and pursuant thereto the Company
will, as expeditiously as possible:
(a) use its best efforts to cause such Registration Statement to
become effective and to remain continuously effective for a period that will
terminate upon the earlier of the date on which all Registrable Securities or
Additional Registrable Securities, as the case may be, covered by such
Registration Statement, as amended from time to time, have been sold or until
such time as they become eligible for distribution pursuant to Rule 144(k), or
any successor provision thereof, under the 1933 Act (the "Registration Period")
(however, the Registration Statement shall be continued effective for so long as
the Warrants remain outstanding);
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the period
specified in Section 3(a) and to comply with the provisions of the 1933 Act
and the 1934 Act with respect to the distribution of all Registrable
Securities and Additional Registrable Securities; provided that, at a time
reasonably prior to the filing of a Registration Statement or Prospectus, or
any amendments or supplements thereto, the Company will furnish to the
Investor copies of all documents proposed to be filed, which documents will
be subject to the comments of the Investor;
(c) furnish to all of the Investors and their legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and each amendment
or supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such
4
<PAGE>
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities and Additional Registrable Securities owned by such
Investor;
(d) in the event the Investors select underwriters for the
offering, the Company shall enter into and perform its reasonable obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(e) at the request of the Investor, the Company shall furnish,
on the date that Registrable Securities or Additional Registrable Securities, as
applicable, are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the underwriter and the Investor and (ii) a letter, dated such
date, from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and the Investors;
(f) make reasonable effort to prevent the issuance of any stop
order or other suspension of effectiveness and, if such order is issued, obtain
the withdrawal of any such order at the earliest possible moment;
(g) furnish to the Investors at least five copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules by courier pursuant to the notice
requirements of the Purchase Agreement;
(h) prior to any public offering of Registrable Securities or
Additional Registrable Securities, use its best efforts to register or qualify
or cooperate with the Investors and its counsel in connection with the
registration or qualification of such Registrable Securities or Additional
Registrable Securities, as applicable, for offer and sale under the securities
or blue sky laws of all U.S. jurisdictions and do any and all other reasonable
acts or things necessary or advisable to enable the distribution in such
jurisdictions of the Registrable Securities or Additional Registrable Securities
covered by the Registration Statement;
(i) cause all Registrable Securities or Additional Registrable
Securities covered by the Registration Statement to be listed on each securities
exchange, interdealer quotation system or other market on which similar
securities issued by the Company are then listed;
(j) immediately notify the Investors, at any time when a
Prospectus relating to the Registrable Securities or Additional Registrable
Securities is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
Prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such holder, promptly prepare and furnish
to such holder a reasonable number of copies of a supplement to or an
amendment of such
5
<PAGE>
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or Additional Registrable
Securities, as applicable, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such
other actions as may be reasonably necessary to facilitate the registration of
the Registrable Securities and Additional Registrable Securities hereunder; and
(l) file the reports require to be filed by it (if so required)
under the Securities Act and the Exchange Act and the Rules and Regulations
adopted by the SEC thereunder in a timely manner and, if at any time the Company
is not required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 under the Securities Act. The
Company further covenants that it will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act pursuant to the exemptions provided by
Rule 144 under the Securities Act. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such information requirements.
4. OBLIGATIONS OF THE INVESTORS.
It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Registration Rights
Agreement with respect to the Registrable Securities or Additional Registrable
Securities of an Investor, if applicable, that such Investor shall furnish in
writing to the Company such information regarding itself, the Registrable
Securities or Additional Registrable Securities, as applicable, held by it and
the intended method of disposition of the Registrable Securities or Additional
Registrable Securities, as applicable, held by it as shall be reasonably
required to effect the registration of such Registrable Securities or Additional
Registrable Securities, as applicable, and shall execute such documents in
connection with such registration as the Company may reasonably request.
Each Investor, by its acceptance of the Registrable Securities
and Additional Registrable Securities, if any, 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
its Registrable Securities or Additional Registrable Securities, as applicable,
from the Registration Statement.
(c) In the event the Investor determine to engage the services
of an underwriter, the Investors agree to enter into and perform their
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering
6
<PAGE>
and take such other actions as are reasonably required in order to expedite
or facilitate the dispositions of the Registrable Securities or Additional
Registrable Securities, as applicable.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event rendering the Registration Statement
no longer effective, the Investor will immediately discontinue disposition of
Registrable Securities or Additional Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities or Additional
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus filed with the SEC and declared effective
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession of the
prospectus covering the Registrable Securities or Additional Registrable
Securities, as applicable, current at the time of receipt of such notice.
(e) No Investors may participate in any underwritten
registration hereunder unless it (i) agrees to sell the Registrable Securities
or Additional Registrable Securities, as applicable, on the basis provided in
any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to the terms of this Agreement.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law each Investor, its
officers, directors, partners and employees and each person who controls the
Investor (within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorney's fees) and expenses caused by (i) any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or any preliminary prospectus or any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon any information furnished in writing
to the Company by such Investor, expressly for use therein, or (ii) any
violation by the Company of any federal, state or common law, rule or regulation
applicable to the Company in connection with any Registration Statement,
Prospectus or any preliminary prospectus, or any amendment or supplement
thereto, and shall reimburse in accordance with subparagraph (c) below, each of
the foregoing persons for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claims. The foregoing is
subject to the condition that, insofar as the foregoing indemnities relate to
any untrue statement, alleged untrue statement, omission or alleged omission
made in any preliminary prospectus or Prospectus that is eliminated or remedied
in any Prospectus or amendment or supplement thereto, the above indemnity
obligations of the Company shall not inure to the benefit of any indemnified
party if a copy of such corrected Prospectus or amendment or supplement thereto
had been made available to such indemnified party and was not sent or given by
such indemnified party at or prior to the time such action was required of such
indemnified party by the 1933 Act and if delivery of such
7
<PAGE>
Prospectus or amendment or supplement thereto would have eliminated (or been
a sufficient defense to) any liability of such indemnified party with respect
to such statement or omission. Indemnity under this Section 5(a) shall
remain in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the permitted transer of
the Registrable Securities and Additional Registrable Securities.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any registration pursuant to the terms of this Registration
Rights Agreement, each Investor severally will furnish to the Company in writing
such information as the Company reasonably requests concerning the holders of
Registrable Securities and Additional Registrable Securities or the proposed
manner of distribution for use in connection with any Registration Statement or
Prospectus and severally agrees to indemnify and hold harmless, to the fullest
extent permitted by law, the Company, its directors, officers, employees,
stockholders and each person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expense
(including reasonable attorney's fees) resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in the
Registration Statement or Prospectus or preliminary prospectus or amendment or
supplement thereto or necessary to make the statements therein not misleading,
to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such holder of Registrable
Securities or Additional Registrable Securities to the Company specifically for
inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto and that such information was substantially relied upon by
the Company in preparation of the Registration Statement or Prospectus or any
amendment or supplement thereto. In no event shall the liability of a holder of
Registrable Securities or Additional Registrable Securities be greater in amount
than the dollar amount of the proceeds (net of all expense paid by such holder
and the amount of any damages such holder has otherwise been required to pay by
reason of such untrue statement or omission) received by such holder upon the
sale of the Registrable Securities or Additional Registrable Securities included
in the Registration Statement giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled
to indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; PROVIDED that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
PROVIDED, FURTHER, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim
8
<PAGE>
or litigation. It is understood that the indemnifying party shall not, in
connection with any proceeding in the same jurisdiction, be liable for fees
or expenses of more than one separate firm of attorneys at any time for all
such indemnified parties. No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations. No person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be
entitled to contribution from any person not guilty of such fraudulent
misrepresentation. In no event shall the contribution obligation of a holder of
Registrable Securities or Additional Registrable Securities be greater in amount
than the dollar amount of the proceeds (net of all expenses paid by such holder
and the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities or
Additional Registrable Securities giving rise to such contribution obligation.
6. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. This Registration Rights Agreement
may be amended only by a writing signed by the parties hereto. The Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company shall have obtained the written consent
to such amendment, action or omission to act, of the Investor.
(b) NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified, (b) when sent by
confirmed facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (c) upon receipt when sent by first-class
registered or certified mail, return receipt requested, postage prepaid, or
(d) upon receipt after deposit with a nationally recognized overnight express
courier, postage prepaid, specifying next day delivery with written verification
of receipt. All communications shall be sent to the party to be notified at the
address as set forth below or at such other address as such party may designate
by ten (10) days advance written notice to the Company. All communications
shall be addressed as follows:
if to the Company, to:
AVI BIOPHARMA, INC.
One S.W. Columbia Street, Suite 1105
Portland, Oregon 97258
9
<PAGE>
Attention: Alan Timmins, COO
Telephone: 503/227-0554
Facsimile: 503/227-0751
and to:
Ater Wynne LLP
222 S.W. Columbia Street
Suite 1800
Portland, Oregon 97201-6618
Attention: Byron W. Milstead, Esq.
Telephone: 503/226-1191
Facsimile: 503/226-0079
(ii) if to the Investors, at the address as set forth on the
Counterpart Execution Page of this Registration Rights Agreement,
with a copy so mailed to:
Cruttenden Roth Incorporated
4350 La Jolla Village Drive, Suite 220
San Diego, CA 92122
Telephone: 858/678-3064
Facsimile: 858/558-1522
Attention: Office Manager
(c) ASSIGNMENTS AND TRANSFERS BY INVESTOR. This Registration
Rights Agreement and all the rights and obligations of the Investors hereunder
may not be assigned or transferred to any transferee or assignee except as set
forth herein. An Investor may make such assignment or transfer to any
transferee or assignee of any Common Stock, Warrant or Registrable Securities,
or Additional Registrable Securities, PROVIDED, that (i) such transfer is made
expressly subject to this Agreement and the transferee agrees in writing to be
bound by the terms and conditions hereof, and (ii) the Company is provided with
written notice of such assignment.
(d) ASSIGNMENTS AND TRANSFERS BY THE COMPANY. This Registration
Rights Agreement may not be assigned by the Company without the prior written
consent of Investor, except that without the prior written consent of the
Investor, but after notice duly given, the Company shall assign its rights and
delegate its duties hereunder to any successor-in-interest corporation, and such
successor-in-interest shall assume such rights and duties, in the event of a
merger or consolidation of the Company with or into another corporation or the
sale of all or substantially all of the Company's assets.
(e) BENEFITS OF THE AGREEMENT. The terms and conditions of this
Registration Rights Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Registration Rights Agreement, express or implied, is intended to confer upon
any party other than the parties hereto or their
10
<PAGE>
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Registration Rights Agreement, except
as expressly provided in this Registration Rights Agreement.
(f) COUNTERPARTS. This Registration Rights Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(g) TITLES AND SUBTITLES. The titles and subtitles used in this
Registration Rights Agreement are used for convenience only and are not to be
considered in construing or interpreting this Registration Rights Agreement.
(h) SEVERABILITY. If one or more provisions of this
Registration Rights Agreement are held to be unenforceable under applicable law,
such provision shall be excluded from this Registration Rights Agreement and the
balance of this Registration Rights Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its terms
to the fullest extent permitted by law.
(i) FURTHER ASSURANCES. The parties shall execute and deliver
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.
(j) ENTIRE AGREEMENT. This Registration Rights Agreement is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Registration Rights Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(k) APPLICABLE LAW. This Registration Rights Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
without regard to principles of conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
11
<PAGE>
If this Registration Rights Agreement is satisfactory to you, please
so indicate by signing a Counterpart Execution Page to this Registration Rights
Agreement and a Registration Statement Questionnaire and returning such
counterpart and questionnaire to the Company whereupon subject to the Company's
acceptance of your subscription, this Registration Rights Agreement will become
binding between us in accordance with its terms.
AVI BIOPHARMA, INC.
an Oregon corporation
By: /s/ Denis R. Burger
--------------------------------
Name: Denis R. Burger
------------------------------
Title: CEO
-----------------------------
12
<PAGE>
REGISTRATION RIGHTS AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the AVI
BIOPHARMA, INC. Registration Rights Agreement.
INVESTOR:
Castle Creek Healthcare Partners LLC
---------------------------------------
By: Castle Creek Partners LLC
------------------------------------
Its: Investment Manager
-----------------------------------
Name: /s/ John D. Ziegelman
----------------------------------
Title: Managing Member
---------------------------------
Address: 77 West Wacker Dr., Suite 4040
-------------------------------
Chicago, Illinois 60601
-------------------------------
Facsimile: 312-499-6999
-----------------------------
13
<PAGE>
REGISTRATION RIGHTS AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the AVI
BIOPHARMA, INC. Registration Rights Agreement.
INVESTOR:
/s/ Michael T. Jackson TTE
-----------------------------------------
By: Michael T. Jackson TTE
--------------------------------------
Name:
------------------------------------
Title: Trustee
-----------------------------------
Address: 1 Embarcadero Center, Suite 2410
---------------------------------
San Francisco, CA 94111
---------------------------------
Facsimile: 415-732-9645
-------------------------------
14
<PAGE>
REGISTRATION RIGHTS AGREEMENT
COUNTERPART EXECUTION PAGE
By signing below, the undersigned agrees to the terms of the AVI
BIOPHARMA, INC. Registration Rights Agreement.
INVESTOR:
JALAA Equities, LP
-----------------------------------
By: /s/ Jason Aryeh
--------------------------------
Name: Jason Aryeh
------------------------------
Title: General Partner
-----------------------------
Address: 140 Greenwich Ave.
---------------------------
Greenwich, CT 06830
---------------------------
Facsimile: (203) 613-9218
-------------------------
15
<PAGE>
AVI BIOPHARMA, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information:
1. Please state your or your organization's name exactly as it should
appear in the Registration Statement:
-------------------------------------------------
2. Please provide the following information, as of ,1999:
----------------
Number of shares of Common Stock and shares of Common Stock underlying the
Warrants that you are purchasing and seek to include in the Registration
Statement: / /
Number of Shares that you already beneficially own or that you are purchasing
and do NOT seek to include in the Registration Statement:
/ /
3. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the Proxy Statement in connection with the
Company's 1998 Annual Meeting of Shareholders?
Yes / / No / /
If yes, please indicate the nature of any such relationships:
- -------------------------------------------------------------------------------
INVESTOR:
-----------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
The foregoing constitutes the only information furnished to the Company for the
purpose of Section 2.5(b) of the Registration Rights Agreement.
16
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND ANY SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT COVERING THIS WARRANT UNDER SAID ACT OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT.
VOID AFTER 5:00 P.M. PACIFIC TIME ON DECEMBER 19, 2004
("EXPIRATION DATE").
_______________________________________________________
AVI BIOPHARMA, INC.
WARRANT TO PURCHASE ______ SHARES OF
COMMON STOCK, PAR VALUE $.0001 PER SHARE
This is to certify that, for VALUE RECEIVED, _____________
("Warrantholder"), is entitled to purchase, subject to the provisions of this
Warrant, from AVI BioPharma, Inc., a corporation organized under the laws of
Oregon ("Company"), at any time not later than 5:00 P.M., Pacific time, on
the Expiration Date, at an exercise price per share equal to $4.025 (the
exercise price in effect from time to time hereafter being herein called the
"Warrant Price") ______ shares ("Warrant Shares") of Common Stock, par value
$.0001 per share ("Common Stock"). The number of Warrant Shares purchasable
upon exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time as described herein.
This Warrant has been issued pursuant to the terms of the Purchase
Agreement dated on or about the date hereof between the Company and the
Warrantholder. Capitalized terms used herein and not defined shall have the
meaning specified in the Purchase Agreement.
Section 1. REGISTRATION. The Company shall maintain books for
the transfer and registration of the Warrant. Upon the initial issuance of
the Warrant, the Company shall issue and register the Warrant in the name of
the Warrantholder.
Section 2. TRANSFERS. As provided herein, the Warrant may be
transferred only pursuant to a registration statement filed under the
Securities Act of 1933, as amended ("Securities Act") or an exemption from
registration thereunder. Subject to such restrictions, the Company shall
transfer from time to time, the Warrant, upon the books to be maintained by
the Company for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer upon any
such transfer, and a new Warrant shall be issued to the transferee and the
surrendered Warrant shall be canceled by the Company.
1
<PAGE>
Section 3. EXERCISE OF WARRANT. Subject to the provisions
hereof, the Warrantholder may exercise the Warrant in whole or in part at any
time upon surrender of the Warrant, together with delivery of the duly
executed Warrant exercise form attached hereto (the "Exercise Agreement"), to
the Company during normal business hours on any business day at the Company's
principal executive offices (or such other office or agency of the Company as
it may designate by notice to the holder hereof), and upon (i) payment to the
Company in cash, by certified or official bank check or by wire transfer for
the account of the Company of the Warrant Price for the Warrant Shares
specified in the Exercise Agreement or (ii) delivery to the Company of a
written notice of an election to effect a "Cashless Exercise" (as defined
below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof
or such holder's designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been
surrendered (or evidence of loss, theft or destruction thereof), the
completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be
in such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder
a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.
To effect a Cashless Exercise, the holder shall submit to the
Company with the Exercise Agreement, written notice of the holder's intention
to do so, including a calculation of the number of shares of Common Stock to
be issued upon such exercise in accordance with the terms hereof. In the
event of a Cashless Exercise, in lieu of paying the Warrant Price in cash,
the holder shall surrender this Warrant for that number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be
the difference between the then current Market Price per share of the Common
Stock and the Warrant Price, and the denominator of which shall be the then
current Market Price per share of the Common Stock. For this purpose, the
"Market Price" of the Common Stock shall be the average of the closing bid
prices of the Common Stock as reported by the Nasdaq Stock Market for the
three (3) trading days immediately preceding the exercise date.
Section 4. COMPLIANCE WITH THE SECURITIES ACT. Neither this
Warrant nor the Common Stock issued upon exercise hereof nor any other
security issued or issuable upon exercise of this Warrant may be offered or
sold except as provided in this agreement and in conformity with the
Securities Act, and then only against receipt of an agreement of such person
to whom such offer of sale is made to comply with the provisions of this
Section 4 with respect to any resale or other disposition of such security.
The Company may cause the legend set forth on the first page of this Warrant
to be set forth on each Warrant or similar legend on any security issued or
issuable upon exercise of this Warrant until the
2
<PAGE>
Warrant Shares have been registered for resale under the Registration Rights
Agreement or until Rule 144 is available, unless counsel for the Company is
of the opinion as to any such security that such legend is unnecessary.
Section 5. PAYMENT OF TAXES. The Company will pay any
documentary stamp taxes attributable to the initial issuance of Warrant
Shares issuable upon the exercise of the Warrant; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or delivery of any certificates
for Warrant Shares in a name other than that of the registered holder of the
Warrant in respect of which such shares are issued, and in such case, the
Company shall not be required to issue or deliver any certificate for Warrant
Shares or any Warrant until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid. The holder shall be responsible
for income taxes due under federal or state law, if any such tax is due.
Section 6. MUTILATED OR MISSING WARRANTS. In case the Warrant
shall be mutilated, lost, stolen, or destroyed, the Company shall issue in
exchange and substitution of and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant lost, stolen or destroyed, a
new Warrant of like tenor and for the purchase of a like number of Warrant
Shares, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of the Warrant, and with respect
to a lost, stolen or destroyed Warrant, reasonable indemnity or bond, if
requested by the Company.
Section 7. RESERVATION OF COMMON STOCK. The Company hereby
represents and warrants that there have been reserved, and the Company shall
at all applicable times keep reserved, out of the authorized and unissued
Common Stock, a number of shares sufficient to provide for the exercise of
the rights of purchase represented by the Warrant, and the transfer agent for
the Common Stock ("Transfer Agent"), and every subsequent transfer agent for
the Common Stock or other shares of the Company's capital stock issuable upon
the exercise of any of the right of purchase aforesaid, shall be irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued shares of Common Stock as shall be requisite for such purpose. The
Company agrees that all Warrant Shares issued upon exercise of the Warrant
shall be, at the time of delivery of the certificates for such Warrant
Shares, duly authorized, validly issued, fully paid and non-assessable shares
of Common Stock of the Company. The Company will keep a conformed copy of
this Warrant on file with the Transfer Agent and with every subsequent
transfer agent for the Common Stock or other shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant. The Company will supply from time to time the Transfer Agent with
duly executed stock certificates required to honor the outstanding Warrant.
Section 8. WARRANT PRICE. The Warrant Price, subject to
adjustment as provided in Section 9, shall, if payment is made in cash or by
certified check, be payable in lawful money of the United States of America.
3
<PAGE>
Section 9. ADJUSTMENTS. Subject and pursuant to the provisions
of this Section 9, the Warrant Price and number of Warrant Shares subject to
this Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall at any time or from time to time while
the Warrant is outstanding, pay a dividend or make a distribution on its
Common Stock in shares of Common Stock, subdivide its outstanding shares of
Common Stock into a greater number of shares or combine its outstanding
shares into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation), then the number of Warrant
Shares purchasable upon exercise of the Warrant and the Warrant Price in
effect immediately prior to the date upon which such change shall become
effective, shall be adjusted by the Company so that the Warrantholder
thereafter exercising the Warrant shall be entitled to receive the number of
shares of Common Stock or other capital stock which the Warrantholder would
have received if the Warrant had been exercised immediately prior to such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation, or sale, transfer or other disposition of all or substantially
all of the Company's properties to another corporation shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition, lawful and adequate provision
shall be made whereby each Warrantholder shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions herein
specified and in lieu of the Warrant Shares immediately theretofore issuable
upon exercise of the Warrant, such shares of stock, securities or properties
as may be issuable or payable with respect to or in exchange for a number of
outstanding Warrant Shares equal to the number of Warrant Shares immediately
theretofore issuable upon exercise of the Warrant, had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition
not taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of each Warrantholder to the end
that the provisions hereof (including, without limitations, provision for
adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock,
securities or properties thereafter deliverable upon the exercise thereof.
The Company shall not effect any such consolidation, merger, sale, transfer
or other disposition unless prior to or simultaneously with the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger, or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the Company, the
obligation to deliver to the holder of the Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications consolidations, mergers, sales,
transfers or other dispositions.
4
<PAGE>
(c) In case the Company shall fix a record date for the making of
a distribution to all holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness or assets
(other than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends or distributions referred to in
Section 9(a)), or subscription rights or warrants, the Warrant Price to be in
effect after such record date shall be determined by multiplying the Warrant
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding multiplied by the Market Price per share of Common Stock (as
determined pursuant to Section 3), less the fair market value (as determined
by the Company's Board of Directors in good faith) of said assets or
evidences of indebtedness so distributed, or of such subscription rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current Market Price per share of
Common Stock. Such adjustment shall be made successively whenever such a
record date is fixed.
(d) If the Company shall at any time or from time to time after
the date of issuance hereof issue or sell in a financing transaction (which
shall not include any sales or issuances of Common Stock after the date
hereof pursuant to contractual obligations in effect on the date hereof), (A)
any shares of Common Stock for a Per Share Selling Price (as defined in
Section 7.1(b)(i) of the Purchase Agreement) less than the Warrant Price (as
defined above) on the date of such issuance or (B) any securities convertible
into shares of Common Stock ("Convertible Securities") for which the Per
Share Selling Price of the Common Stock is less than the Warrant Price (as
defined above) on the date of such issuance, then the Warrant Price shall be
reset (if it would result in a reduction of such price) to a price equal to
115% of such per share consideration, or conversion or exercise price. The
number of Warrant Shares shall be proportionally increased. Such adjustments
shall be made successively whenever such sales are made.
(e) An adjustment shall become effective immediately after the
record date in the case of each dividend or distribution and immediately
after the effective date of each other event which requires an adjustment.
(f) In the event that, as a result of an adjustment made pursuant
to Section 9, the holder of the Warrant shall become entitled to receive any
shares of capital stock of the Company other than shares of Common Stock, the
number of such other shares so receivable upon exercise of the Warrant shall
be subject thereafter to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Warrant Shares contained in this Warrant.
Section 10. FRACTIONAL INTEREST. The Company shall not be
required to issue fractions of Warrant Shares upon the exercise of the
Warrant. If any fraction of a Warrant Share would, except for the provisions
of this Section, be issuable upon the exercise of the Warrant (or specified
portions thereof), the Company shall round such calculation to the nearest
whole number and disregard the fraction.
5
<PAGE>
Section 11. BENEFITS. Nothing in this Warrant shall be
construed to give any person, firm or corporation (other than the Company and
the Warrantholder) any legal or equitable right, remedy or claim, it being
agreed that this Warrant shall be for the sole and exclusive benefit of the
Company and the Warrantholder.
Section 12. NOTICES TO WARRANTHOLDER. Upon the happening of any
event requiring an adjustment of the Warrant Price, the Company shall
forthwith give written notice thereof to the Warrantholder at the address
appearing in the records of the Company, stating the adjusted Warrant Price
and the adjusted number of Warrant Shares resulting from such event and
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Company's independent certified
public accountants shall make the calculations of any such adjustments.
Failure to give such notice to the Warrantholder or any defect therein shall
not affect the legality or validity of the subject adjustment.
Section 13. IDENTITY OF TRANSFER AGENT. The Transfer Agent for
the Common Stock is ChaseMellon Shareholder Services LLC. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock or other
shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrant, the Company will fax to the
Warrantholder a statement setting forth the name and address of such transfer
agent.
Section 14. NOTICES. Any notice pursuant hereto to be given or
made by the Warrantholder to or on the Company shall be sufficiently given or
made personally or if sent by an internationally recognized courier by next
day or two day delivery service, addressed as follows:
AVI BioPharma, Inc.
One SW Columbia Street, Suite 1105
Portland, Oregon 97258
Telephone: (503) 227-0554
Telefax: (503) 227-0751
Attention: Alan P. Timmins
Chief Financial Officer
or such other address as the Company may specify in writing by notice to the
Warrantholder complying as to delivery with the terms of this Section 14.
Any notice pursuant hereto to be given or made by the Company to or
on the Warrantholder shall be sufficiently given or made if personally
delivered or if sent by an internationally recognized courier service by
overnight or two-day service, to the address set forth on the books of the
Company or, as to each of the Company and the Warrantholder, at such other
address as shall be designated by such party by written notice to the other
party complying as to delivery with the terms of this Section 14.
6
<PAGE>
All such notices, requests, demands, directions and other
communications shall, when sent by courier, be effective two (2) days after
delivery to such courier as provided and addressed as aforesaid.
Section 15. REGISTRATION RIGHTS. The initial holder of this
Warrant is entitled to the benefit of certain registration rights in respect
of the Warrant Shares as provided in the Registration Rights Agreement.
Section 16. SUCCESSORS. All the covenants and provisions hereof
by or for the benefit of the Investor shall bind and inure to the benefit of
its respective successors and assigns hereunder.
Section 17. GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of said State.
Section 18. 9.9% LIMITATION.. Notwithstanding anything to the
contrary contained herein, the number of shares of Common Stock that may be
acquired by the holder upon exercise pursuant to the terms hereof shall not
exceed a number that, when added to the total number of shares of Common
Stock deemed beneficially owned by such holder (other than by virtue of the
ownership of securities or rights to acquire securities that have limitations
on the Holder's right to convert, exercise or purchase similar to the
limitation set forth herein), together with all shares of Common Stock deemed
beneficially owned by the holder's "affiliates" (as defined Rule 144 of the
Act) that would be aggregated for purposes of determining whether a group
under Section 13(d) of the Securities Exchange Act of 1934, as amended,
exists, would exceed 9.99% of the total issued and outstanding shares of the
Company's Common Stock (the "Restricted Ownership Percentage"); provided that
(w) each holder shall have the right at any time and from time to time to
reduce its Restricted Ownership Percentage immediately upon notice to the
Company and (x) each holder shall have the right at any time and from time to
time, to increase its Restricted Ownership Percentage immediately (subject to
waiver) in the event of a pending or announced change of control transaction
(including without limitation a transaction that would result in a transfer
of more than 50% of the Company's voting power or equity, or a transaction
that would result in a person or "group" being deemed the beneficial owner of
50% or more of the Company's voting power or equity). This limitation may not
be amended except with the consent of the stockholders of the Company, and
they are intended third-party beneficiaries of this provision.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly
executed, as of the day and year first above written.
AVI BIOPHARMA, INC.
By:___________________________
Name:
Title:
Attest:
______________________________
8
<PAGE>
EXHIBIT 5.1
ATER WYNNE LLP
LETTERHEAD
December 17, 1999
Board of Directors AVI BioPharma, Inc.
One S.W. Columbia Street, Suite 1105
Portland, OR 97258
Gentlemen:
In connection with the registration of 714,290 shares of common stock,
$.0001 par value (the "Common Stock"), and 214,287 shares of common stock, .0001
par value, underlying certain Warrants (the "Warrant Shares"), of AVI BioPharma,
Inc., an Oregon corporation (the "Company"), under the Registration Statement on
Form S-3 to be filed with the Securities and Exchange Commission on December 17,
1999, and the proposed offer and sale of the Common Stock and Warrant Shares
pursuant to the Registration Statement, we have examined such corporate records,
certificates of public officials and officers of the Company and other documents
as we have considered necessary or proper for the purpose of this opinion.
Based on the foregoing and having regard to legal issues which we deem
relevant, it is our opinion that the shares of Common Stock are validly issued,
fully paid and nonassessable. It is our further opinion that the Warrant Shares,
when such shares have been delivered against payment therefor as contemplated by
the Warrants, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-mentioned registration statement.
Very truly yours,
/s/ Ater Wynne LLP
ATER WYNNE LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 27, 1999,
included in the Company's Form 10-KSB for the year ended December 31, 1998 and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Portland, Oregon
December 14, 1999
