<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 25, 1997
TECHNICLONE CORPORATION
(Exact name of Registrant as specified in charter)
DELAWARE 0-17085 95-3698422
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
14282 FRANKLIN AVENUE, TUSTIN, CALIFORNIA 92780-7017
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 838-0500
NOT APPLICABLE
(Former name or former address, if changed, since last report)
Page 1 of 105 Pages
Exhibit Index is on Page 5
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 29, 1997, Techniclone Corporation, a Delaware corporation (the
"Company") entered into a First Amendment to Stock Exchange Agreement (the
"Amendment") with the stockholders of Peregrine Pharmaceuticals, Inc., a
Delaware corporation ("Peregrine"), pursuant to which the Company agreed to
amend certain provisions of the Stock Exchange Agreement ("Stock Exchange
Agreement") between the Company and the stockholders of Peregrine and to issue
an additional 80,000 shares of its Common Stock in exchange for all of the
issued and outstanding capital stock of Peregrine as set forth in the Amendment.
The Amendment provides that the major stockholders of Peregrine, who all agreed
to the amendment on April 24, 1997, will have a one year lock-up of the
Techniclone shares issued to them in the exchange except that during the lock-up
period the Sanderling entities are permitted to sell up to 275,000 shares, the
Saunders entities are permitted to sell up to 275,000 shares, Jennifer Lobo is
permitted to sell up to 90,000 shares and Philip Thorpe is permitted to sell up
to 50,000 shares. The Amendment also provides that the Company will sell
Sanderling $550,000 worth of its Common Stock on the Closing Date of the
transaction contemplated by the Stock Exchange Agreement and the Amendment at a
purchase price per share equal to eighty percent (80%) of the average closing
price of Techniclone's Common Stock for the five trading days immediately
preceding the Closing Date.
As there are no further contingencies, the Agreements have been
finalized and all of the preconditions to the closing were met before April 30,
1997, the Company will account for the transaction contemplated by the Stock
Exchange Agreement in the year ended April 30, 1997.
The consideration to be paid for the outstanding shares of stock of
Peregrine, consisting of 5,080,000 shares of the Company's Common Stock, will be
issued upon a determination by the California Commissioner of Corporations that
the terms and conditions of the transaction are fair to Peregrine's stockholders
or upon the effectiveness of a registration statement filed by the Company
relating to the shares of Common Stock to be issued to the Peregrine
stockholders.
ITEM 5 OTHER EVENTS
On April 25, 1997, Techniclone Corporation, a Delaware corporation (the
"Registrant" or the "Company") entered into a 5% Preferred Stock Investment
Agreement and a Registration Rights Agreement with eleven (11) investors
pursuant to which the Company sold 12,000 shares of 5% Adjustable Convertible
Class C Preferred Stock (the "Class C Stock") for an aggregate purchase price of
$12,000,000. The Company filed a Certificate of Designation with the Delaware
Secretary on April 23, 1997 creating the 5% Adjustable Convertible Class C
Preferred Stock. In connection with the issuance of the Class C Stock, the
Registrant paid Cappello & Laffer Capital Corp. a non-accountable expense
allowance of $100,000 and a $720,000 commission representing six percent of the
Purchase Price of the Class C Stock and issued a Warrant to purchase 1,200
shares of Class C Stock at $1,000 per share.
The Class C Stock is convertible at the option of the holder,
commencing on the day after the fifth month anniversary of the Closing Date,
into a number of shares of Common Stock of the Registrant determined by dividing
$1,000 plus all accrued but unpaid dividends by the Conversion Price. The
Conversion Price is the average of the lowest trading price
2
<PAGE> 3
of Registrant's Common Stock for the five consecutive trading days ending with
the trading day prior to the conversion date reduced by 13 percent starting on
the 1st day of the 8th month after the Closing Date, 20 percent starting on the
1st day of the 10th month after the Closing Date, 22.5 percent starting on the
1st day of the 12th month after the Closing Date, 25 percent starting on the 1st
day of the 14th month after the Closing Date, 27 percent starting on the 1st day
of the 16th month after the Closing Date and thereafter. At any time after March
24, 1998, the Conversion Price will be the lower of the Conversion Price as
calculated in the preceding sentence or the average of the Closing Price of the
Company's Common Stock for the thirty (30) trading days including and
immediately preceding March 24, 1998 (the "Conversion Cap"). In addition to the
Common Stock issued upon conversion of the Class C Stock, Warrants to purchase
one-fourth of the number of shares of Common Stock issued upon the conversion
will be issued to the converting investor. The Warrants are exercisable at 110
percent of the Conversion Cap for a period of five years from the closing date.
The Holders of the Class C Stock are entitled to receive dividends at
the rate of $50.00 per share per annum commencing September 30, 1997 and
thereafter quarterly. The dividends are to be paid in Class C Stock valued at
$1,000 per share (fractional shares to be paid in cash) or at the option of the
Company in cash. The Class C Stock is subject to mandatory redemption upon
certain events which are within the Company's control, and mandatory conversion
at any time more than twelve (12) months after the closing date, subject to
certain conditions as provided in the Certificate of Designation. Except as
provided in the Certificate of Designation or by Delaware law, the Class C Stock
does not have voting rights.
The Company intends to use the proceeds of the offering to complete the
clinical trials of the LYM-1 antibody, to begin clinical trials of the TNT
antibody, pre-clinical development of the Company's products, construction of
facilities and for general corporate and working capital purposes.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Listed below are the financial statements, pro forma financial
information and exhibits, if any filed as part of this report.
(a) Financial Statements of Peregrine Pharmaceuticals, Inc. for
the years ended December 31, 1995 and 1996 and for the period
from September 16, 1993 (date of inception) through December
31, 1996 and Independent Auditors' Report.
(b) Unaudited Pro Forma Consolidated Balance Sheet as of January
31, 1997 and the Unaudited Pro Forma Consolidated Statements
of Operations for the Nine Months Ended January 31, 1997 and
Fiscal Year Ended April 30, 1996.
3
<PAGE> 4
(c) EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 First Amendment to Stock Exchange Agreement among the
stockholders of Peregrine Pharmaceuticals, Inc. and
Registrant.
3.1 Certificate of Designation of 5% Adjustable Convertible Class
C Preferred Stock as filed with the Delaware Secretary of
State on April 23, 1997.
4.1 5% Preferred Stock Investment Agreement between Registrant and
the Investors.
4.2 Registration Rights Agreement between the Registrant and the
Investors.
4.3 Form of Stock Purchase Warrant, to be issued to the holders of
the Class C Preferred Stock upon conversion of the Class C
Preferred Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TECHNICLONE CORPORATION
Date: April 25, 1997 By: /s/ William V. Moding
------------------------------------------
William V. Moding, Chief Financial Officer
4
<PAGE> 5
EXHIBIT INDEX
Listed below are the financial statements, pro forma financial
information and exhibits filed as part of this report.
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
- -- Unaudited Pro Forma Consolidated Balance 6
Sheet as of January 31, 1997 and the
Unaudited Pro Forma Consolidated
Statements of Operations for the Nine
Months Ended January 31, 1997 and the
Fiscal Year Ended April 30, 1996.
- -- Financial Statements of Peregrine 10
Pharmaceuticals, Inc. for the years
ended December 31, 1995 and 1996
and for the period from
September 16, 1993 (date of inception)
through December 31, 1996 and
Independent Auditors' Report.
2.1 First Amendment to Stock Exchange 25
Agreement among the stockholders of
Peregrine Pharmaceuticals, Inc.
and Registrant.
3.1 Certificate of Designation of 5% Adjustable, 34
Convertible Class C Preferred Stock as filed
with the Delaware Secretary of State on
April 23, 1997.
4.1 5% Preferred Stock Investment Agreement 59
between Registrant and the Investors.
4.2 Registration Rights Agreement between the 79
Registrant and the Investors.
4.3 Form of Stock Purchase Warrant, to be issued 97
to the holders of the Class C Preferred Stock
upon conversion of the Class C Preferred Stock.
5
<PAGE> 6
The following unaudited pro forma consolidated statements of operations
for the nine month period ended January 31, 1997 and the fiscal year ended April
30, 1996 and the unaudited pro forma consolidated balance sheet as of January
31, 1997 have been prepared assuming that the acquisition of Peregrine
Pharmaceuticals, Inc. (Peregrine) and the issuance of the Series C preferred
stock had occurred as of the beginning of the respective periods for the
consolidated statements of operations presentation and as of January 31, 1997
for the consolidated balance sheet presentation.
The unaudited pro forma consolidated financial statements are provided
for information purposes only and do not purport to present the financial
position or results of operations of Techniclone Corporation (Techniclone or the
Company) had the acquisition or the issuance of the Series C preferred stock
assumed therein occurred on the dates specified. The unaudited pro forma
consolidated financial statements are not necessarily indicative of the results
of operations that may be expected in the future.
Peregrine is a developmental state enterprise and is engaged in
research and development of new technologies for use in the production of
therapeutic agents for treatment of cancerous tumors. Therefore, the excess of
the purchase price paid by Techniclone over the net tangible assets acquired has
been recorded as in-process research and development in the accompanying
unaudited pro forma consolidated statements of operations.
TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
TECHNICLONE PEREGRINE
NINE MONTHS ENDED NINE MONTHS ENDED ACQUISITION FINANCING
JANUARY 31, 1997 DECEMBER 31, 1996 ADJUSTMENTS ADJUSTMENTS (4)(5) CONSOLIDATED
----------------- ----------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest income $ 198,200 $ - $ - $ - $ 198,200
Rental income 34,107 34,107
----------------- ----------------- ------------- ------------------ -------------
Total revenues 232,307 232,307
COSTS AND EXPENSES:
Research and development 2,023,381 664,191 2,687,572
General and administrative:
Unrelated entities 1,387,826 368,165 1,755,991
Affiliates 216,012 9,014 225,026
Stock based compensation 395,832 388,357(2) 784,189
Interest 100,417 36,241 27,624(2) 164,282
In-process research and
development 26,632,018(1) 26,632,018
----------------- ----------------- ------------- ------------------ -------------
Total costs and expenses 4,123,468 1,077,611 27,047,999 32,249,078
----------------- ----------------- ------------- ------------------ -------------
Net loss $ (3,891,161) $ (1,077,611) $ (27,047,999) $ - $ (32,016,771)
================= ================= ============= ================== =============
Pro forma weighted average
common shares outstanding
26,392,912
=============
Pro forma net loss per common share $ (1.21)
=============
</TABLE>
See notes to unaudited pro forma consolidated financial statements
6
<PAGE> 7
TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
TECHNICLONE PEREGRINE
FISCAL YEAR ENDED FISCAL YEAR ENDED ACQUISITION FINANCING
APRIL 30, 1996 MARCH 31, 1996 ADJUSTMENTS ADJUSTMENTS (4)(5) CONSOLIDATED
----------------- ----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 2,580 $ - $ - $ - $ 2,580
License agreements 3,002,244 3,002,244
Interest income 138,499 138,499
----------------- ----------------- --------------- ------------------ -----------------
Total revenues 3,143,323 3,143,323
COSTS AND EXPENSES:
Cost of sales 2,580 2,580
Research and development 1,679,558 799,921 2,479,479
General and administrative:
Unrelated entities 947,816 369,964 1,317,780
Affiliates 170,659 88,914 259,573
Stock based compensation 388,357(2) 388,357
Interest 17,412 22,099 27,624(2) 67,135
In-process research and
development 26,632,018(1) 26,632,018
----------------- ----------------- --------------- ------------------ -----------------
Total costs and expenses 2,818,025 1,280,898 27,047,999 31,146,922
----------------- ----------------- --------------- ------------------ -----------------
Net Income (loss) $ 325,298 $ (1,280,898) $ (27,047,999) $ - $ (28,003,599)
================= ================= =============== ================== =================
Pro forma weighted average
common shares outstanding 23,695,008
=================
Pro forma net loss per common share $ (1.18)
=================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
7
<PAGE> 8
TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 31, 1997
<TABLE>
<CAPTION>
TECHNICLONE PEREGRINE ACQUISITION FINANCING
JANUARY 31, 1997 DECEMBER 31, 1996 ADJUSTMENTS ADJUSTMENTS (4) CONSOLIDATED
---------------- ----------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,065,587 $ 15,636 $ 1,072,376(2)(3) $ 11,180,000 $ 14,333,599
Investments 997,118 997,118
Accounts receivable, net 31,947 31,947
Inventory 275,351 275,351
Prepaid expenses and
other current Assets 5,383 6,000 326,700(2) 338,083
---------------- ----------------- ----------- --------------- --------------
Total current assets 3,375,386 21,636 1,399,076 11,180,000 15,976,098
PROPERTY:
Land 1,050,510 1,050,510
Building and improvements 3,038,994 3,038,994
Laboratory equipment 1,353,135 1,353,135
Office furniture and
equipment 219,588 219,588
---------------- ----------------- ----------- --------------- --------------
Total 5,662,227 5,662,227
Less accumulated
depreciation (953,725) (953,725)
---------------- ----------------- ----------- --------------- --------------
Property, net 4,708,502 4,708,502
OTHER ASSETS:
Note receivable from
shareholder 350,000 350,000
Patents, net 182,150 182,150
---------------- ----------------- ----------- --------------- --------------
Total other assets 532,150 532,150
TOTAL $ 8,616,038 $ 21,636 $ 1,399,076 $ 11,180,000 $ 21,216,750
================ ================= =========== =============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 205,685 $ 38,370 $ - $ - $ 244,055
Accrued legal and
accounting fees 85,000 249,304 334,304
Accrued payroll and
related costs 99,005 41,181 140,186
Accrued license
termination fee 100,000 100,000
Accrued license and
royalties 81,667 273,211 354,878
Accrued interest 16,476 36,242 52,718
Reserve for contract
losses 207,714 207,714
Current portion of
long-term debt 72,609 72,609
Other current liabilities 68,663 45,913 114,576
---------------- ----------------- ----------- --------------- --------------
Total current
liabilities 936,819 684,221 1,621,040
LONG-TERM DEBT 1,941,271 750,000 (750,000)(2) 1,941,271
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred Stock, Class A 294,109 (294,109)(2)
Preferred Stock, Class B 2,200 444,108 (444,108)(2) 2,200
Preferred Stock, Class C 926,071 (926,071)(2) 12 12
Common Stock 25,406,551 62 27,368,447(1)(2)(3) 52,775,060
Additional paid-in capital 2,457,620 142,146 (142,146)(1)(2) 11,179,988 13,637,608
Accumulated Deficit (21,651,841) (3,219,081) (23,412,937)(1)(2) (48,283,859)
---------------- ----------------- ----------- --------------- --------------
6,214,530 (1,412,585) 2,149,076 11,180,000 18,131,021
Less notes receivable
from sale of
common stock (476,582) (476,582)
---------------- ----------------- ----------- --------------- --------------
Net stockholders'
equity 5,737,948 (1,412,585) 2,149,076 11,180,000 17,654,439
---------------- ----------------- ----------- --------------- --------------
TOTAL $ 8,616,038 $ 21,636 $ 1,399,076 $ 11,180,000 $ 21,216,750
================ ================= =========== =============== ==============
</TABLE>
See notes to unaudited pro forma consolidated financial statements
8
<PAGE> 9
TECHNICLONE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) Pro forma adjustments to reflect the purchase of net assets of
Peregrine ($186,491) through the issuance of the Company's common
stock. The excess purchase price over the fair market value of net
assets acquired ($26,632,018) has been allocated to in-process research
and development.
(2) Pro forma adjustments to reflect transactions by Peregrine including,
the issuance of common stock to a key employee and advisor for prior
services (valued at $388,357), the issuance of convertible notes
payable for cash and advances receivable ($876,700), the conversion of
preferred stock to common stock ($1,664,288), the subsequent conversion
of notes payable to common stock ($1,626,700), each of which is to
occur prior to or concurrent with the acquisition of Peregrine.
(3) To reflect the issuance of 148,649 shares of the Company's common stock
for $550,000 as provided for in the acquisition agreement.
(4) Pro forma adjustments to record the issuance of $12,000,000 in Series C
preferred stock net of issuance costs of $820,000. As the financing was
the sale of an equity security with dividends payable in preferred
stock, there is no effect on the pro forma statement of operations for
either the nine months ended January 31, 1997 or the fiscal year ended
April 30, 1996.
(5) No pro forma adjustments have been made to reflect pro forma interest
income for the nine months ended January 31, 1997 or the fiscal year
ended April 30, 1996, due to the insignificance of such amounts.
9
<PAGE> 10
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS FOR
THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
AND INDEPENDENT AUDITORS' REPORT
10
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Peregrine Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Peregrine Pharmaceuticals,
Inc. (a development stage enterprise) (the Company) as of December 31, 1995 and
1996, and the related statements of operations, stockholders' deficit and cash
flows for the years then ended and for the period from September 16, 1993 (date
of inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Peregrine Pharmaceuticals, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended and for the period from September 16, 1993 (date of
inception) through December 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company's recurring losses from operations and its
accumulated deficit and working capital deficit raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning this
matter are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/ss/ DELOITTE & TOUCHE, LLP
February 24, 1997, except Note 10
as to which the date is April 2, 1997
11
<PAGE> 12
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 358,998 $ 15,636
Prepaid expenses and other current assets 6,000
----------- -----------
$ 358,998 $ 21,636
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 69,151 $ 38,370
Accrued research fees 108,792 129,461
Accrued license fees 75,000 143,750
Accrued legal fees 72,544 249,304
Accrued payroll and consulting fees 85,930 41,181
Accrued interest payable to stockholders (Note 3) 36,242
Advances payable to stockholders (Note 3) 45,913
----------- -----------
Total current liabilities 411,417 684,221
CONVERTIBLE NOTES PAYABLE TO STOCKHOLDERS
(Note 3) 750,000
COMMITMENTS (Notes 4 and 5)
STOCKHOLDERS' DEFICIT (Notes 3, 5, 6, 7 and 10):
Preferred stock, $.0001 par value; 859,260 shares authorized:
Class A convertible preferred stock, 150,000 shares outstanding,
1995 and 1996 (liquidation preference of $300,000) 294,109 294,109
Class B convertible preferred stock, 100,000 shares outstanding,
1995 and 1996 (liquidation preference of $450,000) 444,108 444,108
Class C convertible preferred stock, 179,630 shares outstanding,
1995 and 1996 (liquidation preference of $970,000) 926,071 926,071
Common stock, $.0001 par value; 1,500,000 shares authorized;
616,612 shares (1995) and 624,833 shares (1996) outstanding 62 62
Additional paid-in capital 100,646 142,146
Deficit accumulated during development stage (1,817,415) (3,219,081)
----------- -----------
Net stockholders' deficit (52,419) (1,412,585)
----------- -----------
$ 358,998 $ 21,636
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
12
<PAGE> 13
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SEPTEMBER 16,
1993
(DATE OF
INCEPTION)
THROUGH
DECEMBER 31,
1995 1996 1996
<S> <C> <C> <C>
COSTS AND EXPENSES (Notes 2, 3, 5, 6, 7, 8 and 9):
Research fees $ 236,457 $ 340,000 $ 598,842
License fees 173,558 162,500 343,750
Payroll 198,118 362,272 648,390
Advisor fees 161,239 121,894 374,616
Legal fees 279,788 220,170 545,556
General and administrative:
Unrelated entities 78,613 149,575 361,706
Affiliates 118,552 9,014 287,881
Interest (primarily to stockholders) 22,099 36,241 58,340
----------- ----------- -----------
NET LOSS $(1,268,424) $(1,401,666) $(3,219,081)
=========== =========== ===========
NET LOSS PER COMMON SHARE (Note 2) $ (2.48) $ (2.26) $ (5.98)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (Note 2) 510,466 620,756 538,500
=========== =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
13
<PAGE> 14
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
BALANCES, September 16, 1993 (date of
inception) - $ - - $ -
Common stock issued for cash 2,457,143 246
Recapitalization and reverse stock split (2,457,143) (246)
Common stock issued for cash and services 503,250 51
Net loss for period from September 16, 1993
through December 31, 1994
------------- ------------- ------------- -------------
BALANCES, December 31, 1994 503,250 51
Common stock issued for cash 100,000 10
Preferred stock issued for cash
and conversion of debt, net of
offering costs of $55,714 429,630 1,664,288
Common stock issued in exchange for services 13,362 1
Net loss
------------- ------------- ------------- -------------
BALANCES, December 31, 1995 429,630 1,664,288 616,612 62
Common stock issued in exchange for services 8,221
Net loss
------------- ------------- ------------- -------------
BALANCES, December 31, 1996 429,630 $ 1,664,288 624,833 $ 62
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
LOSS
ADDITIONAL DURING NET
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE DEFICIT
<S> <C> <C> <C>
BALANCES, September 16, 1993 (date of
inception) $ - $ - $ -
Common stock issued for cash
Recapitalization and reverse stock split
Common stock issued for cash and services 3,000 3,051
Net loss for period from September 16, 1993
through December 31, 1994 (548,991) (548,991)
------------- ------------- -------------
BALANCES, December 31, 1994 3,000 (548,991) (545,940)
Common stock issued for cash 29,990 30,000
Preferred stock issued for cash
and conversion of debt, net of
offering costs of $55,714 12,657 1,676,945
Common stock issued in exchange for services 54,999 55,000
Net loss (1,268,424) (1,268,424)
------------- ------------- -------------
BALANCES, December 31, 1995 100,646 (1,817,415) (52,419)
Common stock issued in exchange for services 41,500 41,500
Net loss (1,401,666) (1,401,666)
------------- ------------- -------------
BALANCES, December 31, 1996 $ 142,146 $ (3,219,081) $ (1,412,585)
============= ============= =============
</TABLE>
See independent auditors' report and notes to financial statements.
14
<PAGE> 15
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SEPTEMBER 16,
1993
(DATE OF
INCEPTION)
THROUGH
DECEMBER 31,
1995 1996 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,268,424) $(1,401,666) $(3,219,081)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued in exchange for services 55,000 41,500 99,500
Preferred stock issued in exchange for accrued
interest 12,657 12,657
Changes in operating assets and liabilities:
Prepaid expenses and other assets 11,264 (6,000) (6,000)
Accounts payable 54,905 (30,781) 38,370
Accrued research fees 92,125 20,669 129,461
Accrued license fees 67,308 68,750 143,750
Accrued legal fees 38,554 176,760 249,304
Accrued payroll and consulting fees (24,851) (44,749) 41,181
Accrued interest payable to stockholders 36,242 36,242
----------- ----------- -----------
Net cash used in operating activities (961,462) (1,139,275) (2,474,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 667,288 1,165,788
Proceeds from issuance of common stock 30,051 30,051
Proceeds from issuance of notes and advances
payable to stockholders 498,500 795,913 1,294,413
----------- ----------- -----------
Net cash provided by financing activities 1,195,839 795,913 2,490,252
----------- ----------- -----------
</TABLE>
See independent auditors' report and notes to financial statements.
15
<PAGE> 16
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SEPTEMBER 16,
1993
(DATE OF
INCEPTION)
THROUGH
DECEMBER 31,
1995 1996 1996
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $234,377 $(343,362) $ 15,636
CASH AND CASH EQUIVALENTS,
beginning of period 124,621 358,998
-------- --------- --------
CASH AND CASH EQUIVALENTS,
end of period $358,998 $ 15,636 $ 15,636
======== ========= ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 9,424 $ -- $ 9,424
Income taxes paid $ -- $ -- $ --
NONCASH INVESTING AND FINANCING
ACTIVITIES - Preferred stock issued upon
conversion of note payable and accrued interest
to stockholders $512,657 $ -- $512,657
</TABLE>
See independent auditors' report and notes to financial statements.
16
<PAGE> 17
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
1. GENERAL AND NATURE OF OPERATIONS
Nature of Operations - Peregrine Pharmaceuticals, Inc. (the Company) was
incorporated on September 16, 1993 under the laws of the State of
Delaware. The Company is considered to be in the development stage as
defined under Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises. The Company
is engaged in research and development of new technologies for use in
the production of therapeutic agents for treatment of cancerous tumors.
Going Concern - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As
shown in the financial statements, the Company has incurred losses since
inception and has an accumulated deficit at December 31, 1996.
Historically, the Company has relied on third parties and investors to
fund its operations, and management expects to either receive additional
funds in the future or consummate a merger transaction with an unrelated
entity. There can be no assurances that this funding will be received.
If the Company does not receive additional funding or if the merger is
not completed, it will be forced to scale back operations, which could
have a material adverse effect on the Company. The Company's
continuation as a going concern is dependent on its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required and, ultimately, to
attain successful operations.
In February and March 1997, the Company issued an additional $550,000 in
convertible notes payable, the proceeds from which were used to reduce
certain short-term liabilities and to fund very near-term operations.
Additionally, as of February 24, 1997, the Company was negotiating a
potential merger with an unaffiliated entity, Techniclone International
Corporation (Techniclone). The merger, if consummated, would provide for
the issuance of approximately 5,080,000 shares of Techniclone common
stock and the assumption of net liabilities of approximately $400,000 in
exchange for all of the outstanding shares of the Company's stock. In
conjunction with the merger, certain notes payable and preferred stock
will be converted into common stock of the Company (Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents - The Company considers all highly-liquid, short-term
investments with an initial maturity of three months or less to be cash
equivalents.
17
<PAGE> 18
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Actual
results could differ from these estimates.
Research and License Fees - Fees from research and license arrangements
involving new technologies which provide for specified minimum fees to
be paid by the Company and do not include cancellation clauses are
expensed upon the earlier of payment of the funding for research or when
the obligation is incurred. Fees from research and license arrangements
with cancellation clauses are expensed as incurred. Contingent fees
related to these agreements are expensed when the contingency is
resolved.
Stock Compensation - The Company periodically issues common stock for
services and grants options to purchase the Company's common stock at
specified prices. The Company accounts for stock-based compensation
issued to employees under Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and for stock-based
compensation issued to others under SFAS No. 123, Accounting for
Stock-Based Compensation.
The Company measures compensation expense for stock granted for services
based on the fair value of the common stock at the date of issuance. The
fair value is determined based on the more readily determinable of the
value of the service provided or the fair market value of the common
stock as determined on a periodic basis by the Company's Board of
Directors. Compensation expense for options granted to employees is
measured based on the difference between the fair market value of the
stock on the date of grant and the option price and is amortized over
the related vesting period on a straight-line basis. Compensation
expense for options granted to nonemployees is measured based on the
difference between the fair value of the option utilizing a Black
Scholes formula and the option price and is amortized over the vesting
period.
Income Taxes - The Company accounts for income taxes in accordance with
the standards specified in SFAS No. 109, Accounting for Income Taxes.
Net Loss per Common Share - Net loss per share is calculated by dividing
the net loss by the weighted average common shares outstanding. The
weighted average common shares outstanding have been computed assuming
the recapitalization and reverse stock splits occurred at the date of
inception of the Company (Note 6). The effects of possible conversion of
preferred stock and/or the exercise of outstanding options and warrants
have not been considered, as their effect would be antidilutive.
18
<PAGE> 19
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Pro Forma Financial Information - The pro forma financial information
assumes the conversion of the $750,000 in notes payable to shares of
common stock at $5.40 per share, excluding payment of accrued interest,
which will occur concurrent with the closing of the merger transaction
(Note 10).
Fair Value of Financial Instruments - At December 31, 1996, the
Company's financial instruments consist of accounts payable, accrued
liabilities, advances to stockholders and convertible notes payable to
stockholders. The Company believes the historical value of all financial
instruments, except the convertible notes payable to stockholders,
approximates the fair market value due to the short-term nature of the
related instruments. The fair market value of the convertible notes
payable to stockholders approximates $743,500, which reflects a discount
on the notes payable for the difference in the interest rate on the
notes payable and an estimated interest rate for debt instruments with
similar terms.
3. ADVANCES AND NOTES PAYABLE TO STOCKHOLDERS
The advances to stockholders represent funds advanced for expenses, were
noninterest-bearing and were due on demand. The advances were repaid
through the issuance of convertible notes payable in January 1997 (Note
10).
In August 1995, the Company issued $500,000 in convertible notes payable
to a primary stockholder. The notes bore interest at 8.25% per annum,
were convertible into Series C preferred stock and were due on February
29, 1996. The notes payable and accrued interest of $12,657 were
converted into Series C preferred stock at $5.40 per share on December
18, 1995. The effect on the statement of operations for the year ended
December 31, 1995 had the notes been converted as of the issuance date
would not have been material.
In May and June 1996, the Company issued $750,000 in convertible notes
payable to three primary stockholders. The notes bear interest at 8.25%
per annum, are due on February 28, 1997, but may be extended with the
consent of the noteholders through July 31, 1997, and are convertible
into Series D preferred stock at a price to be determined at the time of
a subsequent financing. Under the terms of the note agreement, the
noteholders received warrants to purchase shares of the future series of
preferred stock of the Company equal to the note value divided by the
lesser of $6.75 per share or the value of the preferred stock
established in the next subsequent financing. The warrants expire in May
2000.
19
<PAGE> 20
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Interest expense related to the notes payable to stockholders amounted
to $12,657, $36,242 and $48,899 for the years ended December 31, 1995
and 1996 and the period from September 16, 1993 through December 31,
1996, respectively.
In conjunction with the acquisition of the Company by Techniclone, the
notes payable will be converted into shares of the Company's common
stock at $5.40 per share (Note 10). As such, the notes have been
classified as noncurrent liabilities in the accompanying financial
statements.
4. COMMITMENTS
The Company has an employment agreement with an officer of the Company,
which expires in December 1997. Under the terms of the agreement, upon
termination of employment of the officer, the Company would be required
to issue 15,000 shares of the Company's common stock and pay certain
severance costs aggregating $153,000. The total future commitment under
this agreement, assuming no termination of the employee, amounted to
$225,000 at December 31, 1996.
The Company has entered into consulting agreements with various
scientific advisors; such agreements expire through August 1997. The
agreements provide that the Company pay fixed fees or issue common stock
of the Company in exchange for consulting services. Of the amounts
expensed, $55,000, $33,000 and $91,000 were paid through the issuance of
common stock for the years ended December 31, 1995 and 1996 and the
period from September 13, 1996 through December 31, 1996, respectively.
At December 31, 1996, future commitments related to these agreements
amounted to $33,250, due in 1997.
5. LICENSE AND RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has entered into several license, sublicense and research
and development agreements with various entities. The license agreements
provide for exclusive, worldwide licensing rights to certain patents and
technology in exchange for certain fixed and contingent payments and
royalties ranging between 2% and 4% of net sales of the related
products. The agreements also provide for reduced royalty payments if
the technology is sublicensed or if products incorporate both the
licensed technology and another technology. Certain of the agreements
are terminable at the discretion of the Company and others are
cancelable through 2001. Amounts expensed in conjunction with these
agreements amounted to $173,558 in 1995, $162,500 in 1996 and $343,750
for the period from September 16, 1993 through December 31, 1996. Total
future fixed commitments, exclusive of royalties, under these agreements
are $181,250 for the year ending December 31, 1997 and $100,000 for the
year ending December 31, 2000.
20
<PAGE> 21
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Contingent future commitments, exclusive of royalties, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Payments due upon completion of Phase I clinical trials ................$ 37,500
Annual payments upon patent issuance and until royalties begin ......... 50,000
Payments due upon initiation of Phase II clinical trials ............... 175,000
Payments due upon completion of Phase II clinical trials ............... 50,000
Payments upon commercial introduction of the related product or
new drug or product license application .............................. 375,000
Payments upon commercial introduction for each additional new
product encompassing related technology .............................. 300,000
</TABLE>
During 1994 and 1995, the Company entered into sponsored research
agreements with academic medical institutions affiliated with
stockholders of the Company. These agreements expire in 1997. Scheduled
payments of approximately $316,000 are required under these agreements
during the year ending December 31, 1997.
Certain of the Company's scientific advisory board members are
affiliated with these academic institutions.
6. STOCKHOLDERS' DEFICIT
During 1995 and 1996, the Company issued stock for services performed by
employees and consultants. Amounts expensed for such exchanges amounted
to $55,000, $41,500 and $99,500 for the years ended December 31, 1995
and 1996 and the period from September 13, 1996 through December 31,
1996, respectively, and were based on the more readily determinable
value of the service performed or the fair market value of the common
stock at the date of issuance.
During 1995 and 1996, the Company issued various series of preferred
stock. The preferred stock is voting stock and includes provisions for:
preferences in liquidation; antidilution protection; dividends, when and
if declared; conversion into common stock at any time at the option of
the holder and automatically at the time of an initial public offering
of the Company's common stock for proceeds in excess of specified
amounts and redemption at the option of the Company after January 1,
2002 for Series A and Series B.
21
<PAGE> 22
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Terms specific to each series of preferred stock as are follows:
<TABLE>
<CAPTION>
LIQUIDATION AND REDEMPTION
SERIES DATE CONVERSION VALUE VALUE
----- ---- ---------------- ----------
<S> <C> <C> <C>
Series A June 1, 1995 $2.00 per share $2.20 per share
Series B June 1, 1995 $4.50 per share $4.95 per share
Series C December 18, 1995 $5.40 per share None
</TABLE>
Prior to 1995, the Company issued common stock to various individuals
for $246. In conjunction with a recapitalization agreement, the initial
stockholders agreed to sell their shares back to the Company for the
initial purchase price. Concurrent with the recapitalization, the
Company declared a 6.1429 to 1 reverse stock split. All per share
amounts and weighted average shares outstanding have been adjusted to
reflect the recapitalization and reverse stock split as if it had
occurred as of September 16, 1993.
7. STOCK OPTIONS AND STOCK WARRANTS
In December 1995, the Company approved a stock incentive plan. The plan
provides for the issuance of statutory and nonstatutory options to
purchase up to 130,000 shares of the Company's common stock at prices to
be determined at the discretion of the Board of Directors. During the
years ended December 31, 1995 and 1996, the Company granted options to
an employee to purchase 4,000 and 2,500 shares, respectively, of the
Company's common stock at $0.30 per share. These options were valued at
$0.30 per share. The difference between the fair value market value of
the stock and the options exercise price has been recorded as being
amortized over the vesting period of four years on a straight-line
basis.
In conjunction with the issuance of the $750,000 notes payable, the
Company issued warrants to purchase a future series of preferred stock.
The number of shares the noteholders would be entitled to purchase was
to be determined by dividing the sum of the outstanding note payable
balance by the lesser of the price of the subsequent Series D preferred
stock price or $6.75 per share. The warrants were scheduled to expire in
May 2000; however, they will be canceled upon the closing date of the
potential merger transaction with Techniclone (Note 10). The warrants
were valued at $9,844, which represents the difference between the
amount of interest to be paid under the terms of the related note
agreement and the estimated interest that would have been charged on a
similar debt instrument at the date of issuance. The value of the
warrant is being amortized using the interest method over the term of
the related note agreement.
22
<PAGE> 23
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
8. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, which requires
the recognition of deferred tax liabilities and assets for the future
consequences of events that have been recognized in the Company's
financial statements or tax returns. In the event the future
consequences of differences between financial reporting bases and tax
bases of the Company's assets and liabilities result in a deferred tax
asset, SFAS No. 109 requires an evaluation of the probability of being
able to realize the future benefits indicated by such asset. A valuation
allowance is provided when it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
The valuation allowance increased $501,739 and $569,948 in 1995 and
1996, respectively.
Net deferred tax assets are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 997,609 $ 539,199
General business and research and development credits 40,987 16,368
Accounts payable and other accrued costs 251,486 164,567
----------- ---------
1,290,082 720,134
Less valuation allowance (1,290,082) (720,134)
----------- ---------
Net deferred taxes $ -- $ --
=========== =========
</TABLE>
The Company has net operating loss carryforwards of approximately
$2,494,000 at December 31, 1996, which are available to offset future
taxable income. These loss carryforwards begin to expire in the year
2008. In addition, the Company has research and development tax credits
of approximately $41,000, which are available for future use through the
year 2008.
The items reconciling income taxes applied at the federal statutory rate
to the income tax provision recorded for each of the years ended
December 31, 1995 and 1996 and the period from September 16, 1993
through December 31, 1996 are primarily net operating loss
carryforwards, changes in valuation allowance of deferred tax assets and
state taxes (benefit), net of federal effect.
23
<PAGE> 24
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
9. RELATED PARTY TRANSACTIONS
The Company paid certain fees to a stockholder of the Company in
exchange for consulting and research and development services provided
by this stockholder. Consulting fees to the stockholder charged to
operations amounted to $172,000 and $242,800 for the year ended December
31, 1995 and the period from September 16, 1993 through December 31,
1996, respectively.
In addition, the Company paid certain fees to an entity owned by a
stockholder in exchange for administrative services. These amounts
totaled $118,552, $9,014 and $193,354 for the years ended December 31,
1995 and 1996 and the period from September 16, 1993 through December
31, 1996, respectively.
10. SUBSEQUENT EVENTS
On January 28, 1997, the Company issued $550,000 in convertible notes
payable to three primary stockholders and one outside investor group.
The notes bear interest at 8.25% per annum, are due on February 28,
1997, but may be extended with the consent of the noteholders through
May 1, 1997. The notes are convertible into shares of the Company's
common stock at $9.00 per share concurrent with the closing of a
potential merger transaction with Techniclone or if the merger
transaction is not completed, then into shares of Series D preferred
stock at a price to be determined at a future date and at the time of a
subsequent financing.
On April 2, 1997, the Board of Directors and stockholders reached an
agreement to merge the Company with Techniclone. Under the terms of the
agreement, the stockholders of the Company will receive approximately
5,080,000 shares of Techniclone's common stock, and Techniclone will
assume net liabilities of approximately $400,000 in exchange for all of
the outstanding stock of the Company.
In conjunction with the merger, the convertible notes payable of
$750,000 will be converted at $5.40 per share and the notes payable of
$550,000 will be converted at $9.00 per share immediately prior to the
closing of the transaction. Accrued interest on these notes as of the
merger closing date will be paid in cash. In addition, an employee will
be granted an additional 420,000 shares of the Company's common stock
just prior to closing of the transaction, and the warrants on the
$750,000 notes payable will be canceled.
In conjunction with the merger, certain notes payable and preferred
stock will be converted into common stock of the Company. On a pro forma
basis, the number of common shares of the Company outstanding just prior
to the merger would be 1,185,131.
24
<PAGE> 1
EXHIBIT 2.1
FIRST AMENDMENT TO
STOCK EXCHANGE AGREEMENT
This FIRST AMENDMENT TO STOCK EXCHANGE AGREEMENT (the "Amendment"), is
made as of the _______ day of April, 1997, by and among PEREGRINE
PHARMACEUTICALS, INC., a Delaware corporation (The "Company"), those
Stockholders of the Company who have executed that certain Stock Exchange
Agreement dated January 15, 1997 (the "Agreement") and this Amendment,
TECHNICLONE CORPORATION, a Delaware corporation ("Techniclone") the successor in
interest to TECHNICLONE INTERNATIONAL CORPORATION, a California corporation
which was merged into and with Techniclone on March __, 1997, PHILIP E. THORPE,
Ph.D. ("Thorpe"), SANDERLING VENTURE PARTNERS III, L.P., SANDERLING III LIMITED
PARTNERSHIP, SANDERLING III BIOMEDICAL, L.P. and SANDERLING VENTURE MANAGEMENT
(collectively, "Sanderling"), S.K. PARTNERS, L.P. ("Saunders"), JENNIFER H. LOBO
("Jennifer") and BIOTECHNOLOGY FINANCIAL CORP. PROFIT SHARING PLAN ("BFC").
Jennifer and BFC are collectively referred to in this Amendment as "Lobo" and
Lobo, Thorpe, Sanderling and Saunders are sometimes collectively referred to
herein as the "Major Stockholders." Any other Stockholder of the Company that
entered into the Agreement and enters into this Amendment shall be referred to
herein individually as a "Minor Stockholder" and collectively as the "Minor
Stockholders." The Major Stockholders and the Minor Stockholders shall sometimes
be referred to herein collectively or jointly as the "Stockholders." Except as
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to them in the Agreement.
R E C I T A L S
A. Pursuant to the terms of the Agreement, Techniclone has agreed to
issue shares of its Common Stock (the "Techniclone Shares") to the Stockholders
in exchange for shares of capital stock of the Company held by the Stockholders.
B. Subsequent to the date of the Agreement, disputes have arisen among
Techniclone, certain of the Major Stockholders and the Company, which disputes
relate to the interpretation of the terms of the Agreement by such parties.
C. The parties hereto desire to resolve their disputes and to amend
certain of the terms of the Agreement as such provisions apply to them and to
the other Stockholders.
D. The Company's Board of Directors agreed to permit the conversion of
the Seven Hundred Fifty Thousand Dollar ($750,000) Note at Five Dollars Forty
Cents ($5.40) per share and the Stockholders by executing this Amendment will
approve such conversion
25
<PAGE> 2
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises of the parties
contained herein, and with the intent to be legally bound hereby, the parties
hereto agree as follows:
1. CONVERSION OF NOTE. The Stockholders agree that the Seven
Hundred Fifty Thousand Dollar ($750,000) Note shall be converted into One
Hundred Thirty Eight Thousand Eight Hundred Eighty-Nine (138,889) shares of the
Company's Common Stock.
2. AMENDMENT OF AGREEMENT. The parties hereto agree that Section
1.2 of the Agreement is hereby amended to provide that, in connection with the
consummation of the transactions contemplated in the Agreement, Techniclone
shall increase the aggregate number of Techniclone Shares that it will issue to
the Stockholders, in the amounts and to the Stockholders set forth on EXHIBIT A
hereto. Except as expressly set forth herein and on EXHIBIT A hereto, the
Agreement shall continue to be in full force and effect as otherwise existing.
3. LIMITATION ON SANDERLING LIABILITY. Sanderling makes no
representation or warranty as to the following:
1. "Section 2.3 Licenses and Permits." to the extent that such
section can be read to imply that Peregrine has received any
governmental approvals to develop, market or commercialize its
products, such as any required approvals from the United States Federal
Food and Drug Administration;
2. "Section 2.11 Intangible Personal Property." and Section 2.13
Title to and Adequacy of Assets." to the extent that such sections
involve any representation that the Peregrine technology may be
commercialized by Techniclone without infringement or license of patent
rights held by or obtained by third parties;
3. "Section 2.27 Disclosure." to the extent that the Schedules
attached to the Agreement do not contain any statement of a material
fact that was untrue when made or omit any material fact necessary to
make the information contained therein not misleading.
4. Restriction on Sale. Section 5.10 of the Agreement shall be
amended to read as follows:
5.10 Restriction on Sale of Techniclone Shares. Except as provided
below in this Section, for a period of (i) one year following the
closing date if the Techniclone Shares become freely tradable as a
result of being issued under an exemption from registration under
the Securities Act, or (ii) if the Techniclone Shares are not
freely tradable as a result of (i) above, then 120 days from the
date on which a registration statement covering the Techniclone
Shares is filed with the Securities and Exchange Commission, no
Major Stockholder may sell any Techniclone Shares.
26
<PAGE> 3
4. INDEMNIFICATION.
4.1 Limitation. Techniclone hereby confirms that Section 9.1.3
is in full force and effect that no indemnification within the scope of Sections
9.1.1 and 9.1.2 in the Agreement shall be due unless and to the extent that such
indemnification shall individually or in the aggregate exceed the sum of
$100,000. In no event, however, shall any Major Stockholder be obligated to
indemnify Techniclone for the amount of any Loss or expense suffered or incurred
by Techniclone, net of any reimbursements by insurance (net of the premiums, if
any, paid by Techniclone or Company attributable to a period after the Closing
for the insurance policy under which the claim is paid), which exceed the lesser
of (i) fair market value of the Techniclone Shares issued to such Major
Stockholder hereunder, at the time such indemnification is sought; or (ii) the
fair market value of the Techniclone Shares issued to such Major Stockholder as
determined by calculating the average of the last reported sales price of the
Techniclone Common Stock over the ten (10) trading days immediately prior to
that date that the transaction is publicly announced. The Major Stockholders
shall be entitled, at their option, to satisfy any claim through the delivery of
the Techniclone Shares valued at their applicable fair market value at any time
that such shares can not be readily sold by the Major Stockholders in the public
market.
4.2 Pro Rata Claims. Techniclone agrees that to the extent it
asserts any claim for indemnification under the Agreement that it will assert
and diligently pursue against all of the Major Shareholders its claim for
indemnification. For purposes of this amendment the pro rata portion of any
Major Stockholder indemnification shall be calculated as follows:
the amount to be indemnified shall be the product of the total
amount to be indemnified multiplied by a fraction, the numerator
of which that number of Techniclone Shares delivered to such
indemnifying Stockholder pursuant to the Exchange Agreement and
denominator of which is the total number of all Techniclone Shares
delivered to all Peregrine Stockholders pursuant to the Exchange
Agreement.
4.3 Time Limitation. Section 9.4 of the Agreement shall be
amended to read as follows:
9.4 Time Limitations on Assertion of Claims. Techniclone shall
give notice to the Major Stockholders of any claim for
indemnification pursuant to Section 9.1 within twelve (12) months
after the Closing Date, except that notices of claims (i) relating
to tax deficiencies pursuant to Section 9.1.4 may be given within
the applicable periods of the statues of limitations for the
assertion of such claims against Company or Techniclone, (ii)
relating to Sections 2.1, 2.4, 2.5 and 2.8 may be given at any
time, (iii) relating to Section 2.11, any time within the ten (10)
year period commencing on the Closing Date and (iv) relating to
Sections 2.16 and 2.18, may be given as long as the applicable
statute of limitations for the assertion of such claims against
Company or Techniclone.
27
<PAGE> 4
5. UNPROVEN TECHNOLOGY. Techniclone acknowledges that the
Peregrine technology is as yet unproven and recognizes that the Major
Stockholders make no representations that such technology can be developed,
marketed or commercialized by Techniclone in a timely or cost-effective matter
or at all. Techniclone acknowledges that it has conducted substantial due
diligence into Peregrine's product development and had been afforded an
opportunity to review the status of Peregrine's technology. Techniclone assumes
the risks of further technology development.
6. LOCK-UP PROVISIONS. The Major Stockholders agree they will not
offer, sell, contract to sell, grant any option to purchase, make any short sale
or otherwise dispose of or make a distribution of any Common Stock of the
Company (including, without limitation, Common Stock of the Company which may be
deemed to be beneficially owned by the undersigned in accordance with the rules
and regulations of the Securities and Exchange Commission) for a period of one
year after the Closing Date of the transactions contemplated by the Agreement
(the "Lock-Up Period"). Notwithstanding anything to the contrary in the
foregoing, during the Lock-Up Period each of the Major Stockholders may sell or
otherwise transfer that number of Shares of the Company's Common Stock which is
set forth next to their name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES WHICH
----------------------
MAY BE SOLD DURING THE
----------------------
MAJOR STOCKHOLDER LOCK-UP PERIOD
----------------- --------------
<S> <C>
Sanderling 275,000
Saunders 275,000
Lobo 90,000
Thorpe 50,000
</TABLE>
The Major Stockholders agree that this provision is irrevocable and
shall be binding upon each of them and their heirs, legal representatives,
successors and assigns. The Major Stockholders agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of securities held by the Major Stockholders, except in compliance with
this Amendment.
7. MUTUAL RELEASE. In consideration for Techniclone agreeing to
increase the number of Techniclone Shares to be issued to the Stockholders, as
provided in Section 2 above, each of the Stockholders and Company agree to, and
do hereby, waive, release and discharge each of the other Stockholders, the
officers, directors and agents of the Company, and the Company, as well as their
respective officers, directors, shareholders and agents, from any and all claims
including, without limitation, any claims to additional shares of Company or
Techniclone Stock by reason of exercise of warrants, conversion of notes or
otherwise, demands, costs, contracts, liabilities, objections, rights, damages,
expenses, compensation and actions and causes of action of every nature, whether
in law or in equity, known or unknown, or suspected or unsuspected, which such
Stockholders ever had or now have against each other, the Company, or the
Company's Officers, Directors or Agents, which relate to (i) their positions or
actions at the Company, (ii) the negotiation, execution and performance of the
terms of the Agreement, this Amendment or (iii) their investment in the Company.
28
<PAGE> 5
8. WAIVER OF CIVIL CODE SECTION 1542. The Major Stockholders
hereto each expressly waive and relinquish any and all rights that they may have
under the provisions of Section 1542 of the California Civil Code, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
9. SALE OF ADDITIONAL SHARES TO SANDERLING. Techniclone agrees to
sell to Sanderling $550,000 of its Common Stock on the Closing Date of the
transactions contemplated by the Agreement (the "Closing Date") at a purchase
price equal to eighty percent (80%) of the average of the Closing Price, as that
term is defined below, of Techniclone's Common Stock for the five (5) trading
days immediately preceding the Closing Date. For purposes hereof the "Closing
Price" shall be the Closing Price on the NASDAQ Small Cap Market or if the
Company's Common Stock is then traded on a national securities exchange or
NASDAQ National Market System the Closing Price shall be the Closing Price of
the Company's Common Stock on the principal national securities exchange.
Sanderling (i) agrees to enter into a Purchaser Representation and Subscription
Agreement with respect to the purchase of the shares of Common Stock pursuant to
this Section 9 and (ii) understands and agrees that the shares of Common Stock
to be issued pursuant to this Section 9 will be "restricted shares" as that term
is defined in Rule 144 promulgated under the Securities Act of 1933.
10. EFFECTIVE DATE. The parties to this Amendment agree that this
Amendment and the release contained herein shall only be effective upon the
closing of the Agreement.
11. COMPREHENSION OF DOCUMENTS. In entering into this Amendment,
the parties represent that they relied upon the legal advice of their respective
attorneys, who are the attorneys of their own choice, and that the terms of this
Amendment are fully understood and voluntarily accepted by the parties without
duress or coercion, economic or otherwise.
12. MUTUAL DRAFTING. Each party hereto has cooperated in the
negotiation, drafting and preparation of this Amendment. Therefore, this
Amendment shall not be construed against any party, but shall be construed to
have been drafted jointly by each of the parties.
13. AUTHORITY TO EXECUTE AMENDMENT. Each party or responsible
officer thereof has read this Amendment and understands the contents hereof.
Each party or responsible officer thereof executing this Amendment is empowered
to do so and thereby binds himself, herself or the party for whom he or she
signs.
14. COUNTERPART EXECUTION. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one and the same
original.
29
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the day and year first above written.
TECHNICLONE CORPORATION PEREGRINE PHARMACEUTICALS, INC.
By: _________________________________ By: _____________________________
Lon H. Stone, Chairman and Jennifer H. Lobo, President
CEO
__________________________________
Jennifer H. Lobo
__________________________________
Philip E. Thorpe, Ph.D.
SANDERLING VENTURES
MANAGEMENT
By: _____________________________
Its: _____________________________
30
<PAGE> 7
SANDERLING VENTURE
PARTNERS III, L.P.
By: _____________________________
Its: _____________________________
SANDERLING III LIMITED
PARTNERSHIP
By: _____________________________
Its: _____________________________
SANDERLING III BIOMEDICAL,
L.P.
By: _____________________________
Its: _____________________________
BIOTECHNOLOGY FINANCIAL
CORP. PROFIT SHARING PLAN
By: _____________________________
Jennifer Lobo
Its: _____________________________
S.K. PARTNERS, L.P.
By: _____________________________
Its: _____________________________
__________________________________
Marc E. Lippman, M.D.
__________________________________
Phyllis Rand
__________________________________
Thomas Maciag, Ph.D.
__________________________________
Stuart A. Aaronson, M.D.
31
<PAGE> 8
__________________________________
Merton Bernfield, M.D.
__________________________________
Harold F. Dvorak, M.D.
__________________________________
Rakesh K. Jain, Ph.D.
__________________________________
Michael Klagsbrun, Ph.D.
__________________________________
Christina L. Schumacher
__________________________________
Steven King
BETH ISRAEL HOSPITAL
By: _____________________________
Its: _____________________________
32
<PAGE> 9
AMENDED TERMS FOR THE
ISSUANCE OF TECHNICLONE SHARES
<TABLE>
<CAPTION>
SANDERLING SAUNDERS/ THORPE LOBO OTHERS TOTAL
KARP
---------- -------- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Existing Stock 279,630 350,000 80,000 270,000 96,332 1,075,962
Add: Conversion
of $550,000 Note 16,215 16,215 16,215 12,466 61,111
at $9.00 per
share
Conversion of
$326,700 Note at 12,100 12,100 12,100 36,300
$9.00 per share
Conversion of
$750,000 Note at 92,592 37,037 9,260 138,889
$5.40 per share
Thorpe
Adjustment 56,918 52,885
400,537 415,352 136,918 307,575 108,798 1,369,180
Conversion Factor 3.6518207 3.6518207 3.6518207 3.6518207 3.6518207 3.6518207
Techniclone 1,462,689 1,516,791 500,000 1,123,209 397,311 5,000,000
Shares
Techniclone 50,000 13,000 17,000 80,000
Contribution
1,512,689
Total Shares 1,512,689(A) 1,516,791 500,000 1,136,209 414,311 5,080,000
</TABLE>
Conversion Factor:
5,000,000 = 3.6518207
---------
1,369,180
(A) Techniclone will enter into a side agreement to sell, and will sell to,
Sanderling $550,000 of Techniclone Common Stock at 80% of the average of the
Closing Price of the Techniclone Common Stock on the NASDAQ Small Cap Market
for the fine trading days preceding the Closing Date of the Agreement per
share at the closing.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
5% ADJUSTABLE CONVERTIBLE CLASS C PREFERRED STOCK
OF
TECHNICLONE CORPORATION
A DELAWARE CORPORATION
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Techniclone Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that, pursuant to the authority contained in its Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, its Board of Directors has
adopted the following resolution creating a series of its Preferred Stock
designated as 5% Adjustable Convertible Class C Preferred Stock:
"BE IT RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Corporation by the Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock, $.001 par value per share, in connection with those certain 5% Preferred
Stock Investment Agreements dated April 24, 1997 by and among the Corporation
and certain investors (the "Securities Purchase Agreements"), there shall be a
series of shares of the Preferred Stock of the Corporation designated "5%
Adjustable Convertible Class "C" Preferred Stock"; that the number of shares of
such series shall be 17,200 and that the rights and preferences of such series
(referred to herein as the "5% Preferred" or "Shares") and the limitations or
restrictions thereon, and the rights and terms of the stock purchase warrants
("Warrants") issuable upon conversion of the 5% Preferred, shall be as follows
(as used herein, unless the context otherwise requires, shares of 5% Preferred
shall include shares of 5% Preferred issuable as dividends on shares of 5%
Preferred and Warrants shall include warrants issuable upon conversion of the 5%
Preferred):
RESOLVED that, in connection with those certain 5% Preferred
Stock Investment Agreements dated April 24, 1997 by and among the Corporation
and certain investors (the "Securities Purchase Agreements"), there shall be a
series of shares of the Preferred Stock of the Corporation designated "5%
Adjustable Convertible Class "C" Preferred Stock"; that the number of shares of
such series shall be 17,200 and that the rights and preferences of such series
(referred to herein as the "5% Preferred" or "Shares") and the limitations or
restrictions thereon, and the rights and terms of the stock purchase warrants
("Warrants") issuable upon conversion of the 5% Preferred, shall be as follows
(as used herein, unless the context otherwise requires, shares of 5% Preferred
shall include shares of 5% Preferred issuable as dividends on shares of 5%
Preferred and Warrants shall include warrants issuable upon conversion of the 5%
Preferred):
1. DIVIDENDS.
(a) The holders of the 5% Preferred shall be entitled to
receive out of any assets legally available therefor cumulative dividends at the
rate of $50 per share per annum, payable
34
<PAGE> 2
commencing September 30, 1997 and thereafter quarterly on December 31, March 31,
June 30 and September 30 of each year, when and as declared by the Board of
Directors, in preference and priority to any payment of any dividend on the
common stock of the Corporation, par value $.001 per share ("Common Stock") or
any other class or series of stock of the Corporation ranking junior to the 5%
Preferred. Such dividends shall accrue on any given share from the day of
original issuance of such share and shall accrue from day to day whether or not
earned or declared. If at any time dividends on the outstanding 5% Preferred at
the rate set forth above shall not have been paid or declared and set apart for
payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for the shares of any other class or series
of stock of the Corporation except a class or series which is entitled to
priority as to dividends over the 5% Preferred.
(b) Dividends shall be paid in shares of 5% Preferred valued
at $1000 per share (fractional Shares to be paid in cash) or, at the option of
the Corporation upon 10 days advance notice to the holders of the 5% Preferred,
in cash.
(c) If on any dividend payment date all the shares of Common
Stock issuable upon conversion of the 5% Preferred then outstanding and to be
issued as a dividend on such dividend payment date and upon exercise of the
Warrants whether outstanding or issuable upon conversion thereof are not
registered under the Securities Act of 1933 or if there is not then available
for delivery upon resale of such shares of Common Stock a prospectus meeting the
requirements of said Act and the rules thereunder or if the Common Stock is not
listed or designated for quotation for trading on at least one of the NASDAQ
Small Cap Market (the "NSCM"), the NASDAQ National Market (the "NNM"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") or
any such shares of Common Stock are not authorized for trading thereon, or if
the Common Stock is not then registered under Section 12(b) or Section 12(g) of
the Securities Exchange Act of 1934, then such dividend may only be paid in
cash.
2. LIQUIDATION PREFERENCE AND CERTAIN REDEMPTIONS.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 5% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of the Common Stock or any other class
or series of shares except any class or series which is entitled to priority as
to liquidation payments over the 5% Preferred, the amount of $1000 per share
plus any accrued but unpaid dividends, whether or not declared (the "Liquidation
Preference").
(b)(i) In the event (each of the events described in clauses
(A)-(F) below after expiration of the applicable cure period (if any) being a
"REDEMPTION EVENT"):
(A) the Common Stock is suspended from trading on any
of, or is not listed or designated for quotation (and authorized) for trading on
at least one of, the NYSE, the AMEX, the NNM or the NSCM for an aggregate of ten
(10) trading days in any nine (9) month period,
(B) the registration statement required to be filed
by the Corporation
35
<PAGE> 3
pursuant to Section 2(a) or 3(b) of the Registration Rights Agreement, dated as
of April 24, 1997, by and among the Corporation and the other signatories
thereto (the "REGISTRATION RIGHTS AGREEMENT"), has not been declared effective
by the 180th day following the Closing Date (as defined in the Securities
Purchase Agreements) or any such registration statement, after being declared
effective, cannot be utilized by the holders of 5% Preferred for the resale of
all of their Registrable Securities (as defined in the Registration Rights
Agreement) for an aggregate of more than thirty (30) days in any twelve month
period,
(C) the Corporation fails, and any such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the holders of 5%
Preferred upon conversion of the 5% Preferred as and when required by the terms
of these 5% Preferred, the Securities Purchase Agreements or the Registration
Rights Agreement or any certificate or any shares of Common Stock issued to the
holders of the Warrants upon exercise of the Warrants as and when required by
the terms of the Warrants, the Securities Purchase Agreement or the Registration
Rights Agreement,
(D) the Corporation fails to issue shares of Common
Stock to any holder of 5% Preferred upon conversion in accordance with the terms
of these 5% Preferred or to any holders of Warrants upon exercise in accordance
with the terms of such Warrants or provides notice to any holder of 5% Preferred
or Warrants, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of 5% Preferred upon
conversion in accordance with the terms of these 5% Preferred or to any holder
of Warrants upon exercise of such Warrants (other than due to the circumstances
contemplated by Section 4(i) hereof, for which the holders shall have the
remedies set forth in such Section),
(E) Mr. Lon H. Stone shall cease to be an officer or
director of the Corporation within 18 months of the Closing Date, or
(F) 50% or more of the Common Stock is directly or
indirectly owned or controlled by a single individual or entity or their
affiliates,
then, upon the occurrence of each and any such Redemption Event, the Corporation
shall promptly provide each holder of shares of 5% Preferred with written notice
of the occurrence of such Redemption Event, which notice shall contain the
Corporation's irrevocable election as to whether it will exercise its right to
issue Common Stock in lieu of any redemption provided for in this Section 2.
From and after the date of the Redemption Event (whether or not the Corporation
has complied with the notice requirements set forth above) each holder of shares
of 5% Preferred shall have the option, exercisable in whole or in part at any
time and from time to time by delivery of a Redemption Notice (as defined in
Paragraph (iii) below) to the Corporation (which notice may be revoked by any
holder if the Corporation elects to issue Common Stock with respect thereto
pursuant to paragraph (iv) below), to require the Corporation to purchase any or
all of the then outstanding shares of 5% Preferred held by such holder for an
amount in cash per share equal to the Redemption Amount (as defined in Paragraph
(ii) below) in effect at the time of the redemption hereunder, subject, however,
to the extent permitted by Paragraph (iv) below, to the right of the Corporation
to instead convert each share of 5% Preferred specified in such Conversion
Notice into a number of shares of Common Stock equal to the Redemption Number
(as defined in Paragraph (ii) below) in effect at the time of such conversion.
For the avoidance of doubt, the
36
<PAGE> 4
occurrence of any event described in clauses (A), (B), (D), (E) or (F) above
shall immediately constitute a Redemption Event and there shall be no cure
period.
(ii) Definition of Redemption Amount and Number. The
"REDEMPTION AMOUNT" with respect to a share of 5% Preferred means an amount
equal to:
1,000 + P
----------- X M
C P
The "REDEMPTION NUMBER" with respect to a share of 5%
Preferred means:
1,000 + P
-----------
L C P
where:
"P" means the accrued dividends, whether or not declared, on such share of 5%
Preferred through the date of redemption or conversion, as the case may be
(assuming such dividends would be paid in cash);
"CP" means the Conversion Price (as herein defined) in effect on the
date of the Redemption Notice;
"LCP" means lowest Conversion Price (using an Applicable Percentage (as
herein defined) of 27%) during the period beginning on the date of the
Redemption Notice and ending on the date of redemption or conversion, as the
case may be, or, if then in effect and lower, the Conversion Cap (as herein
defined); and
"M" means the highest closing bid price (as herein defined) of the
Corporation's Common Stock during the period beginning on the date of the
Redemption Notice and ending on the date of the redemption or conversion, as the
case may be.
(iii) Redemption Defaults. If the Corporation fails to pay any
holder the Redemption Amount with respect to any share of 5% Preferred within
five (5) business days of its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of 5% Preferred delivering such Redemption
Notice (x) shall be entitled to interest on the Redemption Amount at a per annum
rate equal to the lower of twenty-four percent (24%) or the highest rate
permitted by applicable law from the date of the Redemption Notice until the
date of redemption hereunder, and (y) shall have the right, at any time and from
time to time, to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of Section 4 hereof) all or any portion of
the Redemption Amount, plus interest as aforesaid, into shares of Common Stock
at the lowest Conversion Price in effect during the period beginning on the date
of the Redemption Notice and ending on the Conversion Date with respect to the
conversion of such Redemption Amount.
(iv) Within five (5) business days after its receipt of a
Redemption Notice and subject to the limitations of Section 10 hereof, the
Corporation may, in lieu of the redemption required pursuant to Section 2(b)(i),
issue Common Stock with respect to shares of 5% Preferred
37
<PAGE> 5
sought to be redeemed pursuant to Section 2(b)(i) with respect to the Redemption
Events specified in paragraphs A, B (only where the delay or inability to use is
caused by a stop order threatened or issued, or other similar action taken, by
the SEC or its staff), E and F above. Notwithstanding the foregoing, the
Corporation may not elect to use Common Stock to effect such a redemption unless
the notice requirements of paragraph (i) above have been complied with, unless
all holders of 5% Preferred electing to be redeemed pursuant to paragraph (i)
above receive the Common Stock with respect to such Redemption Event, unless all
shares of Common Stock issuable upon conversion of the 5% Preferred and upon
exercise of the Warrants whether outstanding or issuable upon conversion thereof
are registered under the Securities Act of 1933, unless there is available for
delivery upon resale of such shares of Common Stock a prospectus meeting the
requirements of said Act and the rules thereunder, unless all such shares are
eligible to be traded on either the NNM, NSCM, the NYSE or the AMEX and unless
the Common Stock is then registered under Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934. In the event the Corporation elects to issue
Common Stock in accordance with the foregoing, the restrictions on the sale of
Common Stock contained in Section 3.3 of the Securities Purchase Agreements
shall be of no further force or effect. If the limitations contained in Section
10 hereof apply, then the Corporation shall not be required to pay any cash in
respect of a redemption of shares of 5% Preferred which are not converted as a
result of such limitation.
(v) In the event the Corporation is not at any time able to
redeem all of the shares of 5% Preferred subject to Redemption Notices, the
Corporation shall redeem shares of 5% Preferred from each holder pro rata, based
on the total number of shares of 5% Preferred in all of the Redemption Notices.
3. MANDATORY CONVERSION.
(a) Subject to the limitations of Section 10 hereof and the
remaining provisions of this Section 3(a), at any time more than 12 months after
the closing date, the Corporation may require that all of the shares of 5%
Preferred be converted (a "Required Conversion") by irrevocably giving notice
("Notice of Required Conversion") to the holders of the 5% Preferred specifying
the date of required conversion (the "Required Conversion Date") and the place
for delivery of certificates upon conversion. Such Notice shall comply with the
requirements of paragraph (i) of this Section 3(a) and shall be mailed, first
class postage prepaid, by the Corporation to each holder of record of the 5%
Preferred at the address last shown on the records of the Corporation for such
holder and shall be transmitted by telecopy (facsimile) transmission at least 20
trading days and no more than 30 trading days in advance of the Required
Conversion Date.
(i) A Notice of Required Conversion may not be given
unless Common Stock equal to 150% of the number of shares of Common Stock
issuable upon conversion of the 5% Preferred and upon exercise of the Warrants
whether outstanding or issuable upon conversion thereof are reserved for
issuance to holders of the 5% Preferred and are registered for resale by the
holders (determined separately for each holder) under the Act, and there is
available for delivery upon resale of such shares of Common Stock a prospectus
meeting the requirements of said Act and the rules thereunder and such shares
are eligible to be traded on either the NNM, the NSCM, the NYSE or the AMEX and
the Common Stock is then registered under Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934.
38
<PAGE> 6
(ii) The Conversion Price upon Required Conversion
shall be 73% of the average of the low trading prices on the five trading days
immediately preceding the Required Conversion Date or, if in effect and lower,
the Conversion Cap; provided, that if the Required Conversion Date is within 10
trading days after an underwritten public offering of equity securities of the
Corporation, the Conversion Price shall be determined as of the Required
Conversion Date in accordance with Section 4(d) and (e) below. The terms "low
trading price" and "trading day" have the meanings given them in Section 4(d)
hereof.
(iii) Not later than the Required Conversion Date
each holder of 5% Preferred shall surrender to the Corporation the certificate
or certificates representing the shares of 5% Preferred held by such holder at
the place designated by the Corporation in the Notice of Required Conversion,
and the Corporation shall deliver to such holder within two business day
thereafter (three business days if the address for delivery is an offshore
address) the certificates representing the Common Stock and Warrants to which
such holder is entitled upon conversion, subject, however, to receipt of duly
endorsed certificates for the shares of 5% Preferred being so converted.
(iv) After receipt of a Notice of Required Conversion
and prior to the Required Conversion Date holders shall be free to convert their
shares of 5% Preferred in accordance with the optional conversion provisions of
Section 4 hereof with the Conversion Price determined at an Applicable
Percentage of 27.0% or, if lower, at the Conversion Cap.
(v) From and after delivery by the Corporation of a
Notice of Required Conversion, the sales limitations contained in Section 3.3 of
the Securities Purchase Agreements shall be of no further force and effect.
(b) On the fifth anniversary of the closing date, all then
outstanding shares of 5% Preferred shall be automatically converted at the
Conversion Price on such anniversary date and otherwise pursuant to the
applicable provisions set forth in Section 4(c) and (d) and (e) hereof at an
Applicable Percentage of 27.0% or, if lower, at a Conversion Price equal to the
Conversion Cap; provided, however, that the holders of such 5% Preferred are not
required to deliver a Notice of Required Conversion or any other notice to the
Corporation.
4. CONVERSION. The holders of the 5% Preferred shall have
optional conversion rights as follows:
(a) Commencement of Conversion Rights. Commencing on the day
after the fifth month anniversary of the closing date, the shares of 5%
Preferred shall become convertible.
(b) Right to Convert.
(i) At and after the time it has become convertible,
each share of 5% Preferred shall be convertible, at the option of the holder
thereof, into (A) such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (1) the Liquidation Preference of such 5%
Preferred share determined pursuant to Section 2 hereof on the date the notice
of conversion is given, by (2) the Conversion Price determined as hereinafter
provided in effect on said date; and, in addition to such shares of Common
Stock, (B) Warrants to purchase one-fourth of the number of shares of Common
Stock determined pursuant to the foregoing clause (A).
39
<PAGE> 7
(ii) Notwithstanding anything to the contrary
contained herein, the Shares shall not be convertible by a holder hereof to the
extent (but only to the extent) that, if convertible by such holder, such holder
would beneficially own in excess of 4.9% of the outstanding shares of Common
Stock (or such other percentage indicated on the signature page to, or otherwise
applicable to such holder pursuant to, the Securities Purchase Agreements). To
the extent the above limitation applies, the determination of whether Shares
shall be convertible (vis-a-vis other securities owned by such holder) and of
which Shares shall be convertible shall be in the sole discretion of the holder
thereof and submission of shares of 5% Preferred for conversion shall be deemed
to be the holder's determination of whether such Shares are convertible and of
which Shares are convertible, subject to such aggregate percentage limitation.
No prior inability to convert Shares pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of convertibility. For the purposes of this
provision, beneficial ownership and all calculations, including without
limitation, with respect to calculations of percentage ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D and G thereunder (collectively "Section
13(d)"). The provisions of this Section may be waived and/or implemented in a
manner otherwise than strictly in conformity with the foregoing provisions of
this Section 4(b)(ii) with the approval of the Board of Directors of the
Corporation and the holders of three quarters in interest in the then
outstanding Shares and Warrants (voting together as a single class): (i) with
respect to any matter to cure any ambiguity herein, to correct this Section (or
any portion hereof) which may be defective or inconsistent with the intended
4.9% beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of a majority of the then outstanding shares of Common Stock. The
limitations contained in this paragraph shall apply to a successor holder of
Shares if, and to the extent, elected by such successor holder concurrently with
its acquisition of such Shares, such election to be promptly confirmed in
writing to the Corporation (provided no transfer or series of transfers to a
successor holder or holders shall be used by a holder to evade the limitations
contained in this paragraph).
(c) Mechanics of Conversion. To convert shares of 5% Preferred
into shares of Common Stock and Warrants, the holder shall give written notice
to the Corporation in the form of the Notice of Conversion attached to the
Securities Purchase Agreements (which notice may be given by facsimile
transmission) that such holder elects to convert the same and shall state
therein the number of Shares to be converted and the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock and
Warrants to be issued. Promptly thereafter the holder shall surrender the
certificate or certificates representing the Shares to be converted, duly
endorsed (with signatures guaranteed in case of transfer to another name), at
the office of the transfer agent for the shares of Common Stock, or at such
other reasonable place as may be designated in writing by the Corporation. Upon
receipt by the Corporation of a facsimile copy of such notice of conversion from
a holder of shares of 5% Preferred, the Corporation shall forthwith send, via
facsimile, a confirmation of receipt of such Notice of Conversion to such
holder, which shall specify that the Notice of Conversion has been received and
the name and telephone number of a contact person at the Corporation whom the
holder should contact regarding information related to such conversion. In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue to the holder the number of shares of Common Stock that is
not disputed and shall submit the disputed calculations to its outside
accountant via facsimile within two (2) days of receipt of such Notice of
Conversion. The
40
<PAGE> 8
Corporation shall cause the accountant to perform the calculations and notify
the Corporation and the holder of the results no later than forty-eight (48)
hours from the time it receives the disputed calculations. Such accountant's
calculation shall be deemed conclusive absent manifest error. The Corporation
shall, immediately upon receipt of such facsimile Notice of Conversion, cause to
be prepared for issue and delivery to or upon the order of such holder, against
delivery of the certificates representing the Shares which have been converted,
a certificate or certificates for the number of shares of Common Stock, and the
Warrant certificate to which such holder shall be entitled. Upon delivery of
such duly endorsed Share certificates, the Corporation shall effect such
issuance immediately and shall on the same day (if such duly endorsed
certificate is delivered by 12:00 noon Pacific Time) or the next business day
(if such duly endorsed certificate is delivered after 12:00 noon Pacific Time)
transmit the certificates by messenger or nationally (or internationally, as the
case may be) recognized overnight delivery service to reach the address
designated by such holder within one business day (two business days for
addresses outside of the United States) (such time for delivery of share
certificates being the "Delivery Period"). Facsimile Notice of Conversion may be
given by a holder at any time of day up to 11:59 PM Pacific time, and such
conversion shall be deemed to have been made immediately prior to the close of
business on the date such Notice of Conversion is given (the "Conversion Date").
The person or persons entitled to receive the shares of Common Stock and
Warrants issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such securities at the close of business on the
Conversion Date.
(d) Determination of Conversion Price.
(i) Subject to paragraph (iii) below, on any
Conversion Date, the Conversion Price shall be the average of the low trading
price of the Common Stock for the five consecutive trading days (the "Lookback
Period") ending with the trading day prior to the Conversion Date, reduced by
the Applicable Percentage (as defined below) in effect on the Conversion Date.
(ii) The Applicable Percentage shall escalate and be
as follows:
<TABLE>
<CAPTION>
<S> <C>
0.0% Starting on the 1st day of the 6th month after the closing date
13% Starting on the 1st day of the 8th month after the closing date
20% Starting on the 1st day of the 10th month after the closing date
22.5% Starting on the 1st day of the 12th month after the closing date
25% Starting on the 1st day of the 14th month after the closing date
27% Starting on the 1st day of the 16th month after the closing date, and thereafter
</TABLE>
For purposes of this resolution, the term "months" means calendar months, and
when months are measured after the closing date, each such month shall end on a
monthly anniversary of the closing date. For example, if the closing date were
April 10, 1997, the fifth month after the closing date would end on and would
include September 10, 1997, the sixth month after the closing date would
commence on September 11, 1997 and end on October 10, 1997, and the twelfth
month after the closing date would commence on March 11, 1998 and would end on
April 10, 1998.
(iii) At any date after March 24, 1998, the
Conversion Price shall be the lower of (x) the Conversion Price calculated in
accordance with paragraphs (i) and (ii) above and
41
<PAGE> 9
(y) the average of the closing prices of the Common Stock for the thirty (30)
trading days including and immediately preceding March 24, 1998 (such average
being the "Conversion Cap").
(iv) The terms "low trading price", "last sale price"
and "closing bid price" of the Common Stock on any day shall mean, respectively,
(A) the lowest reported sale price, the last reported sale price and the last
reported bid price of the Common Stock on the principal stock exchange on which
the Common Stock is listed, or (B) if the Common Stock is not listed on a stock
exchange, the lowest reported sale price, the last reported sale price and the
last reported bid price of the Common Stock on the principal automated
securities price quotation system on which sale prices of the Common Stock are
reported, or (c) if the Common Stock is not listed on a stock exchange and sale
prices of the Common Stock are not reported on an automated quotation system,
the lowest bid price, the last bid price and the last bid price for the Common
Stock as reported by National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for the Common
Stock on at least five of the ten preceding trading days. If none of the
foregoing provisions are applicable, the "low trading price", "last sale price"
and the "closing bid price" of the Common Stock on a day will be the fair market
value of the Common Stock on that day as determined by a member firm of the New
York Stock Exchange, Inc., selected by the Board of Directors of the Corporation
and reasonably acceptable to the holders of the majority of the 5% Preferred.
The term "trading day" means (x) if the Common Stock is listed on at least one
stock exchange, a day on which there is trading on the principal stock exchange
on which the Common Stock is listed, (y) if the Common Stock is not listed on a
stock exchange but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (z) if the
foregoing provisions are inapplicable, a day on which quotations are reported by
National Quotation Bureau Incorporated. The "closing price" of the Common Stock
on any day means the "last sale price" as defined above.
(v) In the event that during any period of
consecutive trading days provided for above, the Corporation shall declare or
pay any dividend on the Common Stock payable in Common Stock or in rights to
acquire Common Stock, or shall effect a stock split or reverse stock split, or a
combination, consolidation or reclassification of the Common Stock, then the
Conversion Price and (if such event occurs during the thirty (30) trading days
referred to in paragraph (iii) next above) the Conversion Cap shall be
proportionately decreased or increased, as appropriate, to give effect to such
event. If such an event occurs after March 24, 1998, the Conversion Cap shall be
proportionately decreased or increased to give effect to such event.
(e) Certain Adjustments. (i) If the Corporation shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e. a spin-off)) (a "Distribution"), then the
holders of 5% Preferred shall also be entitled, upon any conversion of shares of
5% Preferred after the date of record for determining shareholders entitled to
such Distribution, to receive the kind and amount of such assets which would
have been payable to the holder with respect to the shares of Common Stock
issuable upon such conversion (without giving effect to any of the provisions
contained herein or in the Securities Purchase Agreement which limit or restrict
conversion of Shares) had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
42
<PAGE> 10
(ii) In the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other entity
(other than a merger in which the Corporation is the surviving or continuing
entity and its capital stock is unchanged and there is no distribution thereof)
or to sell or transfer all or substantially all of the assets of the Corporation
or (ii) any person, group or entity (including the Corporation) publicly
announces a tender offer to purchase 50% or more of the Common Stock (the date
of the announcement referred to in clause (i) or (ii) of this paragraph (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the
consummation of the proposed tender offer or transaction or the Abandonment Date
(as defined below), be equal to the lower of (x) the Conversion Price calculated
in the manner provided in Section 4(d) and 4(e), and (y) the Conversion Price
which would have been applicable for an Optional Conversion occurring on the
Announcement Date. From and after the Abandonment Date, as the case may be, the
Conversion Price shall be determined as set forth in Sections 4(d) and 4(e)
hereof. "Abandonment Date" means with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this paragraph
(ii) has been made, the date which is seven trading days after the date upon
which the Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer which causes this
paragraph to become operative. Without implication that the contrary would
otherwise be true, the provisions of this paragraph (ii) shall not apply with
respect to that certain share exchange involving Peregrine Pharmaceutical Inc.
as described in the Securities Purchase Agreements.
(f) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price or the Conversion Cap
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
cause independent public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of 5% Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 5% Preferred, furnish or cause
to be furnished to such holder a like certificate prepared by the Corporation
setting forth (i) such adjustments and readjustments, and (ii) the number of
other securities and the amount, if any, of other property which at the time
would be received upon the conversion of 5% Preferred with respect to each share
of Common Stock received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a non-extraordinary cash dividend) or other distribution,
any security or right convertible into or entitling the holder thereof to
receive additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of 5% Preferred at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue
and other taxes,
43
<PAGE> 11
excluding any income, franchise or similar taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of shares of 5%
Preferred pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. (A) The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purposes of effecting the
conversion of the shares of the 5% Preferred and allowing the exercise of the
Warrants, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all shares of the 5% Preferred
(including shares of 5% Preferred issuable as dividends on shares of 5%
Preferred) and the exercise of the Warrants (including Warrants issuable upon
conversion of the 5% Preferred) (the "Reserved Amount"), and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
for such purposes, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite Board of Directors and shareholder approval. The Reserved Amount shall
be allocated to the holders of 5% Preferred as provided in this paragraph (i).
(B) Upon adoption of this Certificate of Designation
by the Corporation's Board of Directors, the Corporation shall have reserved
15,500,000 (the "Initial Reserved Amount") authorized but unissued shares of
Common Stock for issuance upon conversion of the 5% Preferred and exercise of
the Warrants issuable upon conversion thereof. Subject to paragraphs (A) and (C)
of this paragraph (i), the Initial Reserved Amount shall be reduced to the
extent that the total amount of Common Stock issuable upon conversion of the
Shares or the exercise of the Warrants (including Warrants issuable upon
conversation of 5% Preferred) is reduced by the exercise or conversion, as the
case may be, of such securities.
(C) Without limiting any of the foregoing, commencing
October 1, 1997, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Authorization Trigger
Date") shall be less than 150% of the number of shares of Common Stock issuable
upon conversion of all shares of 5% Preferred (including shares of 5% Preferred
which are issued as dividends on shares of 5% Preferred and shares of 5%
Preferred issuable with respect to then accrued and unpaid dividends) and the
exercise of all Warrants (including Warrants to be issuable upon conversion of
the 5% Preferred) on such trading days, the Corporation shall immediately notify
the holders of 5% Preferred and the Warrants of such occurrence and shall take
immediate action (including seeking shareholder approval to authorize the
issuance of additional shares of Common Stock) to increase the Reserved Amount
to 150% of such number of shares of Common Stock. In the event the Corporation
fails to so increase the Reserved Amount within ninety (90) days after an
Authorization Trigger Date, each holder of 5% Preferred Stock shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time by delivery of a Redemption Notice (as defined in Section 2(b)) to the
Corporation, to require the Corporation to purchase for cash, in accordance with
Section 2(b) as if the service of such Redemption Notice constituted a
Redemption Event with respect to the Shares required to be purchased hereunder
and as to which the Corporation could elect to make the required redemption with
Common Stock under such Section 2(b), a portion of the holder's 5% Preferred
such that, after giving effect to such purchase, the holder's allocated portion
of the
44
<PAGE> 12
Reserved Amount exceeds 150% of such total number of shares of Common Stock
allocable to such holder. If the Corporation fails to redeem any of such Shares
within five (5) business days after its receipt of a Redemption Notice, then
such holder shall be entitled to the remedies provided in Section 2(b)(iii) as
if such failure constituted a Redemption Default.
(D) The Initial Reserved Amount, the Reserved Amount
and each increase to the Reserved Amount shall be allocated pro rata among the
holders of 5% Preferred based on the number of shares of 5% Preferred and
Warrants held by each holder at the time of the establishment of or increase in
the Initial Reserved Amount or Reserved Amount, as the case may be. In the event
a holder shall sell or otherwise transfer any of such holders shares of 5%
Preferred or Warrants, each transferee shall be allocated a pro rata portion of
such transferor's Initial Reserved Amount or Reserved Amount. Any portion of the
Initial Reserved Amount or Reserved Amount which remains allocated to any person
or entity which does not hold any 5% Preferred Stock or Warrants shall be
allocated to the remaining holders of shares of 5% Preferred Stock and Warrants,
pro rata on the number of shares of 5% Preferred and Warrants then held by such
holders.
(j) Fractional Shares. No fractional shares or fractional
Warrants shall be issued upon the conversion of any share or shares of 5%
Preferred. All shares of Common Stock and Warrants (including fractions thereof)
issuable upon conversion of more than one share of 5% Preferred by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock or a fractional Warrant, the Corporation
shall, in lieu of issuing any such fraction, pay the holder otherwise entitled
to such fraction a sum in cash equal to the fair market value of such fraction
on the date of conversion (as determined in good faith by the Board of Directors
of the Corporation).
(k) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be the addresses set forth for the
applicable party in the Securities Purchase Agreements. Any party entitled to
notice hereunder may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
subject to the notice provisions hereof. This paragraph shall not affect the
provisions of Section 4 hereof with respect to conversion and the mechanics
thereof.
(l) Reorganization or Merger. In case of any reorganization or
any reclassification of the capital stock of the Corporation or any
consolidation or merger of the Corporation with or into any other corporation or
corporations or a sale of all or substantially all of the assets of the
Corporation to any other person, then, as part of such reorganization,
consolidation, merger or sale, provision shall be made so that each share of 5%
Preferred shall thereafter be convertible into the number of shares of stock or
other securities or property (including cash) to which a holder of the number of
shares of Common Stock issuable upon
45
<PAGE> 13
conversion of such share of 5% Preferred (including shares of Common Stock
issuable upon exercise of Warrants issuable upon conversion of such share of 5%
Preferred) would have been entitled upon the record date of (or date of, if no
record date is fixed) such event (without giving effect to any of the provisions
contained herein or in the Securities Purchase Agreement or the Warrants which
limit or restrict conversion of Shares or exercise of Warrants) and, in any
case, appropriate adjustment (as determined by the Board of Directors) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the 5% Preferred, to the end
that the provisions set forth herein shall thereafter be applicable, as nearly
as equivalent as is practicable, in relation to any shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of 5% Preferred.
(m) Conversion Default Payments. If, at any time, (x) a holder
of shares of 5% Preferred submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount, for which failure the holders
shall have the remedies set forth in Section 4(i)) to deliver, on or prior to
the fourth business day following the expiration of the Delivery Period for such
conversion, the shares of Common Stock to which such holder is entitled upon
such conversion, or (y) the Corporation provides notice to any holder of 5%
Preferred at any time of its intention not to issue shares of Common Stock upon
exercise by any holder of its conversion rights in accordance with the terms of
these 5% Preferred other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount (each of (x) and (y) being a
"Conversion Default"), then the Corporation shall pay to the affected holder, in
the case of a Conversion Default described in clause (x) above, and to all
holders of 5% Preferred, in the case of a Conversion Default described in clause
(y) above, payments for the first ten (10) business days following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business days of any other Conversion
Default, an amount equal to $1,000 per day. In the event any Conversion Default
continues beyond such ten (10) business day period, the Corporation shall pay to
the applicable holder(s) (consistent with the foregoing) an additional cash
amount equal to one percent (1%) per day of the liquidation preference on the
Shares submitted for conversion in the case of clause (x) above and of the
holder's outstanding shares of 5% Preferred in the case of clause (y) above. In
addition, notwithstanding anything to the contrary set forth herein, in the
event of a Conversion Default, the Conversion Price with respect to each share
of 5% Preferred shall be equal to the lowest Conversion Price (assuming an
Applicable Percentage of 27% and, without implication that the contrary would
otherwise be true, giving effect to the Conversion Cap, if applicable) on any
date from the commencement of such Conversion Default through the date on which
such share is actually converted.
(n) Retention of Rights as Holder of Shares of 5% Preferred.
If a holder has not received certificates for all shares of Common Stock prior
to the tenth (10th) business day after the expiration of the Delivery Period
with respect to a conversion of shares of 5% Preferred for any reason, then the
Corporation shall, as soon as practicable, return such unconverted shares of 5%
Preferred Stock to the holder and (unless the holder otherwise elects to retain
its status as a holder of Common Stock) the holder shall be deemed to retain the
rights of a holder of shares of 5% Preferred with respect to such Shares. In all
cases, the holder shall retain all of its rights and remedies (including,
without limitation, the right to receive Conversion Default payments pursuant to
paragraph 4(m) above to the extent required thereby as a result of such
Conversion Default and any subsequent Conversion Default).
46
<PAGE> 14
5. OTHER PROVISIONS. For all purposes of this Resolution, the
terms "date of issuance" and "closing date" shall mean the day on which shares
of the 5% Preferred are first issued by the Corporation, and the terms "trading
price", "low trading price", "closing price", "last trade price", and "trading
days" shall have the meanings given them in Section 4(d) hereof. Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent necessary to avoid such conflict or violation.
6. RESTRICTIONS AND LIMITATIONS. So long as any shares of 5%
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the prior approval of the holders of at least two-thirds of the then
outstanding shares of 5% Preferred:
(a) alter or change the rights preferences or privileges of
the 5% Preferred;
(b) alter or change the rights, preferences or privileges of
any capital stock of the Corporation so as to affect adversely the 5% Preferred;
(c) create any new class or series of capital stock on parity
with or having a preference over the 5% Preferred as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation;
(d) increase the authorized number of shares of 5% Preferred;
(e) issue any shares of 5% Preferred other than pursuant to
the Securities Purchase Agreements;
(f) redeem or declare or pay any dividend or distribution with
respect to the Corporation's Common Stock during the first two years following
the closing date or redeem, or declare or pay any cash dividend or distribution
on, any capital stock of the Corporation ranking junior to the 5% Preferred as
to dividends or as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation (including the Common Stock); or
(g) enter into (or agree to enter into) a consolidation or
merger of the Corporation with or into any other corporation or corporations, or
a sale of all or substantially all of the assets of the Corporation.
If holders of at least two-thirds of the then outstanding shares of 5% Preferred
agree to allow the Corporation to alter or change the rights, preferences or
privileges of the shares of 5% Preferred pursuant to subsection (a) above, then
the Corporation shall deliver notice of such approved change to the holders of
the 5% Preferred that did not agree to such alteration or change (the
"Dissenting Holders") and the Dissenting Holders shall have the right, for a
period of thirty (30) days, to convert all of their shares of 5% Preferred
pursuant to the terms of these 5% Preferred as they existed prior to such
alteration or change or to continue to hold their shares of 5% Preferred.
7. VOTING RIGHTS. Except as provided herein or as provided for
by law, the 5% Preferred shall have no voting rights.
47
<PAGE> 15
8. ATTORNEYS' FEES. Any holder of 5% Preferred shall be entitled
to recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
9. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation
of (i) evidence of the loss, theft, destruction or mutilation of any
certificate(s) for the 5% Preferred and (ii)(y) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to the Corporation, or (z) in
the case of mutilation, upon surrender and cancellation of the certificate(s)
for the 5% Preferred, the Corporation shall execute and deliver new
certificate(s) for the 5% Preferred of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Certificate(s)
if the holder contemporaneously requests the Corporation to convert all such
shares 5% Preferred covered by such certificate(s).
10. SPECIAL LIMITATIONS. Notwithstanding anything to the contrary
contained herein, shares of 5% Preferred shall not be convertible pursuant to
Sections 2(b) or 3 hereof to the extent that, if converted with respect to a
holder thereof, such holder would beneficially own in excess of 4.9% of the
outstanding shares of Common Stock. To the extent the above limitation applies,
the determination of whether Shares shall be convertible (vis-a-vis other
securities owned by such holder) and of which Shares shall be convertible shall
be in the sole discretion of the holder thereof and submission of shares of 5%
Preferred for conversion shall be deemed to be the holder's determination of
whether Shares are convertible (vis-a-vis other securities owned by such holder)
and of which Shares are convertible, subject to such aggregate percentage
limitation. No prior inability to convert Shares pursuant to this paragraph
shall have any effect on the applicability of the provisions of this paragraph
with respect to any subsequent determination of convertibility. For the purposes
of this Section, beneficial ownership and all calculations, including without
limitation, with respect to calculations of percentage ownership shall be
determined in accordance with Section 13(d). The provisions of this Section may
be waived and/or implemented in a manner otherwise than strictly in conformity
with the foregoing provisions of this Section 10 with the approval of the Board
of Directors of the Corporation and the holders of three quarters in interest in
the then outstanding Shares and Warrants (voting together as a single class):
(i) with respect to any matter to cure any ambiguity herein, to correct this
Section (or any portion hereof) which may be defective or inconsistent with the
intended 4.9% beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
4.9% limitation; and (ii) with respect to any other matter, with the further
consent of the holders of a majority of the then outstanding shares of Common
Stock. A holder of Shares shall not take unreasonable actions for the intended
primary purpose of causing the Corporation to be unable to convert Shares as a
result of the limitations contained within this Section 10.
11. SPECIFIC ENFORCEMENT. No provision of this Certificate of
Designation providing for any remedy to a holder of 5% Preferred shall limit any
remedy which would otherwise be available to such holder at law or in equity.
Irreparable damage would occur in the event that any of the provisions of this
Certificate of Designation or the other agreements, documents or instruments
contemplated hereby (collectively, the "Transaction Documents") were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that each holder of shares of 5% Preferred shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of the Transaction Documents and to enforce specifically the terms
and provisions thereof, this being in addition to any other remedy to which each
holder of shares of 5% Preferred may be entitled by law or equity. No provision
of any Transaction Documents
48
<PAGE> 16
providing for any remedy to a holder of shares of 5% Preferred shall limit any
remedy which would otherwise be available to such holder at law or in equity.
12. TRANSFERABILITY. The Shares may be transferred by the holder
pursuant to an exempt transaction (and the holder shall not be required to
provide the Corporation with an opinion of counsel in the case of a transfer to
an affiliate) or pursuant to a registration statement under the Act.
13. WARRANTS. The terms and conditions of the Warrants and the
form of certificates representing the Warrants shall be as attached hereto."
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Designation of 5% Adjustable Convertible Class C Preferred Stock to be duly
executed by its Chief Financial Officer and Secretary this 22nd day of April,
1997.
TECHNICLONE CORPORATION
By: ______________________________
William V. Moding, Chief Financial Officer
and Secretary
49
<PAGE> 17
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE ___________ SHARES OF COMMON STOCK
ISSUE DATE: ______________
EXPIRATION: UNLESS EARLIER EXERCISED OR TERMINATED AS HEREIN PROVIDED,
THIS WARRANT SHALL EXPIRE AT 5:00 PM., PACIFIC TIME, ON THE FIFTH
ANNIVERSARY OF THE CLOSING DATE DEFINED IN THE RESOLUTION ESTABLISHING
THE PREFERENCES OF THE 5% ADJUSTABLE CONVERTIBLE CLASS "C" PREFERRED
STOCK OF THE COMPANY
TECHNICLONE CORPORATION
This certifies that _____________________________________, the
registered holder hereof or assigns (the "Warrantholder") is entitled to
purchase from Techniclone Corporation, a Delaware corporation (the "Company"),
at any time after March 24, 1998 and before 5:00 PM Pacific Time on the fifth
anniversary of the closing date as defined in Section 5 of the Resolution
establishing the preferences of the 5% Adjustable Convertible Class "C"
Preferred Stock of the Company (the "Expiration Time") at the purchase price per
share determined pursuant to Section 1.4 hereof (the "Warrant Price"), the
number of shares shown above. Notwithstanding the foregoing, the Expiration Time
shall be extended for 30 days with respect to any Warrants acquired upon
conversion of any such shares of Preferred Stock within 30 days prior to such
fifth anniversary. The number of shares purchasable upon exercise of this
Warrant and the Warrant Price per share shall be subject to adjustment from time
to time as set forth below.
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT.
1.1 REGISTRATION. This Warrant shall be numbered and shall be
registered on the books of the Company.
1.2 TRANSFER. This Warrant shall be transferable on the books
of the Company only upon delivery thereof duly endorsed by the Warrantholder or
its duly authorized attorney or representative, accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant to the person
entitled thereto. This Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of shares. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of a Warrant and the term "Warrant" shall include any and all
warrants issued upon division, exchange, substitution or transfer of this
Warrant.
1.3 FORM OF WARRANT. The Warrant shall be executed on behalf
of the Company by its President, Vice President or other authorized officer, and
shall be dated as of the date of signature thereof by the Company either upon
initial issuance or upon division, exchange, substitution or transfer. A Warrant
bearing the signature of an individual who was at any time the
50
<PAGE> 18
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant.
1.4 WARRANT PRICE. The initial purchase price per share at
which shares of Common Stock may be purchased upon exercise of this Warrant (the
"Warrant Price") shall be 110% of the Conversion Cap as determined pursuant to
Section 4(d)(iii) of the Resolution establishing the preferences of the 5%
Adjustable Convertible Class "C" Preferred Stock of the Company, as contained in
the Certificate of Designations of such Preferred Stock filed by the Company
with the Delaware Secretary of State. If this Warrant shall be issued prior to
determination of the Warrant Price as aforesaid, upon such determination this
Warrant shall be deemed to incorporate the Warrant Price as so determined.
SECTION 2. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of shares to the Warrantholder; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any secondary transfer of the Warrant or the
shares.
SECTION 3. MUTILATED OR MISSING WARRANTS.
In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and in substitution for the lost, stolen or destroyed
Warrant, a new Warrant of like tenor, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant.
The applicant shall also comply with such other reasonable regulations and pay
such other reasonable administrative charges as the Company may prescribe.
SECTION 4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times
keep reserved so long as this Warrant remains outstanding, out of its authorized
shares of capital stock, such number and class of shares as shall be subject to
purchase under this Warrant and such reserved shares shall be used solely for
issuances upon exercise of this Warrant.
SECTION 5. EXERCISE OF WARRANT.
5.1 EXERCISE. Prior to the Expiration Time the Holder of this
Warrant shall have the right at any time and from time to time to exercise this
Warrant in full or in part by surrender of this Warrant to the Company
accompanied by payment to the Company in cash or by certified or cashier's check
or by wire transfer of funds of the aggregate Warrant Price for the number of
shares in respect of which this Warrant is then exercised. If the Issue Date is
prior to the determination of the Warrant Price, this Warrant may not be
exercised until the Warrant Price has been determined. In addition, and
notwithstanding anything to the contrary contained in this Warrant, this Warrant
may be exercised by presentation and surrender of this Warrant to the Company
with a written notice of the holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in
51
<PAGE> 19
accordance with the terms hereof (a "Cashless Exercise"). In the event of a
Cashless Exercise, in lieu of paying the Warrant Price in cash, the holder shall
surrender this Warrant for, and the Company shall issue in respect thereof, that
number of shares of Common Stock determined by multiplying the number of shares
of Common Stock to which the holder would otherwise be entitled upon a cash
exercise hereof by a fraction, the numerator of which shall be the difference
between the then Current Market Price (as herein defined) and the Warrant Price,
and the denominator of which shall be the then Current Market Price.
5.2 DELIVERY OF CERTIFICATES. Upon exercise of this Warrant
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrantholder and in such name or names as
the Warrantholder may designate, a certificate or certificates for the number of
full shares issuable upon such exercise together with cash, as provided in
Section 7 hereof, in respect of any fractional shares. The Company shall effect
such issuance immediately and shall transmit the certificates by messenger or
overnight delivery service to reach the address designated by the Warrantholder
within two business days after receipt of the Warrant Price or, in the case of a
Cashless Exercise, after the receipt of the Warrant. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of surrender of the Warrant and, to the extent applicable,
payment of the Warrant Price, as aforesaid, notwithstanding that the
certificates representing such shares shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed. In the event
of partial exercise a new Warrant evidencing the remaining portion of this
Warrant will be issued by the Company.
SECTION 6. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
6.1 ADJUSTMENTS. The number and kind of securities purchasable
upon the exercise of the Warrants and the Warrant Price shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number of shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so
that the Warrantholder shall be entitled to receive the kind and number
of shares or other securities of the Company which it would have owned
or would have been entitled to receive after the happening of any of
the events described above, had the Warrants been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (a) shall
become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants
or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to
subscribe for or to purchase shares of Common Stock at a price per
share which is lower at the record date mentioned below than the then
Current Market Price (as defined in Section 7), the number of shares
thereafter purchasable upon
52
<PAGE> 20
the exercise of the Warrants shall be determined by multiplying the
number of shares theretofore purchasable upon exercise of each Warrant
by a fraction, of which the numerator shall be (1) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
rights, options or warrants plus (2) the number of additional shares of
Common Stock offered for subscription or purchase, and of which the
denominator shall be (x) the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options
or warrants plus (y) the number of shares which the aggregate offering
price of the total number of shares offered would purchase at the
Current Market Price. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective
immediately and retroactively after the record date for the
determination of shareholders entitled to receive such rights, options
or warrants.
(c) In case the Company shall distribute to all or
substantially all holders of its shares of Common Stock evidences of
its indebtedness or assets (excluding non-extraordinary cash dividends
or distributions out of current earnings) or rights, options, warrants
or convertible securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in
paragraph (b) above), then, in each case, the number of shares
thereafter purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of shares theretofore purchasable
upon exercise of the Warrants by a fraction, of which the numerator
shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market
Price on such date minus the then fair value of the portion of the
assets or evidence of indebtedness so distributed or of such
subscription rights, options or warrants applicable to one share. Such
adjustment shall be made whenever any such distribution is made and
shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive
such distribution.
(d) If, at any time after the initial issuance of this
Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 6.1 but not expressly provided for by such
provisions, the Company's Board of Directors will make an appropriate
adjustment in the Warrant Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of
the holder shall be neither enhanced nor diminished by such event.
(e) No adjustment in the number of shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
shares then purchasable upon the exercise of a Warrant; provided,
however, that any adjustments which by reason of this paragraph (e) are
not required to be made immediately shall be carried forward and taken
into account in any subsequent adjustment. The adjustments set forth in
this Section 6.1 shall be calculated and effected without regard to any
limits on exercisability contained herein or in those certain
Securities Purchase Agreements dated April 24, 1997 (the "Securities
Purchase Agreements").
(f) Whenever the number of shares purchasable upon the
exercise of a Warrant is adjusted as herein provided, the Warrant Price
payable upon exercise of a Warrant shall be adjusted by multiplying
such Warrant Price immediately prior to such adjustment by a
53
<PAGE> 21
fraction, of which the numerator shall be the number of shares
purchasable upon the exercise of a Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of shares
so purchasable immediately thereafter.
(g) Whenever the number of shares purchasable upon the
exercise of a Warrant or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the
Warrantholder by first class mail, postage prepaid, notice of such
adjustment or adjustments and a certificate of a firm of independent
public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) setting
forth the number of shares purchasable upon the exercise of a Warrant
and the Warrant Price after such adjustment, together with a brief
statement of the facts requiring such adjustment and the computation by
which such adjustment was made.
(h) The term "Common Stock" shall mean (i) the class of stock
designated as the Common Stock of the Company at the issue date of this
Warrant or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock. In the event that at
any time, as a result of an adjustment made pursuant to this Section,
the Warrantholder shall become entitled to purchase any securities
other than shares of Common Stock, thereafter the number of such other
securities so purchasable upon exercise of the Warrant and the Warrant
Price of such securities shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the shares contained in this Section.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
Subsection 6.1, no adjustment in respect of any dividends shall be made during
the term of the Warrant or upon the exercise of the Warrant.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any reclassification of the securities of the
Company or any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale or conveyance to another corporation
of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and other securities and property which he
would have owned or have been entitled to receive after the happening of such
reclassification, consolidation, merger, sale or conveyance had the Warrant been
exercised (without regard to any limitations on exercise contained herein or the
Securities Purchase Agreements) immediately prior to such action. Such agreement
shall provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section. The provisions of
this subsection shall similarly apply to successive reclassifications,
consolidations, mergers, sales or conveyances.
6.4 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
54
<PAGE> 22
pursuant to this Agreement.
SECTION 7. FRACTIONAL INTERESTS; CURRENT MARKET PRICE; CLOSING
BID PRICE.
The Company shall not be required to issue fractional shares
on the exercise of the Warrant. If any fraction of a share would, except for the
provisions of this Section, be issuable on the exercise of the Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to the
then Current Market Price multiplied by such fraction. The term "Current Market
Price" shall mean (i) if the Common Stock is traded in the over-the-counter
market or on the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), the average per share closing bid prices of the
Common Stock on the 20 consecutive trading days immediately preceding the date
in question, as reported by NASDAQ or an equivalent generally accepted reporting
service, or (ii) if the Common Stock is traded on a national securities
exchange, the average for the 20 consecutive trading days immediately preceding
the date in question of the daily per share closing bid prices of the Common
Stock on the principal stock exchange on which it is listed, as the case may be,
or (iii) if the Common Stock is not so listed or traded, the fair market value
of the Common Stock as reasonably determined in good faith by the Board of
Directors of the Company. The term "closing bid price" shall mean the last bid
price on the day in question as reported by NASDAQ or an equivalent generally
accepted reporting service or (as the case may be) as reported by the principal
stock exchange on which the Common Stock is listed, or if not so reported, as
reasonably determined in good faith by the Board of Directors of the Company.
SECTION 8. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained herein shall be construed as conferring upon
the Warrantholder any rights whatsoever as a shareholder of the Company,
including the right to vote, to receive dividends, to consent or to receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrant and prior to its exercise, any of
the following events shall occur:
(a) any action which would require an adjustment pursuant to
Sections 6.1 or 6.3 (excluding 6.1(a)(i) and 6.1(a)(ii)); or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its
property, assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder at least 20 days prior to the date fixed as a
record date or the date of closing the transfer books or other applicable date
with respect thereto. Such notice shall specify such record date or the date of
closing the transfer books or such other applicable date, as the case may be.
Any notice to the Warrantholder shall be given at the address
of the Warrantholder appearing on the books of the Company, and if the
Warrantholder has specified a telecopier address, by facsimile transmission to
such address.
55
<PAGE> 23
SECTION 9. REDEMPTION.
At any time after the Warrant Price has been determined, the Company
may call this Warrant (together with all other Warrants of like tenor) for
redemption at $0.01 per share covered hereby if the closing bid price of the
Common Stock for each of the twenty trading days immediately preceding the
redemption date has equaled or exceeded 150% of the Warrant Price. Written
notice of such call shall be given to the Warrantholder as provided in Section 8
hereof at least 20 days but not more than 30 days prior to the date fixed for
redemption by the Company. If on the date fixed for redemption, the conditions
specified herein have not been satisfied, such call shall be deemed a nullity
and if the Warrantholder has exercised this Warrant on account of such call,
such exercise may be rescinded at the election of the Warrantholder. The Company
may call this Warrant for redemption only if resale of all of the Common Stock
covered hereby is then registered under the Securities Act of 1933 and a current
prospectus meeting the requirements of said Act and the rules thereunder is
available for delivery by the Warrantholder, and if the Common Stock is listed
or designated for quotation for trading on at least one of the NASDAQ Small Cap
Market, the NASDAQ National Market, the New York Stock Exchange or the American
Stock Exchange, and all such shares of Common Stock are then authorized for
trading on one of such exchanges and registered under Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934. Notwithstanding the foregoing,
this Warrant may be exercised by the Warrantholder in accordance with Section 5
at any time on or before the date fixed for redemption by the Company. If the
Company gives written notice of such call, then the limitations on resale
contained in Section 3.3 of the Securities Purchase Agreements shall be of no
further force or effect.
SECTION 10. LIMITATION ON EXERCISE.
Notwithstanding anything to the contrary contained herein, this
Warrant shall not be exercisable by a holder hereof to the extent (but only to
the extent) that, if exercisable by such holder, such holder would beneficially
own in excess of 4.9% of the outstanding shares of Common Stock (or such other
greater percentage indicated on the signature page to, or otherwise applicable
to such holder pursuant to, the Securities Purchase Agreements with respect to
such holder). To the extent the above limitation applies, the determination of
whether this Warrant shall be exercisable vis-a-vis other securities owned by
such holder, and to what extent this Warrant shall be exercised shall be in the
sole discretion of the holder and submission of the Warrant for full or partial
exercise shall be deemed to be the holder's determination of whether and the
extent to which the Warrant is exercisable, in each case subject to such
aggregate percentage limitation. No prior inability to exercise the Warrant
pursuant to this Section shall have any effect on the applicability of the
provisions of this Section with respect to any subsequent determination of
exercisability. For the purposes of this provision, beneficial ownership and all
calculations, including without limitation, with respect to calculations of
percentage ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13 D and G
thereunder (collectively "Section 13(d)"). The provisions of this Section may be
amended with the approval of the Board of Directors of the Company and the
holders of three-quarters in interest in the then outstanding shares of
Preferred Stock and Warrants (voting together as a single class): (i) with
respect to any matter to cure any ambiguity herein, to correct this Section (or
any portion hereof) which may be defective or inconsistent with the intended
4.9% beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of a majority of the then outstanding shares of
56
<PAGE> 24
Common Stock. The limitations contained in this Section shall apply to a
successor holder of Warrants if, and to the extent, elected by such successor
holder concurrently with its acquisition of such Warrants, such election to be
promptly confirmed in writing to the Company (provided no transfer or series of
transfers to a successor holder or holders shall be used by a holder to evade
the limitations contained in this Section).
SECTION 11. TERMINATION OF WARRANT.
11.1 If not theretofore exercised, this Warrant shall terminate at
5:00 p.m. Pacific time on the date fixed for redemption pursuant to Section 9
hereof if the conditions specified in said Section have been satisfied and the
payments required by such Section have been made in full to the Warrantholder by
the Company.
11.2 If the Issue Date of this Warrant is later than the date on
which redemption of Warrants pursuant to Section 9 hereof has been completed,
then this Warrant shall terminate at 5:00 p.m. Pacific time on the 30th day
after the Issue Date (or if such 30th day is not a trading day, then on the next
following trading day), if (i) the conditions set forth in the penultimate
sentence of Section 9 are satisfied, and (ii) the closing bid price of the
Common Stock for each of the five trading days preceding the Issue Date equaled
or exceeded 150% of the Warrant Price.
SECTION 12. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 13. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 6.3 are complied with.
SECTION 14. APPLICABLE LAW, SPECIFIC PERFORMANCE AND CONSENT TO
JURISDICTION.
(a) This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be construed in
accordance with the laws of said State.
(b) The Company and the Warrantholder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Warrant or the other agreements, documents or instruments
contemplated hereby (collectively, the "Transaction Documents") were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent or cure breaches of the provisions
of the Transaction Documents and to enforce specifically the terms and
provisions thereof, this being in addition to any other remedy to which
either of them may be entitled by law or equity. No provision of any
Transaction Documents providing for any remedy to a Warrantholder shall
limit any remedy which would otherwise be available to such Investor at
law or in equity.
57
<PAGE> 25
Each of Warrantholder (with respect to compliance by the Company with
Section 4(2) of the Securities Act of 1933) and the Company (each an
"Indemnitor") shall indemnify and hold harmless the other for a breach by
the Indemnitor of its representations, warranties or obligations under any
of the Transaction Documents.
(c) Each of the Company and the Warrantholder (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other
courts of the United States sitting in Delaware and the courts of the
State of Delaware for the purposes of any suit, action or proceeding
arising out of or relating to this Warrant and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the
Company and the Warrantholder consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by a duly authorized officer of the Company.
Techniclone Corporation
By:
------------------------------------------------
58
<PAGE> 1
EXHIBIT 4.1
5% PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of April ___, 1997 between Techniclone Corporation (the
"Company") and the investor whose name is set forth at the foot of this
Agreement (the "Investor" or "Purchaser").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Preferred Stock. Upon the following terms
and conditions, the Company shall issue and sell to the Investor shares of the
Company's 5% Adjustable Convertible Class "C" Preferred Stock (the "Shares")
having the rights, designations and preferences set forth in Schedule I
(sometimes herein referred to as the "Certificate of Designation") hereto and
having the form of conversion notice attached as Schedule II hereto, and the
Investor shall purchase from the Company the number of Shares designated on the
signature page hereof. Such Shares shall be convertible into (i) common stock of
the Company, par value $___ per share (the "Common Stock") and (ii) warrants
(the "Warrants") to acquire shares of Common Stock. As used herein, the term
"Shares" shall include Shares issued or issuable, as the case may be, as
dividends on Shares, and the term Warrants shall include Warrants to be issued
upon conversion of Shares, in each case unless the context otherwise requires.
The Company covenants and agrees that all purchases of Shares shall be pursuant
to identical investment agreements and that a maximum of 13,200 Shares shall be
sold (including shares sold consistent with Section 7.1 (but not including
shares issued as dividends)).
Section 1.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $1000 per share.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of Stradling, Yocca, Carlson &
Rauth, 660 Newport Center Drive #1600, Newport Beach, CA 92660, at 10:00 a.m.,
local time on the later of the following: (i) the date hereof or the date on
which the last to be fulfilled or waived of the conditions set forth in Article
IV hereof and applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Investor and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the Investor
or to an authorized representative of the Investor certificates representing the
number of Shares being purchased by the Investor, registered in the name of the
Investor, against delivery by the Investor to the Company of the Purchase Price
for such Shares by cashier's check or wire transfer in immediately available
funds to such account as shall be designated in writing by the Company. In
59
<PAGE> 2
addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.
Section 1.4 Agreement to Register.
(a) At the Closing, the Company shall execute and deliver to each
Investor the Registration Rights Agreement in the form attached hereto as Annex
1 (the "Registration Rights Agreement").
(b) From and after the date of this Agreement, the Company shall not
allow or agree to allow the holders of any securities of the Company to include
any of their securities in any registration statement(s) filed by the Company
pursuant to the Registration Rights Agreement without the prior written consent
of the holders of a majority of the Registrable Securities (as defined in the
Registration Rights Agreement) included therein.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. Except as may
be set forth in the Disclosure Schedule delivered simultaneously herewith, the
Company hereby makes the following representations and warranties to the
Investor:
(a) Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of Delaware and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company does not have any subsidiaries
except as listed in Schedule 2.1(a) hereto or in the SEC Documents (as
hereinafter defined). The Company and each such subsidiary, if any, is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is material to such entity and other entities
controlling or controlled by such entity taken as a whole (it being understood
that the Company shall be deemed for all purposes to be independent and not
controlled by another entity).
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Shares in accordance with the terms hereof, and to issue the Common
Stock and the Warrants upon the conversion of the Shares in accordance with the
terms of the Certificate of Designation and to issue the Common Stock upon
exercise of the Warrants in accordance with the terms of the Warrants, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Certificate of Designation with respect to the Shares and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including the issuances described in clause (i) of this Section 2.1(b))
have been duly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required, (iii) this Agreement has been, and the Registration
Rights Agreement, Certificate of
60
<PAGE> 3
Designation and Warrants will have been, when executed and delivered in
accordance herewith, duly executed and delivered by the Company, and (iv) this
Agreement constitutes, and each of the Registration Rights Agreements,
Certificates of Designation and Warrants will constitute, a valid and binding
obligation of the Company enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Company's executive officers and directors have studied and fully understand the
nature of the securities being sold hereunder and recognize that they have a
potential dilutive effect and the Board of Directors has concluded in its good
faith business judgment that such issuance is in the best interests of the
Company.
(c) Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock; there are 22,168,652 shares of Common Stock and 2,200 shares of preferred
stock issued and outstanding; and, upon issuance of the Shares in accordance
with the terms hereof and pursuant to similar agreements of like tenor, there
will be 22,168,652 shares of Common Stock and 13,200 shares of preferred stock
issued and outstanding. All of the outstanding shares of the Company's Common
Stock and preferred stock have been validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 2.1(c) hereto no shares of the
stock of the Company or its subsidiaries are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or its subsidiaries, or contracts, commitments,
understandings, or arrangements by which the Company or its subsidiaries is or
may become bound to issue additional shares of capital stock of the Company or
its subsidiaries or options, warrants, scrip, rights to subscribe to, or
commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of the Company or its subsidiaries.
The Company has furnished or made available to the Investor true and correct
copies of the Company's Certificate of Incorporation as in effect on the date
hereof (the "Charter"), and the Company's By-Laws, as in effect on the date
hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares and the Warrants
has been duly authorized and when issued in accordance with the terms hereof the
Shares will be validly issued, fully paid and non-assessable and entitled to the
rights and preferences set forth in Schedule I hereto and in the case of the
Warrants, when issued, will be valid, binding and enforceable and entitled to
the rights and preferences set forth in the Warrants. The Common Stock issuable
upon conversion of the Shares and exercise of the Warrants has been duly
authorized and reserved for issuance and when issued in accordance with the
Certificate of Designation filed by the Company to establish the rights and
preferences of the Shares (or in accordance with the Warrants, as the case may
be), will be validly issued, fully paid and non-assessable and not subject to
any preemptive rights or adverse claims, and the holders shall be entitled to
all rights and preferences accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Company's Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation
61
<PAGE> 4
of, any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including Federal
and state securities laws and regulations) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Investor and not to the Company. The business
of the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for violations which either
singly or in the aggregate do not and will not have a Material Adverse Effect.
The Company is not required under Federal, state or local law, rule or
regulation in the United States to obtain any consent, authorization or order
of, or make any filing (other than the filing of a Certificate of Designation
setting forth the terms of the Shares with the Delaware Secretary of State) or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Shares or the Warrants in accordance with the terms hereof or to issue
shares of Common Stock upon conversion of the Shares or exercise of the Warrants
(other than any SEC, NASD or state securities filings specified on Schedule
2.1(e) which may be required to be made by the Company and any registration
statement(s) under the Securities Act of 1933, as amended (the "Act"), which may
be filed pursuant to the Registration Rights Agreement); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing (including filings incorporated by reference
therein), in each case filed prior to April __, 1997 being referred to herein as
the "SEC Documents"). The Company has delivered or made available to the
Investor true and complete copies of the quarterly and annual (including,
without limitation, proxy information and solicitation materials) SEC Documents
filed with the SEC since April 30, 1994. The Company has not provided to the
Investor any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder except as set forth on Schedule
2.1(f) and other federal, state and local laws, rules and regulations applicable
to such SEC Documents, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the
62
<PAGE> 5
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Except as set forth on Schedule
2.1(g) since the date through which the most recent report of the Company on
Form 10-K has been prepared and filed with the SEC, a copy of which is included
in the SEC Documents, no event which has had or would have a Material Adverse
Effect has occurred or exists with respect to the Company or its subsidiaries,
except as otherwise disclosed or reflected in other SEC Documents filed prior to
April ___, 1997 and subsequent to the date of such 10-K, and the Company has not
received any communication from the SEC or the NASD regarding any possible
de-listing of the Company's Common Stock.
(h) No Undisclosed Liabilities. The Company and its subsidiaries
have no liabilities or obligations not disclosed in the most recent quarterly
report of the Company on form 10-Q other than those incurred since the date of
such report in the ordinary course of the Company's or its subsidiaries'
respective businesses which, individually or in the aggregate, do not and would
not have a Material Adverse Effect on the Company or its subsidiaries.
(i) No Undisclosed Events or Circumstances. No material adverse
event or circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition which, has not been publicly announced or disclosed.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Cappello Capital Corp. (the "Placement Agent")), has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Act) in connection with the offer or sale of the Shares
or the Warrants.
(k) 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 require registration of the
Shares or the Warrants under the Act.
(l) Absence of Litigation. Except as disclosed in the SEC Documents
or in Schedule 2.1(l), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business, condition (financial
or other), results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or
63
<PAGE> 6
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
(m) Disclosure. All information relating to or concerning the
Company set forth in this Agreement or provided to the Purchaser in connection
with the transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial conditions which, under applicable law, rule or regulation, which
now or in the future (due solely to passage of time) requires public disclosure,
announcement or filing by the Company but which has not been so publicly
disclosed, or filed.
(n) Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that none of the Purchasers are acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and any
advice given by any Purchaser, or any of their representatives or agents, in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to each Purchaser's purchase of Shares and has not been relied
upon in any way by the Company. The Company further represents to Purchaser that
the Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
(o) No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Cappello & Laffer Capital Corp.
whose commissions and fees will be paid by the Company.
(p) Acknowledgment of Dilution. The number of shares of Common Stock
issuable upon conversion of the Shares or exercise of the Warrants,
(collectively the "Investor Common Shares") may increase substantially in
certain circumstances, including the circumstances wherein the trading price of
the Common Stock declines. The Company acknowledges that its obligation to issue
Investor Common Shares upon conversion of the Shares in accordance with the
Certificate of Designation or the exercise of the Warrants is absolute and
unconditional, regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
(q) Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "INTANGIBLES") necessary for the conduct of its
business as now being conducted and as described in the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1996. To the best knowledge of
the Company, after due inquiry, neither the Company nor any subsidiary of the
Company infringes or is in conflict with any right of any other person with
respect to any Intangibles which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
64
<PAGE> 7
(r) Peregrine Transaction. The Stock Exchange Agreement (the "Stock
Exchange Agreement") dated January 15, 1997, by and between Peregrine
Pharmaceuticals, Inc. ("Peregrine"), the Company and certain stockholders of
Peregrine, together with all amendments and modifications thereto (collectively
the "Amendments"), have been executed and delivered and are in full force and
effect and binding upon all of the Major Stockholders (as that term is defined
in the Stock Exchange Agreement, as amended by the Amendments). True, correct
and complete copies of the Stock Exchange Agreement and all Amendments have been
delivered to Purchaser.
Section 2.2 Representations and Warranties of the Investor. The Investor
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) The Investor has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold hereunder, (ii) the execution and delivery of this Agreement
by the Investor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate or partnership
action, and (iii) this Agreement constitutes a valid and binding obligation of
the Investor enforceable against the Investor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's charter
documents or By-Laws, or (ii) conflict with any agreement, indenture or
instrument to which Investor is a party, or (iii) result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to Investor. The business of the Investor is not
being conducted in violation of any law or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
do not and will not have a Material Adverse Effect on Investor's business. The
Investor is not required to obtain any consent or authorization of any
governmental agency in order for it to perform its obligations under this
Agreement. The data to be provided by the Investor in connection with
registering the Registrable Securities under the Act will be true and correct in
all material respects.
(c) Investment Representation. The Investor is purchasing the Shares
for its own account for investment and not with a view to distribution otherwise
than in compliance with the Act. Investor has no present intention to sell the
Shares and Investor has no present arrangement (whether or not legally binding)
to sell the Shares to or through any person or entity; provided, however, that
by making the representations herein, the Investor does not agree to hold the
Shares for any minimum or other specific term and reserves the right to dispose
of the Shares at any time in accordance with Federal and state securities laws
applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor as
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general, and investments in
particular, so that the Investor is able to evaluate the merits and risks of an
investment in the Shares and to protect its own interests in connection with
such investment. In addition (but without limiting the effect of the Company's
representations and warranties contained herein), the Investor has received such
information as it
65
<PAGE> 8
considers necessary or appropriate for deciding whether to purchase the Shares
pursuant hereto. The Investor acknowledges that no representation or warranty is
made by the Placement Agent or any persons representing the Placement Agent with
respect to the Company or sale of the Shares.
(e) Rule 144. The Investor understands that there is no public
trading market for the Shares, that none is expected to develop, and that the
Shares must be held indefinitely unless such Shares or securities into which the
Shares are converted are registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
ARTICLE III
Covenants
Section 3.1 Securities Compliance.
(a) The Company shall notify the SEC and NASD, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Warrants and the Common Stock issuable upon
conversion of the Shares or the exercise of the Warrants, as the case may be, to
the Investor or subsequent holder.
(b) The Investor understands that the Shares are being offered and
sold in reliance on a transactional exemption from the registration requirements
of Federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Investor to acquire the Shares.
(c) The Company shall, on or before the Closing Date take such
action as the Company shall reasonably determine is necessary to qualify the
Shares for sale to the Investor pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States or obtain
exemption therefrom, and shall provide evidence of any such action so taken to
the Investor on or prior to the Closing Date.
Section 3.2 Registration and Listing. Until the later of (i) three (3)
years after all Shares have been converted into Common Stock and (ii) the date
on which no Warrants issued upon such conversion remain outstanding, the Company
will cause its Common Stock (or other securities into which the Shares are
convertible or for which the Warrants are exercisable) to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to any registration statement filed pursuant to
the Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said acts, except as permitted
herein. Until the later of (i) three (3) years after all Shares have been
converted into Common Stock and (ii) the date on which no Warrants
66
<PAGE> 9
issued upon such conversion remain outstanding, the Company will take all action
within its power to continue the listing or trading of its Common Stock on the
NASDAQ or a national securities exchange and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD or such exchange, as the case may be.
Section 3.3 Sale Restrictions. Investor will not on any trading day sell
publicly on NASDAQ or on the principal exchange on which the Common Stock is
traded, on a net basis more than the following number of shares of Common Stock
issued upon conversion of Shares or exercise of Warrants: the greatest of (i)
10% of the average daily trading volume of the Common Stock for the five trading
days preceding such sale as reported by NASDAQ or by such principal exchange,
(ii) 50,000 shares (adjusted for stock splits or distributions occurring on or
after the date of this Agreement), and (iii) 10% of the trading volume for the
Common Stock on the day of such sale.
Section 3.4 Conversion and Exercise Rights. (a) The Shares shall not be
convertible and the Warrants shall not be exercisable by a holder thereof to the
extent (but only to the extent) that, if convertible or exercisable, as the case
may be, by such holder, such holder would beneficially own in excess of 4.9% of
the outstanding shares of Common Stock (or such other greater percentage
indicated on the signature page to the Securities Agreement with respect to an
Investor). To the extent the above limitation applies, the determination of
whether Shares shall be convertible (vis-a-vis other securities owned by such
holder) and of which Shares shall be converted and of whether Warrants shall be
exercisable (vis-a-vis other securities owned by such holder) and of which
Warrants shall be exercised shall be in the sole discretion of the holder
thereof and submission of Shares for conversion and Warrants for exercise shall
be deemed to be the holder's determination whether Shares shall be convertible
(vis-a-vis other securities owned by such holder) and of which Shares are
converted and/or of whether Warrants shall be exercisable (vis-a-vis other
securities owned by such holder) and of which Warrants are exercised subject to
such aggregate percentage limitation. For the purposes of this provision,
beneficial ownership and all calculations, including without limitation,
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D and G thereunder. The provisions of this Section may be waived and/or
implemented in a manner otherwise than strictly in conformity with the foregoing
provisions of this Section 3.4 with the approval of the Board of Directors of
the Company and the holders of three quarters in interest in the then
outstanding Shares and Warrants (voting together as a single class): (i) with
respect to any matter to cure any ambiguity herein, to correct this Section (or
any portion hereof) which may be defective or inconsistent with the intended
4.9% beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of a majority of the then outstanding shares of Common Stock. A
holder of Shares shall not take unreasonable actions for the intended primary
purpose of causing the Company to be unable to convert Shares as a result of the
limitations contained within this Section 3.4.
(b) The limitations contained in this Section shall apply to a
successor holder of Shares and/or Warrants if, and to the extent, elected by
such successor holder concurrently with its acquisition of such Shares and/or
Warrants, as the case may be, such election to be promptly confirmed in writing
to the Company (provided no transfer or series of transfers to a successor
holder or holders shall be used by a holder to circumvent the limitations
contained in this Section).
67
<PAGE> 10
Section 3.5 Reservation of Shares. The Company shall at all times have
authorized and reserved for issuance, free from preemptive rights, a number of
shares of Common Stock sufficient to satisfy the conversion rights of Purchaser
pursuant to the terms and conditions of the Shares outstanding at such time and
any Warrants issuable upon the conversion thereof and to satisfy the issuance of
any other shares of Common Stock which are reserved for issuance or which are
issuable upon the exercise, conversion, exchange or satisfaction of any
outstanding securities or obligations or rights of the Company.
Section 3.6 Best Efforts. The parties shall use their best efforts timely
to satisfy each of the conditions described in Article IV of this Agreement.
Section 3.7 Use of Proceeds. The Company shall use the proceeds from the
sale of the Shares substantially in accordance with Schedule 3.7.
Section 3.8 Financial Information. So long as Investor holds any Shares or
Warrants, the Company shall send the following reports to Investor: a copy of
its annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements, any Current Reports on Form 8-K and any press releases issued by the
Company or any of its subsidiaries.
Section 3.9 Corporate Existence. Without limiting any provisions of the
Certificate of Designation or the Warrants, so long as a Purchaser beneficially
owns any 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 in which the surviving or successor entity in such
transaction (i) 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 effect the
conversion of all Shares and Warrants outstanding as of the date of such
transaction and all Warrants issuable upon conversion of such Shares and (ii) is
a publicly traded corporation whose common stock is listed for trading on the
NASDAQ, NYSE or AMEX.
Section 3.10 Restriction on Below Market Issuance of Securities. Except as
set forth on Schedule 3.10 for a period of one hundred eighty (180) days after
the Closing Date, the Company shall not issue or agree to issue, except to the
Purchasers, any equity securities of the Company (or any security convertible
into or exercisable or exchangeable, directly or indirectly, for equity
securities of the Company) if such securities are issued at a price (or in the
case of securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock such securities provide for a conversion price)
less than the current market price for Common Stock on the date of issuance (in
the case of Common Stock) or the conversion date (in the case of securities
convertible into or exercisable or exchangeable, directly or indirectly, for
Common Stock); provided that the foregoing shall not preclude the issuance of up
to an aggregate of $5 million of Common Stock without registration rights and
which may only be resold in accordance with Rule 144 under the Act (but, without
implication that the contrary would otherwise be true, not securities
convertible into or exercisable or exchangeable, directly or indirectly, for
Common Stock) at a discount which shall not exceed 15%.
68
<PAGE> 11
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and/or sell the
Shares to the Investor is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor's Representations and Warranties.
The representations and warranties of the Investor shall be true and correct
in all material respects.
(b) Performance by the Investor. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Shares. The obligation hereunder of the Investor to acquire and pay
for the Shares is subject to the satisfaction, at or before the Closing, of each
of the conditions set forth below. These conditions are for each Investor's sole
benefit and may be waived by the Investor at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time and the Company shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the Company at
or prior to the Closing Date. The Purchaser shall have received a certificate,
executed by the chief executive officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may reasonably be
requested by Purchaser.
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) NASDAQ. The Company's Common Stock shall be listed and traded on
the NASDAQ Small Cap Market. Prior to the Closing Date, trading in the Company's
Common Stock shall not have been suspended by the SEC or NASDAQ and trading in
securities generally as reported by NASDAQ shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by NASDAQ.
69
<PAGE> 12
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall have
received an opinion of counsel to the Company in the form attached hereto and
such other certificates and documents as the Investor or its counsel shall
reasonably require incident to the Closing.
(f) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy thereof
certified by the Secretary of State of Delaware shall have been delivered to
Investor.
(g) The Company shall have delivered duly executed certificates (in
such denominations as such Investor shall request) representing the Shares being
so purchased by Investor.
(h) The aggregate number of Shares purchased by the Purchaser,
together with the purchasers under related Investment Agreements, shall be a
maximum of 13,200 (including Shares purchased pursuant to the exercise of the
warrant described in Section 7.1).
(i) The Company shall have delivered evidence reasonably
satisfactory to the Investor that the Company's transfer agent has agreed to act
in accordance with irrevocable instructions in the form attached hereto as
Schedule III.
(j) The Stock Exchange Agreement and the Amendments shall have been
executed and delivered by the Major Stockholders (as that term is defined in the
Stock Exchange Agreement, as amended by the Amendments) and shall be in full
force and effect and binding upon all parties thereto and the Purchaser shall
have been provided with true, correct and complete copies of each such agreement
or document.
ARTICLE V
Legend on Stock
Each certificate representing the Shares and, if appropriate in accordance
with this Article V, securities (including, without limitation, the Warrants)
issued upon conversion thereof or upon exercise of the Warrants shall be stamped
or otherwise imprinted with a legend in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
70
<PAGE> 13
The Company agrees to reissue certificates representing the Shares or, as
applicable, to originally issue or reissue, as the case may be, certificates
representing the securities (including, without limitation, the Warrants) issued
upon conversion thereof or upon exercise of the Warrants without the legend set
forth above in accordance with the following at such time as (i) the holder
thereof is permitted to dispose of such Shares (or securities (including,
without limitation, the Warrants) issued upon conversion thereof) pursuant to
Rule 144 under the Act, (ii) such Shares or securities (as applicable) are sold
to a purchaser or purchasers who (in the opinion of counsel to such purchasers,
in form and substance reasonably satisfactory to the Company and its counsel)
are able to dispose of such shares publicly without registration under the Act,
or (iii) such Shares or securities (as applicable) are included in an effective
registration statement under the Act.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Investor Common
Shares in such amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Shares and exercise of Warrants. All such
certificates shall bear the restrictive legend specified in this Article V of
this Agreement, but only to the extent and under the circumstances set forth in
this Article V and otherwise shall not bear such restrictive legend. If a
Purchaser desires to transfer securities to an affiliate or provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that the securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, the Company shall permit the
transfer, and, in the case of the Investor Common Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by a Purchaser.
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by
Investor or by action of the Board of Directors of the Company at any time if
the Closing shall not have been consummated by the fifth business day following
the date of this Agreement; provided, however, that the right to terminate this
Agreement under this Section 6.2 shall not be available to any party whose
failure to fulfill any material obligation under this Agreement has been the
cause of or resulted in the failure of the Closing to occur on or prior to the
aforesaid date.
ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Except as otherwise set forth in the
Registration Rights Agreement hereof or this Section 7.1, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, and delivery of this Agreement, provided
that the Company shall pay, at the Closing, to the Placement Agent (Cappello &
Laffer Capital Corp.) $100,000 to cover its non-accountable expenses including
due diligence fees and attorneys' fees
71
<PAGE> 14
and expenses incurred by the Placement Agent. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the Shares
pursuant hereto. The Placement Agent's compensation includes a cash payment in
an amount equal to 6% of the Purchase Price of Shares sold by the Company, and
the issuance of 5-year warrants to the Placement Agent to purchase at $1000 per
share that number of Shares equal to 10% of the number of Shares sold.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other agreements, documents or instruments contemplated hereby
(collectively, the "Transaction Documents") were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of the Transaction Documents and to enforce
specifically the terms and provisions thereof, this being in addition to any
other remedy to which either of them may be entitled by law or equity. No
provision of any Transaction Documents providing for any remedy to an Investor
shall limit any remedy which would otherwise be available to such Investor at
law or in equity. The Investor (with respect to compliance by the Company with
Section 4(2) of the Securities Act of 1933) and the Company (each an
"Indemnitor") shall each indemnify and hold harmless the other for a breach by
the Indemnitor of its representatives, warranties or obligations under any of
the Transaction Documents.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in Delaware and the courts of the State of Delaware
for the purposes of any suit, action or proceeding arising out of or relating to
this Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Investor consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement and the documents
and instruments referred to herein and therein contain the entire understanding
of the parties with respect to the matters covered hereby and thereby and,
except as specifically set forth herein and therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express
72
<PAGE> 15
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
to the Company: Techniclone Corporation
William Moding, Chief Financial
Officer
14282 Franklin Avenue
Tustin, CA 92780-7017
Fax: (714) 838-5817
to the Investor: At the address set forth
at the foot of this Agreement, with
copies to Investor's counsel as set
forth at the foot of this Agreement or
as specified in writing by Investor
with copies to: Gerard K. Cappello
Cappello & Laffer Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Fax: (310) 393-4838
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other party
hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. Except as otherwise set forth herein, the parties
hereto may amend this Agreement without notice to or the consent of any third
party.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of Delaware without
regard to such state's principles of conflict of laws.
73
<PAGE> 16
Section 7.10 Survival. The representations and warranties of the Company
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I, III, V and VII shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed signature page(s) to be physically delivered to the other party within
five days of the execution hereof.
Section 7.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Investor without
its written consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Section 7.13 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby (including without limitation with respect to
the beneficial ownership limitations contained in this Agreement and the other
Transaction Documents).
Section 7.14 Assignment. The rights of the Investor hereunder may be
assigned to any affiliate of Investor or, if the Investor complies with the
requirements of Section 9 of the Registration Rights Agreement, to a third
party.
74
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
Techniclone Corporation
By:
-----------------------------------------
Name: Lon H. Stone
Its: Chairman and President
Number of Shares The Investor
By:
- -------------- -----------------------------------------
Name:
Aggregate Dollar Amount at Its:
$1000 per share Investor's address:
$ Percentage limitation, if desired
- ---------------- ------
Name and address of Investor's
counsel:
75
<PAGE> 18
SCHEDULE II
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the 5% Preferred Stock)
The undersigned hereby irrevocably elects to convert________ shares of 5%
Preferred (the "Conversion"), represented by stock certificate No(s).__________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") and warrants ("Warrants") of Techniclone Corporation (the "Corporation")
according to the conditions thereof; as of the date written below. If securities
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any conversion, except for transfer taxes, if
any. A copy of each Preferred Stock Certificate is attached hereto (or evidence
of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the Common Stock issuable to the undersigned upon conversion of
the 5% Preferred and Warrants shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the "Act"), or
pursuant to an exemption from registration under the Act.
Date of Conversion:_______________________________
Applicable Conversion Price:______________________
Amount of Conversion Default Payments to be
Converted, if any:________________________________
Number of Shares of Common Stock to be Issued upon
Conversion:_______________________________________
Aggregate Number of Shares of Common Stock to be
included in Warrants to be Issued:________________
By:_______________________________________________
Name:_____________________________________
Title:_____________________________________
(Must be exactly as appears on the Preferred Stock
Certificate)
Name:_____________________________________________
Address: _________________________________________
Social Security or Federal
Tax I.D. Number:__________________________________
76
<PAGE> 19
SCHEDULE III
April ___, 1997
[Transfer Agent]
Attn:______________
Dear ______________:
Reference is made to those certain 5% Preferred Stock Investment
Agreements (each an "Investment Agreement") of even date herewith, by and among
Techniclone Corporation, a Delaware corporation (the "Company") and the other
signatories thereto (each, a "Holder") pursuant to which the Company is issuing
to the Holders shares of its 5% Adjustable Convertible Class "C" Preferred
Stock, (the "Preferred Shares"). The Preferred Shares are convertible into
shares of the Company's common stock, par value $.001 per share (the "Conversion
Shares") and Warrants to acquire shares of common stock of the Company (the
"Warrant Shares"). The Warrant Shares and the Conversion Shares are collectively
referred to as the "Subject Shares". This letter shall serve as our irrevocable
authorization and direction to you with respect to the issuance of Subject
Shares. Certificates for the Subject Shares shall not bear any legend
restricting their transfer and shall not be subject to any stop-transfer
restriction; provided, however that subject to Article V of the Investment
Agreements, if the Subject Shares are not registered for resale under the
Securities Act of 1933, as amended, then the certificates for the Subject Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
77
<PAGE> 20
Please be advised that each Holder is relying upon this letter as an
inducement to enter into its respective Investment Agreement and, accordingly,
it is agreed that Holder is a third party beneficiary to these instructions.
Moreover, the Company cannot revoke or modify these instructions without the
prior written consent of Holder. Please execute this letter in the space
indicated to acknowledge your agreement to act in accordance with these
instructions. Should you have any questions concerning this matter, please
contact me at (______) _____________.
Very truly yours,
TECHNICLONE CORPORATION
By:_________________________________________
Name:___________________________
Title:__________________________
Agreed and Acknowledged:
[TRANSFER AGENT]
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
Enclosure
cc: [Holder]
78
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April __,
1997 by and among: Techniclone Corporation, a corporation organized under the
laws of the State of Delaware, with headquarters located at 14282 Franklin
Avenue, Tustin, CA 92780 (the "COMPANY"), and the undersigned (together with
affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the 5% Preferred Stock Investment Agreements of even
date herewith by and between the Company and the Initial Investors (the
"SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Investors shares of its 5% Adjustable Convertible Class "C" Preferred Stock (the
"PREFERRED STOCK") that is convertible into shares (the "CONVERSION SHARES") of
the Company's common stock, par value $.001 per share (the "COMMON STOCK"), and
warrants (the "Warrants") to purchase shares (the "Warrant Shares") of Common
Stock upon the terms and subject to the limitations and conditions set forth in
the Certificate of Designations, Rights and Preferences filed with respect to
such Preferred Stock (the "CERTIFICATE OF DESIGNATION"); and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares
(including any Conversion Shares issuable with respect to Conversion Default
Payments under the Certificate
79
<PAGE> 2
of Designation or in redemption of any Preferred Stock) issued or issuable with
respect to the Preferred Stock (including Preferred Stock issued as dividends on
Preferred Stock) and the Warrant Shares issued or issuable upon exercise of
Warrants (including Warrants issuable upon conversion of Preferred Stock) and
any shares of capital stock issued or issuable, from time to time (with any
adjustments), on or in exchange for or otherwise with respect to any of the
foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement
of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
expeditiously as possible following the Closing Date, file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of all of the Registrable Securities, subject to the consent of the
Initial Investors (as determined pursuant to Section 11(j) hereof)) covering the
resale of at least all of the Registrable Securities, which Registration
Statement, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock or Warrants,
as the case may be, (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms thereof. The
Registrable Securities included on the Registration Statement shall be allocated
to the Investors as set forth in Section 11(k) hereof. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject only to
the approval of information which such Initial Investors have supplied and
matters relating to this Agreement and compliance therewith by the Company) the
Initial Investors and their counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) or Section 3(b) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the consent
of the Initial Investors, shall have the right to select a total of one legal
counsel to represent the Investors and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the one hundred twentieth (120) day following the Closing Date; provided,
however, that such one hundred twenty (120) day period shall be extended for an
additional thirty (30) day period if either the SEC or the Company's auditors
(in accordance with applicable professional standards, provided that the Company
shall only be entitled to such an extension if they have made all public
disclosures necessary to satisfy the auditors that the April 30 audited
financial statements are not required to be included in the registration
statement filed by the Company pursuant hereto and have otherwise
80
<PAGE> 3
used their good faith best efforts to satisfy all requirements and provide all
necessary or useful information to such auditors) requires that audited
financial statements for the fiscal year ended April 30, 1997 be included in any
registration statement filed by the Company pursuant hereto (the "REGISTRATION
DEADLINE"). If (i) the registration statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC on or before the Registration Deadline or
if, after the registration statement has been declared effective by the SEC,
sales of all the Registrable Securities (including any Registrable Securities
required to be registered pursuant to Section 3(b) hereof) cannot be made
pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Investors) or (ii) the Common Stock is not listed or
included for quotation on the NASDAQ Small Cap Market ("NASDAQ"), the NASDAQ
National Market (the "NNM"), the New York Stock Exchange (the "NYSE") or the
American Stock Exchange (the "AMEX") at any time after the Registration
Deadline, then the Company will make payments to the Investors in such amounts
and at such times as shall be determined pursuant to this Section 2(c) as
partial relief for the damages to the Investors by reason of any such delay in
or reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity). The
Company shall pay to each Investor an amount equal to the aggregate Purchase
Price of the Preferred Stock held by such Investor (including, without
limitation, Preferred Stock that has been converted into Conversion Shares then
held by such Investor) (the "AGGREGATE SHARE PRICE") multiplied by one hundredth
(.01) (but three hundredths (.03) if the proviso to the first sentence of this
paragraph (c) is applicable) for the first month (prorated for a partial month)
after the Registration Deadline that the Registration Statement filed pursuant
to Section 2(a) has not been declared effective by the SEC plus (ii) the
Aggregate Share Price multiplied by three hundredths (.03) times the sum of: (y)
the number of months (prorated for partial months) after the thirtieth (30) day
following the Registration Deadline (the "SECOND REGISTRATION DEADLINE") and
prior to the date the Registration Statement filed pursuant to Section 2(a) is
declared effective by the SEC and (z) the number of months (prorated for partial
months) that sales cannot be made pursuant to the registration statement after
the Registration Statement has been declared effective or the Common Stock is
not listed or included for quotation on NASDAQ, the NNM, the NYSE or AMEX;
provided, however that there shall be excluded from each such period any delays
which are solely attributable to changes (other than corrections of Company
mistakes with respect to information previously provided by the Investors)
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution. (For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay $10,000 ($30,000
if the proviso to the first sentence of this paragraph (c) is applicable) for
each $1,000,000 of Aggregate Share Price until the earlier of the Second
Registration Deadline and the date the Registration Statement becomes effective,
and if the Registration Statement is not effective on the Second Registration
Deadline then from the Second Registration Deadline the Company would pay
$30,000 per month for each $1,000,000 of Aggregate Purchase Price until the
Registration Statement becomes effective.) Such amounts shall be paid in cash
or, at each Investor's option, may be convertible into Common Stock and Warrants
at the "CONVERSION PRICE" (as defined in the Certificate of Designation). Any
shares of Common Stock issued upon conversion (or issuable upon exercise of
Warrants issuable upon conversion) of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities it shall so notify the Company in writing within two (2)
business days of the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics set forth under
Section 4 of the Certificate of Designation), beginning on the last day
81
<PAGE> 4
upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period.
d. Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to a firm commitment underwritten
offering for its own account or the account of others under the Securities Act
of any of its equity securities (other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a) or
3(b) hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
82
<PAGE> 5
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2(a), and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold (and no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities (including any Registrable Securities issuable in the future) may be
immediately sold to the public without registration pursuant to Rule 144(k)
under the Securities Act (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein and all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover one
hundred thirty-five percent (135%) of the Registrable Securities issued or
issuable upon conversion of the Preferred Stock and exercise of Warrants
(including Warrants issuable upon conversion of Preferred Stock) held by any
Investor, the Company shall, if permissible, amend the Registration Statement,
or shall file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover one hundred fifty percent
(150%) of the Registrable Securities so issued or issuable to such Investor, in
each case, as soon as practicable, but in any event within fifteen (15) days
after the Registration Trigger Date (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects to
rely). The Company shall cause such amendment and/or new Registration Statement
to become effective as soon as practicable following the filing thereof. In the
event the Company fails to obtain the effectiveness of any such Registration
Statement within one hundred and twenty (120) days after a Registration Trigger
Date, such event shall be treated as a "Redemption Event" under Section 2 of the
Certificate of Designations with respect to the Preferred Stock (as to which, to
the extent such failure is not caused by a stop-order threatened or issued, or
similar action taken, by the SEC or its staff, the Common Stock election shall
be available to the Company under Section 2(b)(iv) thereof).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is
83
<PAGE> 6
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, in the case of the Registration Statement referred to in Section 2(a), 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, if
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 Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned (or to be owned)
by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds (or has the right to hold) Registrable
Securities being offered reasonably requests, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of the
Registrable Securities being offered pursuant to a Registration Statement under
Section 2(a) or 3(b) hereof select underwriters for the offering, the Company
shall enter into and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment (including in each case by amending or supplementing
such Registration Statement) and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing
84
<PAGE> 7
underwriters) of the issuance of such order and the resolution thereof (and if
such Registration Statement is supplemented or amended, deliver such number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request) .
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC and not file any document in a form to which such counsel reasonably
objects with respect to information regarding the Investors or relating to this
Agreement and compliance therewith by the Company.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date of effectiveness of the Registration Statement (i) an opinion, dated as of
such date, from counsel representing the Company addressed to the Investors and
in form, scope and substances as is customarily given in an underwritten public
offering and (ii) in the case of an underwriting, 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,
if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein
85
<PAGE> 8
shall be deemed to limit the Investor's ability to sell Registrable Securities
in a manner which is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by the Registration Statement to be listed on
the NYSE or the AMEX or another national securities exchange and on each
additional national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the NASDAQ Small Cap Market or the NNM
and, without limiting the generality of the foregoing, to arrange for and
maintain at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be
86
<PAGE> 9
necessary in order to change the plan of distribution set forth in such
Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934 , as amended, and the rules and regulations promulgated by the
Commission).
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. Each Investor whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration statement and each such Investor shall use its reasonable best
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
d. Each Investor agrees to notify the Company promptly, but in any
event within 72 hours after the date on which all Registrable Securities owned
by such Investor have been sold by such Investor (and such Investor does not
have the right to acquire additional Registrable Securities), if such date is
prior to the expiration of the Registration Period, so that the Company may
comply with its obligation to terminate the Registration Statement in accordance
with Item 512 of Regulation S-K or Regulation S-B, as the case may be.
e. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver
87
<PAGE> 10
to the Company a certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
f. Without limiting an Investor's rights under Section 2(a) or 3(b),
no Investor may participate in any underwritten distribution hereunder unless
such Investor (i) agrees to sell such Investor's Registrable Securities 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 Section 5
below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements
contemplated by Section 3(j) hereof and the reasonable fees and disbursements of
one counsel selected by the Investors pursuant to Section 2(b) hereof shall be
borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees, agents and each
person who control any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED Person"), against any joint
or several losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each such underwriter or controlling
88
<PAGE> 11
person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds actually received by such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
89
<PAGE> 12
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if it holds Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
90
<PAGE> 13
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 3.2 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor owns shares of
Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i)
a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, Warrants or the Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing for the benefit of the Company to be
bound by all of the provisions contained herein, and (v) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, the Initial
Investors (to the extent the Initial Investors still own shares of Preferred
Stock, Warrants or Registrable Securities) and Investors who hold a majority
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
91
<PAGE> 14
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
92
<PAGE> 15
If to the Company:
William V. Moding, Chief Financial Officer
14282 Franklin Avenue
Tustin, CA 92780
with a copy to:
R.C. Shepard
Stradling, Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, CA 92660
If to
with a copy to:
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the United States federal courts or any court of the State of
Delaware located in Delaware in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company, mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
Investors' right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement and the Securities Purchase Agreement (including
all
93
<PAGE> 16
schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
or the Initial Investors pursuant to this Agreement shall be made by the
Investors or the Initial Investors holding a majority of the Registrable
Securities (determined as if all shares of Preferred Stock and Warrants then
outstanding and all Warrants issuable upon conversion of Preferred Stock had
been converted into or exercised for Registrable Securities) held by all
Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For purposes of this
paragraph, all shares of Preferred Stock and Warrants then outstanding and all
Warrants issuable upon conversion of Preferred Stock shall be assumed converted
into or exercised for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
94
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
By:___________________________
Name:_________________________
Its:__________________________
Initial Investors:
By:_____________________________
Name:___________________________
Its:____________________________
By:_____________________________
Name:___________________________
Its:____________________________
95
<PAGE> 18
EXHIBIT 1 TO REGISTRATION RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
RE:
Ladies and Gentlemen:
We are counsel to Techniclone Corporation a corporation organized under
the laws of the State of Delaware (the "COMPANY"), and we understand that [Name
of Investor] (the "HOLDER") has purchased from the Company shares of the
Company's 5% Adjustable Convertible Class "C" Preferred Stock (the "PREFERRED
STOCK") that are convertible into shares of the Company's Common Stock, par
value $.001 per share (the "COMMON STOCK") and Warrants to purchase shares of
Common Stock. The Preferred Stock were purchased by the Holder pursuant to a
Securities Purchase Agreement, dated as of April __, 1997, by and among the
Company and the signatories thereto (the "Agreement"). Pursuant to a
Registration Rights Agreement, dated as of April ___, 1997, by and among the
Company and the signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), the
Company agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on ___________ __, 1997,
the Company filed a Registration Statement on Form S-______ (File No.
333-__________) (the "REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of Investor]
96
<PAGE> 1
STOCK PURCHASE WARRANT
WARRANT TO PURCHASE ___________ SHARES OF COMMON STOCK
ISSUE DATE: ______________
EXPIRATION: UNLESS EARLIER EXERCISED OR TERMINATED AS HEREIN PROVIDED,
THIS WARRANT SHALL EXPIRE AT 5:00 PM., PACIFIC TIME, ON THE FIFTH
ANNIVERSARY OF THE CLOSING DATE DEFINED IN THE RESOLUTION ESTABLISHING THE
PREFERENCES OF THE 5% ADJUSTABLE CONVERTIBLE CLASS "C" PREFERRED STOCK OF
THE COMPANY
TECHNICLONE CORPORATION
This certifies that ____________________________________________,
the registered holder hereof or assigns (the "Warrantholder") is entitled to
purchase from Techniclone Corporation, a Delaware corporation (the "Company"),
at any time after March __, 1998 and before 5:00 PM Pacific Time on the fifth
anniversary of the closing date as defined in Section 5 of the Resolution
establishing the preferences of the 5% Adjustable Convertible Class "C"
Preferred Stock of the Company (the "Expiration Time") at the purchase price per
share determined pursuant to Section 1.4 hereof (the "Warrant Price"), the
number of shares shown above. Notwithstanding the foregoing, the Expiration Time
shall be extended for 30 days with respect to any Warrants acquired upon
conversion of any such shares of Preferred Stock within 30 days prior to such
fifth anniversary. The number of shares purchasable upon exercise of this
Warrant and the Warrant Price per share shall be subject to adjustment from time
to time as set forth below.
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT.
1.1 REGISTRATION. This Warrant shall be numbered and shall be
registered on the books of the Company.
1.2 TRANSFER. This Warrant shall be transferable on the books of the
Company only upon delivery thereof duly endorsed by the Warrantholder or its
duly authorized attorney or representative, accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant to the person
entitled thereto. This Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of shares. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of a Warrant and the term "Warrant" shall include any and all
warrants issued upon division, exchange, substitution or transfer of this
Warrant.
1.3 FORM OF WARRANT. The Warrant shall be executed on behalf of the
Company by its President, Vice President or other authorized officer, and shall
be dated as of the date of signature thereof by the Company either upon initial
issuance or upon division, exchange, substitution or transfer. A Warrant bearing
the signature of an individual who was at any time the
97
<PAGE> 2
proper officer of the Company shall bind the Company, notwithstanding that such
individual shall have ceased to hold such office prior to the delivery of such
Warrant.
1.4 WARRANT PRICE. The initial purchase price per share at which
shares of Common Stock may be purchased upon exercise of this Warrant (the
"Warrant Price") shall be 110% of the Conversion Cap as determined pursuant to
Section 4(d)(iii) of the Resolution establishing the preferences of the 5%
Adjustable Convertible Class "C" Preferred Stock of the Company, as contained in
the Certificate of Designations of such Preferred Stock filed by the Company
with the Delaware Secretary of State. If this Warrant shall be issued prior to
determination of the Warrant Price as aforesaid, upon such determination this
Warrant shall be deemed to incorporate the Warrant Price as so determined.
SECTION 2. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of shares to the Warrantholder; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any secondary transfer of the Warrant or the
shares.
SECTION 3. MUTILATED OR MISSING WARRANTS.
In case this Warrant shall be mutilated, lost, stolen or destroyed,
the Company shall, at the request of the Warrantholder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the lost, stolen or destroyed Warrant, a new
Warrant of like tenor, but only upon receipt of evidence satisfactory to the
Company of such loss, theft or destruction of such Warrant. The applicant shall
also comply with such other reasonable regulations and pay such other reasonable
administrative charges as the Company may prescribe.
SECTION 4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as this Warrant remains outstanding, out of its authorized
shares of capital stock, such number and class of shares as shall be subject to
purchase under this Warrant and such reserved shares shall be used solely for
issuances upon exercise of this Warrant.
SECTION 5. EXERCISE OF WARRANT.
5.1 EXERCISE. Prior to the Expiration Time the Holder of this
Warrant shall have the right at any time and from time to time to exercise this
Warrant in full or in part by surrender of this Warrant to the Company
accompanied by payment to the Company in cash or by certified or cashier's check
or by wire transfer of funds of the aggregate Warrant Price for the number of
shares in respect of which this Warrant is then exercised. If the Issue Date is
prior to the determination of the Warrant Price, this Warrant may not be
exercised until the Warrant Price has been determined. In addition, and
notwithstanding anything to the contrary contained in this Warrant, this Warrant
may be exercised by presentation and surrender of this Warrant to the Company
with a written notice of the holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in
98
<PAGE> 3
accordance with the terms hereof (a "Cashless Exercise"). In the event of a
Cashless Exercise, in lieu of paying the Warrant Price in cash, the holder shall
surrender this Warrant for, and the Company shall issue in respect thereof, that
number of shares of Common Stock determined by multiplying the number of shares
of Common Stock to which the holder would otherwise be entitled upon a cash
exercise hereof by a fraction, the numerator of which shall be the difference
between the then Current Market Price (as herein defined) and the Warrant Price,
and the denominator of which shall be the then Current Market Price.
5.2 DELIVERY OF CERTIFICATES. Upon exercise of this Warrant the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrantholder and in such name or names as the
Warrantholder may designate, a certificate or certificates for the number of
full shares issuable upon such exercise together with cash, as provided in
Section 7 hereof, in respect of any fractional shares. The Company shall effect
such issuance immediately and shall transmit the certificates by messenger or
overnight delivery service to reach the address designated by the Warrantholder
within two business days after receipt of the Warrant Price or, in the case of a
Cashless Exercise, after the receipt of the Warrant. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of surrender of the Warrant and, to the extent applicable,
payment of the Warrant Price, as aforesaid, notwithstanding that the
certificates representing such shares shall not actually have been delivered or
that the stock transfer books of the Company shall then be closed. In the event
of partial exercise a new Warrant evidencing the remaining portion of this
Warrant will be issued by the Company.
SECTION 6. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
6.1 ADJUSTMENTS. The number and kind of securities purchasable upon
the exercise of the Warrants and the Warrant Price shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares of Common Stock or (iv)
issue by reclassification of its Common Stock other securities of the
Company, the number of shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the kind and number of shares or other
securities of the Company which it would have owned or would have been
entitled to receive after the happening of any of the events described
above, had the Warrants been exercised immediately prior to the happening
of such event or any record date with respect thereto. Any adjustment made
pursuant to this paragraph (a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any,
for such event.
(b) In case the Company shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for
or to purchase shares of Common Stock at a price per share which is lower
at the record date mentioned below than the then Current Market Price (as
defined in Section 7), the number of shares thereafter purchasable upon
99
<PAGE> 4
the exercise of the Warrants shall be determined by multiplying the number
of shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be (1) the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
options or warrants plus (2) the number of additional shares of Common
Stock offered for subscription or purchase, and of which the denominator
shall be (x) the number of shares of Common Stock outstanding immediately
prior to the issuance of such rights, options or warrants plus (y) the
number of shares which the aggregate offering price of the total number of
shares offered would purchase at the Current Market Price. Such adjustment
shall be made whenever such rights, options or warrants are issued, and
shall become effective immediately and retroactively after the record date
for the determination of shareholders entitled to receive such rights,
options or warrants.
(c) In case the Company shall distribute to all or substantially all
holders of its shares of Common Stock evidences of its indebtedness or
assets (excluding non-extraordinary cash dividends or distributions out of
current earnings) or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase shares of Common Stock
(excluding those referred to in paragraph (b) above), then, in each case,
the number of shares thereafter purchasable upon the exercise of the
Warrants shall be determined by multiplying the number of shares
theretofore purchasable upon exercise of the Warrants by a fraction, of
which the numerator shall be the then Current Market Price on the date of
such distribution, and of which the denominator shall be such Current
Market Price on such date minus the then fair value of the portion of the
assets or evidence of indebtedness so distributed or of such subscription
rights, options or warrants applicable to one share. Such adjustment shall
be made whenever any such distribution is made and shall become effective
on the date of distribution retroactive to the record date for the
determination of shareholders entitled to receive such distribution.
(d) If, at any time after the initial issuance of this Warrant, any
event occurs of the type contemplated by the adjustment provisions of this
Section 6.1 but not expressly provided for by such provisions, the
Company's Board of Directors will make an appropriate adjustment in the
Warrant Price and the number of shares of Common Stock acquirable upon
exercise of this Warrant so that the rights of the holder shall be neither
enhanced nor diminished by such event.
(e) No adjustment in the number of shares purchasable hereunder
shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of shares then
purchasable upon the exercise of a Warrant; provided, however, that any
adjustments which by reason of this paragraph (e) are not required to be
made immediately shall be carried forward and taken into account in any
subsequent adjustment. The adjustments set forth in this Section 6.1 shall
be calculated and effected without regard to any limits on exercisability
contained herein or in the 5% Preferred Stock Investment Agreement dated
April __, 1997 (the "Securities Purchase Agreements").
(f) Whenever the number of shares purchasable upon the exercise of a
Warrant is adjusted as herein provided, the Warrant Price payable upon
exercise of a Warrant shall
100
<PAGE> 5
be adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
shares purchasable upon the exercise of a Warrant immediately prior to
such adjustment, and of which the denominator shall be the number of
shares so purchasable immediately thereafter.
(g) Whenever the number of shares purchasable upon the exercise of a
Warrant or the Warrant Price is adjusted as herein provided, the Company
shall cause to be promptly mailed to the Warrantholder by first class
mail, postage prepaid, notice of such adjustment or adjustments and a
certificate of a firm of independent public accountants selected by the
Board of Directors of the Company (who may be the regular accountants
employed by the Company) setting forth the number of shares purchasable
upon the exercise of a Warrant and the Warrant Price after such
adjustment, together with a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made.
(h) The term "Common Stock" shall mean (i) the class of stock
designated as the Common Stock of the Company at the issue date of this
Warrant or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock. In the event that at any time,
as a result of an adjustment made pursuant to this Section, the
Warrantholder shall become entitled to purchase any securities other than
shares of Common Stock, thereafter the number of such other securities so
purchasable upon exercise of the Warrant and the Warrant Price of such
securities shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in this Section.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
Subsection 6.1, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of the Warrant.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any reclassification of the securities of the
Company or any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale or conveyance to another corporation
of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and other securities and property which he
would have owned or have been entitled to receive after the happening of such
reclassification, consolidation, merger, sale or conveyance had the Warrant been
exercised (without regard to any limitations on exercise contained herein or the
Securities Purchase Agreements) immediately prior to such action. Such agreement
shall provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section. The provisions of
this subsection shall similarly apply to successive reclassifications,
consolidations, mergers, sales or conveyances.
6.4 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same
101
<PAGE> 6
price and number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement.
SECTION 7. FRACTIONAL INTERESTS; CURRENT MARKET PRICE; CLOSING
BID PRICE.
The Company shall not be required to issue fractional shares on the
exercise of the Warrant. If any fraction of a share would, except for the
provisions of this Section, be issuable on the exercise of the Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to the
then Current Market Price multiplied by such fraction. The term "Current Market
Price" shall mean (i) if the Common Stock is traded in the over-the-counter
market or on the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), the average per share closing bid prices of the
Common Stock on the 20 consecutive trading days immediately preceding the date
in question, as reported by NASDAQ or an equivalent generally accepted reporting
service, or (ii) if the Common Stock is traded on a national securities
exchange, the average for the 20 consecutive trading days immediately preceding
the date in question of the daily per share closing bid prices of the Common
Stock on the principal stock exchange on which it is listed, as the case may be,
or (iii) if the Common Stock is not so listed or traded, the fair market value
of the Common Stock as reasonably determined in good faith by the board of
directors of the Company. The term "closing bid price" shall mean the last bid
price on the day in question as reported by NASDAQ or an equivalent generally
accepted reporting service or (as the case may be) as reported by the principal
stock exchange on which the Common Stock is listed, or if not so reported, as
reasonably determined in good faith by the Board of Directors of the Company.
SECTION 8. NO RIGHTS AS SHAREHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained herein shall be construed as conferring upon the
Warrantholder any rights whatsoever as a shareholder of the Company, including
the right to vote, to receive dividends, to consent or to receive notices as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Company or any other matter. If, however, at any time prior to
the expiration of the Warrant and prior to its exercise, any of the following
events shall occur:
(a) any action which would require an adjustment pursuant to
Sections 6.1 or 6.3 (excluding 6.1(a)(i) and 6.1(a)(ii)); or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder at least 20 days prior to the date fixed as a
record date or the date of closing the transfer books or other applicable date
with respect thereto. Such notice shall specify such record date or the date of
closing the transfer books or such other applicable date, as the case may be.
Any notice to the Warrantholder shall be given at the address of the
Warrantholder appearing on the books of the Company, and if the Warrantholder
has specified a telecopier address, by facsimile transmission to such address.
102
<PAGE> 7
SECTION 9. REDEMPTION.
At any time after the Warrant Price has been determined, the Company
may call this Warrant (together with all other Warrants of like tenor) for
redemption at $0.01 per share covered hereby if the closing bid price of the
Common Stock for each of the twenty trading days immediately preceding the
redemption date has equaled or exceeded 150% of the Warrant Price. Written
notice of such call shall be given to the Warrantholder as provided in Section 8
hereof at least 20 days but not more than 30 days prior to the date fixed for
redemption by the Company. If on the date fixed for redemption, the conditions
specified herein have not been satisfied, such call shall be deemed a nullity
and if the Warrantholder has exercised this Warrant on account of such call,
such exercise may be rescinded at the election of the Warrantholder. The Company
may call this Warrant for redemption only if resale of all of the Common Stock
covered hereby is then registered under the Securities Act of 1933 and a current
prospectus meeting the requirements of said Act and the rules thereunder is
available for delivery by the Warrantholder, and if the Common Stock is listed
or designated for quotation for trading on at least one of the NASDAQ Small Cap
Market, the NASDAQ National Market, the New York Stock Exchange or the American
Stock Exchange, and all such shares of Common Stock are then authorized for
trading on one of such exchanges and registered under Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934. Notwithstanding the foregoing,
this Warrant may be exercised by the Warrantholder in accordance with Section 5
at any time on or before the date fixed for redemption by the Company. If the
Company gives written notice of such call, then the limitations on resale
contained in Section 3.3 of the Securities Purchase Agreements shall be of no
further force or effect.
SECTION 10. LIMITATION ON EXERCISE.
Notwithstanding anything to the contrary contained herein, this
Warrant shall not be exercisable by a holder hereof to the extent (but only to
the extent) that, if exercisable by such holder, such holder would beneficially
own in excess of 4.9% of the outstanding shares of Common Stock (or such other
greater percentage indicated on the signature page to, or otherwise applicable
to such holder pursuant to, the Securities Purchase Agreements with respect to
such holder). To the extent the above limitation applies, the determination of
whether this Warrant shall be exercisable vis-a-vis other securities owned by
such holder, and to what extent this Warrant shall be exercised shall be in the
sole discretion of the holder and submission of the Warrant for full or partial
exercise shall be deemed to be the holder's determination of whether and the
extent to which the Warrant is exercisable, in each case subject to such
aggregate percentage limitation. No prior inability to exercise the Warrant
pursuant to this Section shall have any effect on the applicability of the
provisions of this Section with respect to any subsequent determination of
exercisability. For the purposes of this provision, beneficial ownership and all
calculations, including without limitation, with respect to calculations of
percentage ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13 D and G
thereunder (collectively "Section 13(d)"). The provisions of this Section may be
amended with the approval of the Board of Directors of the Company and the
holders of three-quarters in interest in the then outstanding shares of
Preferred Stock and Warrants (voting together as a single class): (i) with
respect to any matter to cure any ambiguity herein, to correct this Section (or
any portion hereof) which may be defective or inconsistent with the intended
4.9% beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of a majority of the then outstanding shares of
103
<PAGE> 8
Common Stock. The limitations contained in this Section shall apply to a
successor holder of Warrants if, and to the extent, elected by such successor
holder concurrently with its acquisition of such Warrants, such election to be
promptly confirmed in writing to the Company (provided no transfer or series of
transfers to a successor holder or holders shall be used by a holder to evade
the limitations contained in this Section).
SECTION 11. TERMINATION OF WARRANT.
11.1 If not theretofore exercised, this Warrant shall terminate at
5:00 p.m. Pacific time on the date fixed for redemption pursuant to Section 9
hereof if the conditions specified in said Section have been satisfied and the
payments required by such Section have been made in full to the Warrantholder by
the Company.
11.2 If the Issue Date of this Warrant is later than the date on
which redemption of Warrants pursuant to Section 9 hereof has been completed,
then this Warrant shall terminate at 5:00 p.m. Pacific time on the 30th day
after the Issue Date (or if such 30th day is not a trading day, then on the next
following trading day), if (i) the conditions set forth in the penultimate
sentence of Section 9 are satisfied, and (ii) the closing bid price of the
Common Stock for each of the five trading days preceding the Issue Date equaled
or exceeded 150% of the Warrant Price.
SECTION 12. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 13. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 6.3 are complied with.
SECTION 14. APPLICABLE LAW, SPECIFIC PERFORMANCE AND CONSENT TO
JURISDICTION.
(a) This Warrant shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be construed in
accordance with the laws of said State.
(b) The Company and the Warrantholder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Warrant or the other agreements, documents or instruments
contemplated hereby (collectively, the "Transaction Documents") were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent or cure breaches of the provisions
of the Transaction Documents and to enforce specifically the terms and
provisions thereof, this being in addition to any other remedy to which
either of them may be entitled by law or equity.
104
<PAGE> 9
No provision of any Transaction Documents providing for any remedy to a
Warrantholder shall limit any remedy which would otherwise be available to
such Investor at law or in equity. Each of Warrantholder (with respect to
compliance by the Company with Section 4(2) of the Securities Act of 1933)
and the Company (each an "Indemnitor") shall indemnify and hold harmless
the other for a breach by the Indemnitor of its representations,
warranties or obligations under any of the Transaction Documents.
(c) Each of the Company and the Warrantholder (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other
courts of the United States sitting in Delaware and the courts of the
State of Delaware for the purposes of any suit, action or proceeding
arising out of or relating to this Warrant and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the
Company and the Warrantholder consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right
to serve process in any other manner permitted by law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by a duly authorized officer of the Company.
Techniclone Corporation
By:_______________________________________________
105
