SECURITIES PAYMENT AGREEMENT
THIS SECURITIES PAYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 25th day of March, 2003 (the "Effective Date"), by and among AAI
International Inc., a Delaware corporation ("AAI International"), aaiPharma,
Inc., a Delaware corporation ("aaiPharma" and collectively with AAI
International and each of their affiliates, "AAI"), and Endeavor
Pharmaceuticals, Inc., a Delaware corporation ("Endeavor").
WHEREAS, Endeavor and aaiPharma are parties to that certain Pharmaceutical
Services Agreement dated February 4, 2002 (including the Proposals, as defined
and incorporated therein) (collectively, the "PSA"), pursuant to which aaiPharma
agreed to provide the Services (as such term is defined in the PSA) to Endeavor;
Whereas, Endeavor and AAI are parties to that certain Commercial Manufacturing
Agreement dated February 27, 2003 (the "CMA" and together with the PSA, the "AAI
Agreements"), pursuant to which AAI agreed to Manufacture Products and Package
Third Party Products (as such terms are defined in the CMA) for Endeavor; and
Whereas, Endeavor and AAI wish to enter into this Agreement to supplement the
AAI Agreements and permit the issuance to AAI of equity securities or notes
convertible into equity securities, for an aggregate issuance value of up to
$3,000,000, as a form of payment under the AAI Agreements.
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Payments with Securities. At any time during the eighteen (18) month period
commencing on the Effective Date (the "Issuance Period"), subject to
Section 2, Endeavor, in its sole discretion, may satisfy payment of any
invoice received from AAI pursuant to the AAI Agreements:
(a) During the period commencing on the Effective Date and ending on the
earlier of (x) four (4) months therafter, or (y) upon a "Change of
Control" (as defined in Endeavor's Amended and Restated Certificate of
Incorporation, as amended) (the "Initial Period"), (i) by cash, (ii)
by the issuance of convertible subordinated promissory notes,
substantially in the form attached to this Agreement as Exhibit "A"
(each, a "Note"), convertible into either (A) shares of Endeavor's
preferred stock, par value $.01 per share ("Preferred Stock")
designated as "Series E Convertible Preferred Stock" ("Series E
Stock"), at a value of $19.79 per share, if Endeavor does not
designate a new class of Preferred Stock as "Series F Convertible
Preferred Stock" ("Series F Stock") and does not issue shares of
Series F Stock to other investors during the Initial Period, or (B)
shares of Series F Stock, at the same value per share at which such
shares of Series F Stock were issued to other investors, if Endeavor
designates a new class of Series F Stock and
issues shares of Series F Stock to other investors during the Initial
Period, or (iii) by any combination of cash and Notes; and
(b) During the remainder of the Issuance Period following the Initial
Period (i) by cash, (ii) by the issuance of any of the following
(each, "Stock"): (A) shares of Series E Stock, at a value of $19.79
per share, if Endeavor does not designate a new class of Series F
Stock and does not issue shares of Series F Stock to other investors
during the Initial Period, (B) shares of Series F Stock, at the same
value per share at which such shares of Series F Stock were issued to
other investors, if Endeavor designates a new class of Series F Stock
and issues shares of Series F Stock to other investors during the
Initial Period, or (C) following a Change of Control, if any, equity
securities of Endeavor's successor, at the same value per share at
which such Series E Stock or Series F Stock, as the case may be, was
valued in such Change of Control, or (iii) by any combination of cash
and Stock in accordance with this Section 1(b); and
provided, however, that:
(c) Endeavor may not issue shares of Stock or Notes pursuant to this
Agreement that have an aggregate issuance value in excess of
$3,000,000;
(d) Endeavor may not issue that number of shares of Stock or Notes
convertible into that number of shares of Stock pursuant to this
Agreement which aaiPharma has advised Endeavor would cause aaiPharma
to own twenty percent (20%) or more of the capital stock of Endeavor
at the time of such issuance;
(e) Endeavor may not issue shares of Stock or Notes pursuant to this
Agreement to satisfy an invoice for materials or packaging materials
used by AAI in performing services under the AAI Agreements that are
invoiced either based on a pass-through cost arrangement or directly
by the third party vendor;
(f) Endeavor may not issue shares of Stock or Notes pursuant to this
Agreement to satisfy more than fifty percent (50%) of an invoice
amount for Services under the PSA that constitute clinical trial or
other developmental Services; and
(g) Endeavor must advise AAI of the method by which it will satisfy
payment of an invoice received from AAI pursuant to the AAI Agreements
(i.e. by cash, Notes, Stock or a combination thereof) at the time
Endeavor submits a Purchase Order (as defined in the CMA) to AAI or at
the time Endeavor accepts a Proposal (as defined in the PSA) by
executing and submitting such Proposal to AAI, as applicable.
2. Adjustments.
(a) In the event that Endeavor enters into a Change of Control, at anytime
before the earlier of (i) the consummation of a private placement(s)
of equity or debt securities of at least $8,000,000 in the aggregate,
(ii) an "Initial Public Offering" (as defined in Endeavor's Amended
and Restated Certificate of Incorporation, as
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amended), or (iii) December 31, 2003, in which the shares of Series E
Stock or Series F Stock issued to AAI hereunder, as appropriate, are
valued at less than $19.79 per share or the value per share at which
shares of Series F Stock were issued to other investors, respectively
(a "Shortfall"), then Endeavor shall require that as a condition to
the consummation of such Change of Control AAI shall be allocated
additional consideration with a value equivalent to the Shortfall.
(b) In the event that Endeavor does not enter into a Change of Control or
Initial Public Offering or does not consummate a private placement(s)
of equity or debt securities of at least $8,000,000 in the aggregate
(each, a "Transaction") by December 31, 2003, Endeavor shall promptly
issue to AAI, at no additional cost to AAI, the same number of shares
and series of Stock issued to AAI prior to December 31, 2003 pursuant
hereto. If Endeavor does not enter into a Transaction by December 31,
2003, then, to the extent Endeavor elects to satisfy payment of any
invoice from AAI with Stock, in accordance with Section 1 hereof, for
services rendered by AAI after December 31, 2003, Endeavor shall
promptly issue to AAI, at no additional cost to AAI, the same number
of shares and series of Stock issued to AAI in satisfaction of such
invoice pursuant to Section 1 hereof. All additional issuances of
Stock pursuant to this Section 2(b) shall be subject to the
restriction contained in Section 1(d) hereof.
3. Investor Representations. In connection with any and all issuances of
shares of Stock or Notes by Endeavor to AAI pursuant to this Agreement, AAI
represents and warrants to Endeavor, as of the time of each such issuance,
that:
(a) Accredited Investor. AAI is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act of 1933, as amended
(the "Securities Act").
(b) No Registration. AAI understands that any shares of Stock that may be
issued to it pursuant to this Agreement, the shares of common stock,
par value $.01 per share, of Endeavor or its successor (the "Common
Stock") issuable upon conversion of such shares of Stock, any Notes
that may be issued to it pursuant to this Agreement, the shares of
Stock issuable upon conversion of such Notes, and the shares of Common
Stock issuable upon conversion of such shares of Stock issued upon
conversion of such Notes (collectively, the "Securities"), have not
been and will not be registered under the Securities Act on the ground
that the issuances of Securities hereunder are exempt from
registration under the Securities Act pursuant to Section 4(2)
thereof, and that Endeavor's reliance on such exemption is predicated
on AAI's representations set forth in this Section 3.
(c) Transfer Restrictions. AAI will not sell or otherwise transfer any of
the Securities, unless such disposition is registered under the
Securities Act or exempt from registration under the Securities Act
and, if Endeavor so requests, AAI receives a legal opinion in a form
acceptable to Endeavor, to the effect that such disposition is exempt
from registration under the Securities Act.
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(d) No Intention to Distribute. The Securities will be acquired for
investment for AAI's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof; AAI has
no present intention of selling, granting any participation in, or
otherwise distributing the same; and AAI does not have any contract,
undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any Third Party
with respect to the same.
(e) Experienced Investor. AAI is experienced in evaluating and investing
in private placement transactions of securities of companies in a
similar stage of development to that of Endeavor. AAI acknowledges
that it can bear the economic risk of receiving Securities in lieu of
cash as payment hereunder, and has such knowledge and experience in
financial and business matters to evaluate the merits and risks of
receiving Securities in lieu of cash as payment under this Agreement.
AAI has not been organized for the purpose of acquiring the
Securities.
4. Amendment of Agreements; Full Force and Effect. The AAI Agreements are
hereby amended to the extent necessary to give effect to and carry out the
transactions and agreements contemplated by this Agreement. Except as
otherwise provided in this Agreement, the AAI Agreements shall remain
unamended and shall continue in full force and effect.
5. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither Endeavor nor AAI may assign
this Agreement or any portion thereof without the prior written consent of
the other, which consent may not be unreasonably withheld or delayed,
except that no prior written consent shall be required if Endeavor or AAI
assigns any or all of its rights hereunder to one of its affiliates or
successor in interest pursuant to a merger, acquisition, reorganization or
similar transaction or series of transactions.
6. Notices. Unless otherwise stated in this Agreement as to the method of
delivery, all notices or other communications required or permitted to be
given hereunder will be in writing and will be deemed to have been duly
given if delivered by hand, courier, facsimile or if mailed first class,
postage prepaid, by registered or certified mail, return receipt requested
(such notices will be deemed to have been given on the date received in the
case of hand delivery, delivery by courier, or facsimile delivery, and on
the third (3rd) business day following the date of post mark in the case of
delivery by mail) as follows:
If to Endeavor:
Endeavor Pharmaceuticals, Inc.
127 Racine Drive, Suite 202
Wilmington, NC 28403
Attn: Vice President, Manufacturing and Business Development
Fax: 910-790-9041
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with a copy to:
Endeavor Pharmaceuticals, Inc.
127 Racine Drive, Suite 202
Wilmington, NC 28403
Attn: General Counsel
Fax: 910-790-9041
If to AAI:
AAI International Inc.
1726 N. 23rd St.
Wilmington, NC 28405
Attn: Sally Batts
Fax: 910-815-2362
with a copy to:
aaiPharma Inc.
2320 Scientific Park Dr.
Wilmington, NC 28409
Attn: General Counsel
Fax: (910) 815- 2387
7. Waiver. Any term or provision of this Agreement may be waived at any time
by the party entitled to the benefit thereof only by a written instrument
executed by such party. No delay on the part of Endeavor or AAI in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of either Endeavor or AAI
of any right, power or privilege hereunder operate as a waiver of any other
right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder.
8. Amendment. This Agreement may be modified or amended only by written
agreement of the parties hereto signed by authorized representatives of the
parties.
9. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
10. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the State of North Carolina, USA, excluding any choice of
law rules that may direct the application of the law of another state.
11. Captions. All section and subsection titles or captions contained in this
Agreement and in any exhibit, schedule or certificate referred to herein or
annexed to this Agreement are for convenience only, shall not be deemed a
part of this Agreement and shall not affect the meaning or interpretation
of this Agreement.
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12. Entire Agreement. This Agreement together with the AAI Agreements,
including the exhibits hereto or thereto, set forth the entire
understanding between the parties as to the subject matter hereof and
supersede all other documents, agreements, verbal consents, arrangements,
and understandings by or between the parties with respect to the subject
matter hereof.
13. Severability. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future laws effective while this
Agreement remains in effect, the legality, validity and enforceability of
the remaining provisions shall not be affected thereby.
14. Further Assurances. At any time or from time to time after any issuance of
Securities, Endeavor, on the one hand, and AAI, on the other hand, agree to
cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all
such further action as the other party may reasonably request in order to
evidence or effectuate the consummation of such issuance.
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IN WITNESS WHEREOF, each of the undersigned parties has caused this Agreement to
be executed by an authorized officer as of the date first written above.
Endeavor Pharmaceuticals, Inc.
By: /S/ R. Forrest Waldon
R. Forrest Waldon
President and Chief Executive Officer
AAI International Inc.
By: /S/ Vijay Aggarwal
Name: Vijay Aggarwal
Title: President
aaiPharma, Inc.
By: /S/ Philip S. Tabbiner
Name: Philip S. Tabbiner
Title: President and Chief Executive Officer