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EXHIBIT 10.20
April 17, 2001
VIA TELECOPY (949) 788-6706
NeoTherapeutics, Inc.
157 Technology Drive
Irvine, CA 92618
Attention: Chief Financial Officer
Gentlemen:
This letter evidences a binding agreement among NeoTherapeutics, Inc. (the
"Company"), Montrose Investments Ltd. ("Montrose"), HBK Master Fund L.P.
("Master Fund") and Strong River Investments, Inc. ("Strong River"), as follows:
1. Montrose and Strong River (the "Purchasers") hereby agree to purchase
securities from the Company for a total purchase price of $24 million, as
follows:
a. Within two business days after the date of this letter, the Purchasers
will purchase an aggregate of $6.0 million of the Company's common
stock, $.001 par value per share (the "Common Stock"), at a purchase
price of $5.10 per share under the Company's currently effective shelf
registration statement.
b. The Purchasers will purchaser convertible debentures (the "New
Debentures") and fixed-price warrants (the "New Warrants") from the
Company in two tranches, the first having an aggregate purchase price
of $10 million and the second having an aggregate purchase price of $8
million, as described in Exhibit A.
c. In lieu of a commitment fee, the Company hereby agrees to pay each
Purchaser $500,000 if the first tranche of the New Debentures and New
Warrants is not issued at the Initial Closing as contemplated in
Exhibit A within 30 days after the date of this letter. If the first
tranche of the New Debentures and New Warrants is so issued at the
Initial Closing, but the second tranche of New Debentures and New
Warrants is not issued at the Second Closing as contemplated in
Exhibit A within seven months after the date of this letter agreement,
then the Company will pay each Purchaser $400,000. Notwithstanding the
foregoing, the Company will not be required to make payments under
this paragraph if the Purchasers fail to negotiate the operative
documents in good faith or fail to perform their obligations under the
operative documents.
d. The Company hereby grants a right of first refusal to the Purchasers
on the terms set forth in Exhibit B.
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2. Either Montrose or Master Fund is the holder of certain warrants to
purchase Common Stock, as specified in Exhibit C (the "HBK Closing
Warrants"). Strong River is the holder of certain warrants to purchase
Common Stock, as specified in Exhibit D (the "Strong River Closing
Warrants" and, together with the HBK Closing Warrants, the "Closing
Warrants"). In addition, each of Montrose and Strong River is the holder of
a Class B Warrant, dated as of April 6, 2000, to purchase up to a total of
2,000,000 shares of Common Stock (for each Warrant) on the terms set forth
therein (the "Callable Warrants"). The holder of each Closing Warrant and
each Callable Warrant is referred to herein as the "Holder."
a. Notwithstanding any contrary provisions of any Closing Warrant, the
Holder of a Closing Warrant will not be entitled to exercise such
Closing Warrant until December 31, 2002.
b. Notwithstanding any contrary provisions of any Callable Warrant, the
Holder of a Callable Warrant will not be entitled to exercise such
Callable Warrant pursuant to Section 3(b)(i) thereof until December
31, 2002; provided that the Holder may exercise such Callable Warrant
in response to a Call Notice, with respect to the number of Warrant
Shares subject to such Call Notice, from the time of delivery of such
Call Notice until the Call Expiration Time applicable thereto (as such
capitalized terms are defined in the Callable Warrant).
c. Notwithstanding the foregoing, the restrictions on exercise of the
Closing Warrants and the Callable Warrant set forth in the two
preceding paragraphs will terminate as follows:
i. 65 days after notice from the Holder to the Company, referencing
this letter, requesting that such restrictions on exercise be
waived with respect to all or a specified portion of such Closing
Warrant or Callable Warrant; and
ii. one business day prior to the occurrence of any events specified
in clause (1) through (3) of Section 8(b) of the Callable Warrant
or clause (i) through (v) of Section 8(d) of the Callable
Warrant, it being understood that the intention of this paragraph
is to allow the Holders to exercise such warrants and participate
in (or otherwise take action with respect to) such event as a
holder of the Common Stock issuable upon such exercise, and the
Company will take any actions necessary to facilitate such
exercise and participation.
3. Each Callable Warrant is hereby amended as follows:
a. The reference to $5.00 in Section 3(a)(iii)(i) of each Callable
Warrant is hereby amended to refer instead to $2.00.
b. The first sentence of Section 3(c) of each Callable Warrant is hereby
amended by adding the following language to the end of such sentence:
";provided that if the average of the Per Share Market Values (as
defined in Exhibit A) for the five Trading Days immediately preceding
the Delivery Date of a Call Notice is less than $5.00, then the
Exercise Price applicable to an exercise following such Call Notice
shall equal the lower of (i) $33.75 (subject to equitable adjustment
for stock splits, reverse splits, combinations and other similar
events) and (ii) 95% of the Per Share Market Value on the Trading Day
immediately following such Delivery Date."
4. Each Purchaser is the holder of an Adjustable Warrant, dated as of
September 29, 2000 (the "Adjustable Warrants"). On or around March 16,
2001, each Purchaser exercised its Adjustable
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Warrant with respect to the Second Vesting Date thereunder to purchase
420,487 shares of Common Stock (840,974 share in the aggregate, referred to
as the "Second Vesting Date Shares"). The Company has not yet issued
certificates evidencing the Second Vesting Date Shares. The Adjustable
Warrants are hereby amended as necessary to cause the number of Second
Vesting Date Shares to be increased to an aggregate of 900,000 shares
(450,000 shares for Montrose and 450,000 shares for Strong River), and the
Company agrees to issue and deliver certificates evidencing such Second
Vesting Date Shares promptly after the date hereof.
5. Pursuant to the Registration Rights Agreement, dated as of September 29,
2000, among the Company and the Purchaser (the "Registration Rights
Agreement"), the Company is required to file an additional Registration
Statement covering the resale by the Purchasers of the Second Vesting Date
Shares. For purposes of determining the Company's obligations and the
Purchaser's rights in connection with such additional Registration
Statement (including the determination of whether an "Event" has occurred
under Section 2(e) of the Registration Rights Agreement), the "Filing Date"
applicable to such additional Registration Statement will be seven days
after the Company files its Annual Report on Form 10-K for the year ended
December 31, 2000, and the "Effectiveness Date" applicable to such
additional Registration Statement will be June 1, 2001. Accordingly, if
such additional Registration Statement is not filed by such Filing Date or
declared effective by such Effectiveness Date, an "Event" will be deemed to
have occurred on such date pursuant to Section 2(e) of the Registration
Rights Agreement, and the Company will pay any resulting Registration Delay
Payments in accordance with such Section; provided that the amount of any
monthly Registration Delay Payment so required shall equal 2% of the Deemed
Market Value of the Second Vesting Date Shares, rather than 2% of the
entire purchase price paid by such Holder. For such purposes, the "Deemed
Market value" of the Second Vesting Date Shares for each Purchaser shall
equal the number of Second Vesting Date Shares issued (or issuable) to such
Purchaser times the greater of (a) the Per Share Market Value (as defined
in the Adjustable Warrants) on the applicable Event Date or (b) the Per
Share Market Value on the Trading Date prior to the date of payment.
6. Montrose, Master Fund and Strong River (the "Purchaser Parties") hereby
fully and unconditionally release and forever discharge the Company and its
employees, officers, directors, agents, successors and assigns from any and
all claims that any Purchaser Party may have or claim to have against such
persons arising out of or resulting from any breach of an agreement between
or among any Purchaser Party and the Company (an "Existing Agreement"),
which breach is known by such Purchaser Party to have occurred prior to the
date hereof. The Company hereby fully and unconditionally releases and
forever discharges each Purchaser Party and their investment managers and
Brighton Capital, Ltd. and their respective employees, officers, directors,
agents, successors and assignees from any and all claims that the Company
may have or claim to have against such persons arising out of or resulting
from any breach of an Existing Agreement which breach is known by the
Company to have occurred prior to the date hereof.
7. The obligations of each Purchaser hereunder is several and not joint with
the obligations of any other Purchaser hereunder, and neither Purchaser
shall be responsible in any way for the performance of the obligations of
any other Purchaser hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any
Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this letter agreement.
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8. This letter agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard
to the principles of conflicts of law thereof.
9. This letter may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement. A signature
delivered by facsimile transmission shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature
page were an original thereof.
Please sign this letter in the space provided below to indicate your agreement
to the foregoing. Except as set forth in this letter, the Closing Warrants, the
Callable Warrant and all other Existing Agreements remain in full force and
effect in accordance with their respective terms.
MONTROSE INVESTMENTS LTD.
By: HBK Investments, L.P.,
Investment Manager
By:
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Name:
---------------------------------
Title:
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HBK MASTER FUND, L.P.
By: HBK Investments, L.P.,
Investment Manager
By:
---------------------------------
Name:
---------------------------------
Title:
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STRONG RIVER INVESTMENTS, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
Agreed and accepted:
NEOTHERAPEUTICS, INC..
By:
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Name:
---------------------------------
Title:
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EXHIBIT A
NEW DEBENTURES AND NEW WARRANTS
Proceeds: $18 million, payable $10 million at an initial
closing, which will occur as soon as practicable
after the date of this letter agreement and in any
event within 30 days (the "Initial Closing"), and
$8 million at a subsequent closing, which will
occur at the option of either the Company or a
Purchaser six months after the Initial Closing
(the "Second Closing").
Documentation: To the extent applicable and except as expressly
provided in this term sheet, (a) the Purchase
Agreement governing the sale of the New Debentures
and the New Warrants will be substantially similar
the Securities Purchase Agreement among the
Company and the Purchasers dated April 6, 2000
(the "April 2000 Agreement"); (b) the New
Debentures and the New Warrants will be
substantially similar to the Debentures and the
Class A Warrants issued pursuant to the April 2000
Agreement, except that the New Warrants will
exclude the provisions related to additional
shares vesting in connection with the Class B
Warrants; and (c) the Company's and the
Purchaser's obligations with respect to the Second
Closing (including the conditions to the Second
Closing) will be governed by a letter agreement
substantially similar to the letter agreement
among the Company and the Purchasers dated April
6, 2000 (the "April 2000 Letter Agreement").
New Debentures: $18 million in aggregate original principal amount
($10 million at the Initial Closing and $8 million
at the Second Closing) of 5% convertible
debentures of the Company maturing on the fifty
anniversary of issuance.
Initial Conversion Price: 120% of the average Per Share Market Value over
the five Trading Days preceding the date of
issuance. Subsequent Conversion Price: Beginning
90 days after issuance, the Conversion Price will
equal the lesser of (a) the Initial Conversion
Price or (b) 101% of the average of the ten lowest
Per Share Market Values during the 30 Trading Days
immediately preceding the conversion date. (The
Conversion Price will not vary depending on
whether the Company or the Purchasers cause the
Second Closing to occur).
Floor Price: If the applicable Conversion Price is less than a
mutually agreeable floor price (the "Floor
Price"), the Company will have the option,
exercisable by providing at least 20 Trading Days
advance notice, to satisfy any conversion by
issuing shares as if the Conversion Price equaled
the Floor Price and paying the balance in cash
based on the average Per Share Market Value over
the five Trading Days preceding the conversion
date.
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Optional Redemption: Upon 20 Trading Days notice, the Company may
redeem for cash all outstanding New Debentures at
a price equal to 106% of par plus accrued and
unpaid interest. The Purchasers may convert before
any such redemption becomes effective.
New Warrants: At each closing, the Purchaser will receive a 20%
warrant coverage (i.e., warrants to purchase a
number of shares of Common Stock equal to 20% of
the number of shares initially issuable upon
conversion of the New Debentures) at an exercise
price equal to 125% of the average Per Share
Market Value over the five Trading Days preceding
the date of issuance. The New Warrants will be
exercisable for five years following issuance.
Listing Approval: The Company will insure that all Common Stock
underlying the New Debentures and the New Warrants
("Underlying Shares") are approved for listing on
the Nasdaq National Market before the applicable
closing date, including by obtaining stockholder
approval, if required.
Registration Requirements: The Company will file a Registration Statement
covering all Underlying Shares within 30 days
after the applicable closing date. The Company
will respond to all SEC comments within ten
calendar days of receipt and will use its best
efforts to cause each Registration Statement to
become effective within 90 days after the
applicable closing date. Liquidated damages equal
to 2% of the aggregate purchase price for each
tranche will be payable monthly following
specified "Events" under the Registration Rights
Agreement applicable to such tranche.
Per Share Market Value: Closing bid price per share on the Nasdaq National
Market.
Legal Expenses: Not to exceed $30,000, payable by the Company at
the Initial Closing.
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EXHIBIT B
RIGHT OF FIRST REFUSAL
The Company shall not, directly or indirectly, without the prior written
consent of the Purchasers (which shall not be unreasonably withheld), offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition) any of its or
its Affiliates' equity or equity-equivalent securities (a "Subsequent
Placement") for a period of one year after the date of this letter agreement,
except (a) the granting of options to employees or directors of the Company
under any stock option plan duly adopted by the Company, and the issuance of
shares upon exercise of such options, (b) the issuance of shares of Common Stock
upon exercise of currently outstanding options and warrants and upon conversion
of currently outstanding convertible securities of the Company if previously
disclosed in writing to the Purchasers, but not with respect to any amendment or
modification thereof, (c) shares of Common Stock issuable upon conversion of the
New Debentures and exercise of the New Warrants in accordance with the terms
thereof, and (d) shares of Common Stock issuable in connection with a Strategic
Transaction (as defined below), unless (i) the Company delivers to each
Purchaser a written notice (the "Subsequent Placement Notice") of its intention
to effect such Subsequent Placement, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such Subsequent Placement,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Placement shall be effected, and attached to which shall be a
term sheet or similar document relating thereto, and (ii) such Purchaser shall
not have notified the Company by 5:30 p.m. (New York City time) on the fifth
Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to cause such Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation; financing
to the Company on the same terms set forth in the Subsequent Placement Notice.
If the Purchasers shall fail to notify the Company of their intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Placement upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Placement Notice; provided, that the
Company shall provide the Purchasers with a second Subsequent Placement Notice,
and the Purchasers shall again have the right of first refusal set forth above,
if the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason substantially on the terms set
forth in such Subsequent Placement Notice within 30 Trading Days after the date
of the initial Subsequent Placement Notice shall not have been consummated for
any reason substantially on the terms set forth in such Subsequent Placement
Notice within 30 Trading Days after the date of the initial Subsequent Placement
Notice with the Person (or an Affiliate of such Person) identified in the
Subsequent Placement Notice. The rights of the Purchasers under this paragraph
shall apply to each Subsequent Placement contemplated by the Company or such
Subsidiary, regardless of any prior waivers or non-participation. For purposes
of this paragraph, a "Strategic Transaction" means a transaction or relationship
in which the Company issues shares of Common Stock to an entity which is, itself
or through its subsidiaries, an operating company in a business related to the
business of the Company and in which the Company receives material benefits in
addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.
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EXHIBIT C
HBK CLOSING WARRANTS
1. Warrant to purchase 26,250 shares of Common Stock at $12.98 per share (as
adjusted pursuant to the terms thereof), dated January 29, 1999, issued in
the name of HBK Master Fund L.P. ("Master Fund");
2. Warrant to purchase 48,750 shares of Common Stock at $12.98 per share (as
adjusted pursuant to the terms thereof), dated January 29, 1999, issued in
the name of Master Fund;
3. Closing Warrant to purchase 63,420 shares of Common Stock at $14.235 per
share (as adjusted pursuant to the terms thereof), dated November 19, 1999,
issued in the name of Master Fund;
4. Warrant to purchase 52,000 shares of Common Stock at $21.00 per share (as
adjusted pursuant to the terms thereof), dated February 25, 2000, issued in
the name of Master Fund;
5. Class A Warrant to purchase up to 157,500 shares of Common Stock at $19.672
per share (as adjusted pursuant to the terms thereof), dated April 6, 2000,
issued in the name of Montrose Investments Ltd. ("Montrose");
6. Warrant to purchase up to 40,000 shares of Common Stock at $10.47 per share
(as adjusted pursuant to the terms thereof), dated September 21, 2000,
issued in the name of Montrose; and
7. Closing Warrant to purchase 96,853 shares of Common Stock at $10.13 per
share (as adjusted pursuant to the terms thereof), dated September 29,
2000, issued in the name of Montrose.
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EXHIBIT D
STRONG RIVER CLOSING WARRANTS
1. Closing Warrant to purchase 63,420 shares of Common Stock at $14.235 per
share (as adjusted pursuant to the terms thereof), dated November 19, 1999,
issued in the name of Strong River;
2. Warrant to purchase 52,000 shares of Common Stock at $21.00 per share (as
adjusted pursuant to the terms thereof), dated February 25, 2000, issued in
the name of Strong River;
3. Class A Warrant to purchase up to 157,500 shares of Common Stock at $19.672
per share (as adjusted pursuant to the terms thereof), dated April 6, 2000,
issued in the name of Strong River;
4. Warrant to purchase up to 40,000 shares of Common Stock at $10.47 per share
(as adjusted pursuant to the terms thereof), dated September 21, 2000,
issued in the name of Strong River; and
5. Closing Warrant to purchase 96,853 shares of Common Stock at $10.13 per
share (as adjusted pursuant to the terms thereof), dated September 29,
2000, issued in the name of Strong River.
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