<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-17085
TECHNICLONE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3698422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14282 Franklin Avenue, Tustin, California 92780-7017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 508-6000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED, SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.)
89,676,960 shares of Common Stock
outstanding as of March 1, 2000
<PAGE>
TECHNICLONE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE THIRD QUARTER ENDED JANUARY 31, 2000
TABLE OF CONTENTS
THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q
REFERS TO TECHNICLONE CORPORATION, TECHNICLONE INTERNATIONAL CORPORATION, ITS
FORMER SUBSIDIARY, CANCER BIOLOGICS INCORPORATED, WHICH WAS MERGED INTO THE
COMPANY IN JULY, 1994 AND ITS WHOLLY-OWNED SUBSIDIARY PEREGRINE PHARMACEUTICALS,
INC., WHICH WAS ACQUIRED IN APRIL, 1997.
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PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements ....................................................... 3
Consolidated Balance Sheets at January 31, 2000 and April 30, 1999 ......... 3
Consolidated Statements of Operations for the three and nine month periods
ended January 31, 2000 and 1999 ............................................ 5
Consolidated Statement of Stockholders' Equity for the nine months ended
January 31, 2000............................................................ 6
Consolidated Statements of Cash Flows for the nine months ended January 31,
2000 and 1999............................................................... 7
Notes to Consolidated Financial Statements ................................. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................. 16
Company Overview ........................................................... 16
Other Risk Factors of Our Company .......................................... 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................. 27
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 27
Item 2. Changes in Securities and Use of Proceeds .................................. 27
Item 3. Defaults Upon Senior Securities ............................................ 28
Item 4. Submission of Matters to a Vote of Security Holders ........................ 28
Item 5. Other Information .......................................................... 28
Item 6. Exhibits and Reports on Form 8-K............................................ 29
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2
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PART I FINANCIAL INFORMATION
----------------------------
ITEM 1. FINANCIAL STATEMENTS
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TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2000 AND APRIL 30, 1999
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
----------------- ---------------
UNAUDITED
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,671,000 $ 2,385,000
Other receivables, net of allowance for doubtful accounts of
$363,000 (2000) and $201,000 (1999) 127,000 279,000
Inventories 49,000 57,000
Prepaid expenses and other current assets 269,000 280,000
Covenant not-to-compete with former officer 39,000 213,000
----------------- ---------------
Total current assets 3,155,000 3,214,000
PROPERTY:
Laboratory equipment 2,250,000 2,098,000
Leasehold improvements 73,000 71,000
Furniture, fixtures and computer equipment 869,000 838,000
----------------- ---------------
3,192,000 3,007,000
Less accumulated depreciation and amortization (1,453,000) (1,067,000)
----------------- ---------------
Property, net 1,739,000 1,940,000
OTHER ASSETS:
Note receivable, net of allowance for doubtful note of
$1,825,000 (2000) and zero (1999) - 1,863,000
Other, net 147,000 353,000
----------------- ---------------
Total other assets 147,000 2,216,000
----------------- ---------------
TOTAL ASSETS $ 5,041,000 $ 7,370,000
================= ===============
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3
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2000 AND APRIL 30, 1999 (CONTINUED)
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<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
----------------- ---------------
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
Accounts payable $ 1,537,000 $ 898,000
Deferred license revenue 3,000,000 3,000,000
Accrued clinical trial site fees 919,000 691,000
Notes payable 108,000 106,000
Accrued legal and accounting fees 192,000 314,000
Accrued royalties and license fees 368,000 310,000
Other current liabilities 659,000 686,000
----------------- ---------------
Total current liabilities 6,783,000 6,005,000
NOTES PAYABLE 3,416,000 3,498,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock- $.001 par value; authorized 5,000,000 shares:
Class C convertible preferred stock, shares outstanding -
no shares (2000); 121 shares (1999) - -
Common stock-$.001 par value; authorized 150,000,000 shares;
outstanding - 87,557,600 shares (2000); 73,372,205 shares
(1999) 88,000 73,000
Additional paid-in capital 98,884,000 90,779,000
Accumulated deficit (104,130,000) (92,678,000)
----------------- ---------------
(5,158,000) (1,826,000)
Less notes receivable from sale of common stock - (307,000)
----------------- ---------------
Total stockholders' deficit (5,158,000) (2,133,000)
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,041,000 $ 7,370,000
================= ===============
</TABLE>
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See accompanying notes to consolidated financial statements
4
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TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
COSTS AND EXPENSES:
Research and development $ 1,786,000 $ 2,223,000 $ 6,528,000 $ 6,380,000
General and administrative 1,064,000 1,137,000 3,034,000 3,609,000
Loss on disposal of
property (non-cash) - 1,171,000 - 1,177,000
Provision for uncollectable
note receivable (non-cash) - - 1,887,000 -
Interest 103,000 33,000 279,000 369,000
------------------ ------------------ ------------------ ------------------
Total costs and expenses 2,953,000 4,564,000 11,728,000 11,535,000
Interest and other income 154,000 129,000 278,000 290,000
NET LOSS $ (2,799,000) $ (4,435,000) $ (11,450,000) $ (11,245,000)
================== ================== ================== ==================
Net loss before preferred stock
accretion and dividends $ (2,799,000) $ (4,435,000) $ (11,450,000) $ (11,245,000)
Preferred stock accretion and
dividends:
Imputed dividends on Class
C Preferred Stock - (3,000) (2,000) (14,000)
Accretion of Class C
Preferred Stock Discount - - - (531,000)
------------------ ------------------ ------------------ ------------------
Net Loss Applicable to
Common Stock $ (2,799,000) $ (4,438,000) $ (11,452,000) $ (11,790,000)
================== ================== ================== ==================
Weighted Average Shares
Outstanding 81,885,308 67,222,176 78,390,042 64,469,856
================== ================== ================== ==================
BASIC AND DILUTED
LOSS PER SHARE $ (0.03) $ (0.07) $ (0.15) $ (0.18)
================== ================== ================== ==================
</TABLE>
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See accompanying notes to consolidated financial statements
5
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TECHNICLONE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED)
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<CAPTION>
NOTES
ADDITIONAL RECEIVABLE NET
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED FROM SALE OF STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMMON STOCK DEFICIT
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES - May 1, 1999 121 $ - 73,372,205 $ 73,000 $ 90,779,000 $ (92,678,000) $ (307,000) $ (2,133,000)
Accretion of Class C preferred
stock dividends (2,000) (2,000)
Common stock issued upon
conversion of Class C
preferred stock (121) 312,807 -
Common stock issued upon
exercise of Class C warrants
and Equity Line warrants 343,950 1,000 31,000 32,000
Common stock issued for cash
upon exercise of stock
options and other warrants 2,550,351 3,000 2,152,000 2,155,000
Common stock issued under the
Equity Line and Subscription
Agreement for cash 10,115,789 10,000 4,463,000 4,473,000
Stock issued for services and
under severance agreement 862,498 1,000 686,000 687,000
Stock-based compensation 773,000 773,000
Payments on notes receivable
from sale of common stock 307,000 307,000
Net loss (11,450,000) (11,450,000)
---------------------------------------------------------------------------------------------------
BALANCES - January 31, 2000 - $ - 87,557,600 $ 88,000 $ 98,884,000 $(104,130,000) $ - $ (5,158,000)
===================================================================================================
</TABLE>
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See accompanying notes to consolidated financial statements
6
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED JANUARY 31,
2000 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,450,000) $ (11,245,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for uncollectable note receivable 1,887,000 -
Loss on disposal of assets - 1,177,000
Depreciation and amortization 386,000 738,000
Stock-based compensation and common stock issued for
interest, services and under severance agreements 1,460,000 887,000
Severance expense 174,000 421,000
Changes in operating assets and liabilities:
Other receivables 93,000 1,000
Inventories, net 8,000 (58,000)
Prepaid expenses and other current assets 11,000 (83,000)
Other assets 206,000 -
Accounts payable and accrued legal and accounting fees 517,000 (71,000)
Accrued clinical trial site fees 228,000 453,000
Accrued royalties and license termination fees 58,000 (237,000)
Other accrued expenses and current liabilities (27,000) (201,000)
------------------ ------------------
Net cash used in operating activities (6,449,000) (8,218,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (185,000) (421,000)
Proceeds from the sale of property - 3,924,000
Other assets 35,000 (131,000)
------------------ ------------------
Net cash (used in) provided by investing activities (150,000) 3,372,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 6,660,000 6,959,000
Proceeds from issuance of Class C Preferred Stock - 530,000
Payments received on notes receivable from sale of common
stock 307,000 27,000
Proceeds from issuance of note payable - 200,000
Principal payments on notes payable (80,000) (4,352,000)
Payment of Class C preferred stock dividends (2,000) (14,000)
------------------ ------------------
Net cash provided by financing activities 6,885,000 3,350,000
------------------ ------------------
7
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TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED JANUARY 31,
2000 1999
------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 286,000 $ (1,496,000)
CASH AND CASH EQUIVALENTS, beginning of period 2,385,000 1,736,000
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,671,000 $ 240,000
================== ==================
SUPPLEMENTAL INFORMATION:
Interest paid $ 213,000 $ 148,000
================== ==================
</TABLE>
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See accompanying notes to consolidated financial statements
8
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited financial statements
in this quarterly report have been prepared in accordance with the instructions
to Form 10-Q under section 13 or 15(d) of the Securities Act of 1934. The
consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements of the Company, included in the
Company's Annual Report on Form 10-K for the year ended April 30, 1999, filed
with the Securities and Exchange Commission on July 28, 1999.
The unaudited 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 experienced losses in fiscal 1999 and during the first
nine months of fiscal 2000 and has an accumulated deficit of $104,130,000 at
January 31, 2000. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
The unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) which, in the opinion of
management, are necessary to present fairly the consolidated financial position
of the Company at January 31, 2000 and 1999, and the consolidated results of its
operations and its consolidated cash flows for the nine month periods ended
January 31, 2000 and 1999. Results of operations for the interim periods covered
by this Report may not necessarily be indicative of results of operations for
the full fiscal year.
The Company must raise additional funds to sustain research and
development, provide for future clinical trials and continue its operations
until it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company plans to obtain required financing
through one or more methods, including obtaining additional equity or debt
financing and negotiating additional licensing or collaboration agreements with
another company. There can be no assurances that the Company will be successful
in raising such funds on terms acceptable to it, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of the Company's product candidates. The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flows
to meet its obligations on a timely basis, to obtain additional financing as may
be required and, ultimately, to attain successful operations.
The Company believes it has sufficient cash on hand, and combined with
amounts available pursuant to the Equity Line Agreement (assuming aggregate
future draws of $5,413,000) and anticipated amounts to be received from signed
letters of intent to enter into collaboration agreements with SuperGen, Inc. and
Oxigene, Inc., to meet its obligations on a timely basis through the first
calendar quarter of 2001. The Company's ability to access funds under the Equity
Line Agreement is subject to the satisfaction of certain conditions as further
described in Note 3 to the accompanying financial statements. Each letter of
intent provides for an exclusive period for the completion of a definitive
agreement and will be subject to customary closing conditions. Although the
Company believes it will enter into definitive agreements and will receive the
related up-front payments under the terms as defined in the letters of intent,
there can be no assurance that definitive agreements will be executed.
9
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
RECLASSIFICATION. Certain reclassifications were made to the prior
period balances to conform them to the current period presentation.
INVENTORIES. Inventories consist of raw materials and supplies and are
stated at the lower of first-in, first-out cost or market.
NOTE RECEIVABLE. During December 1998, the Company completed the sale
and subsequent leaseback of its two facilities and recorded an initial note
receivable from the buyer of $1,925,000. In accordance with the related lease
agreement, if the Company is in default under the lease agreement, the note
receivable shall be deemed to be immediately satisfied in full and the buyer
shall have no further obligation to the Company for such note receivable.
Although the Company had made all payments under the lease agreement and had not
defaulted under any terms of the lease agreement, the Company established a 100%
provision for the note receivable in the amount of $1,887,000, which was
recorded during the quarter ended October 31, 1999 due to the amount of cash on
hand during December 1999. The Company will continue to adjust the estimated
provision for the note receivable as payments are received. The Company has
received all payments through March 1, 2000.
NET LOSS PER SHARE. Net loss per share is calculated by adding the net
loss for the three and nine month periods to the Preferred Stock dividends and
Preferred Stock issuance discount accretion on the Class C Preferred Stock
during the three and nine month periods divided by the weighted average number
of shares of Common Stock outstanding during the same period. Shares issuable
upon the exercise of common stock warrants and options have been excluded from
the per share calculation for the three and nine month periods ended January 31,
2000 and 1999 because their effect is antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS. Effective May 1, 1998, the Company
adopted SFAS No. 130, Reporting Comprehensive Income, which establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements. For the three and nine month periods
ended January 31, 2000 and 1999, the Company did not have any components of
comprehensive income as defined in SFAS No. 130.
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" on May 1, 1998. SFAS No. 131 established
standards of reporting by publicly held businesses and disclosures of
information about operating segments in annual financial statements, and to a
lesser extent, in interim financial reports issued to stockholders. The adoption
of SFAS No. 131 had no impact on the Company's consolidated financial statements
as the Company operates in one industry segment engaged in the research,
development and commercialization of targeted cancer therapeutics.
10
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
will be effective for the Company beginning May 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statements of financial position and measure those
instruments at fair value. The Company has not determined the impact on the
consolidated financial statements, if any, upon adopting SFAS No. 133.
2. NOTES PAYABLE
On December 1, 1999, the Company defaulted on its monthly interest
payment of $27,500 to Biotechnology Development Ltd. on a $3,300,000 note
payable and did not file a registration statement with the Securities and
Exchange Commissions to register 1,523,809 shares of common stock and warrants
to purchase up to 4,825,000 shares of common stock by December 8, 1999 due to
the limited amount of cash on hand at that time. The note payable and shares of
common stock were issued to Biotechnology Development Ltd. upon the Company
re-acquiring certain Oncolym(R) distribution rights. The original note payable
bore simple interest at a rate of 10% per annum, payable monthly, and is due on
March 1, 2001. The note was collateralized by all tangible assets of the
Company, excluding tangible assets not located on the Company's Tustin,
California premises and those assets previously pledged and held as collateral
under separate agreements. On December 29, 1999, the Company obtained a waiver
from Biotechnology Development Ltd. for the deferral of interest payments for up
to nine months and an extension of time to register 1,523,809 shares of common
stock and warrants to purchase up to 4,825,000 shares of common stock until the
Company's next registration statement filing. In exchange for this waiver, the
Company agreed to (i) increase the rate of interest from 10% per annum to 12%
per annum on the note payable of $3,300,000 effective December 1, 1999, (ii)
replace the current collateral with the rights to the TNT technology (iii)
extend the expiration date of 5,325,000 warrants to December 1, 2005 and (iv)
only in the case of a merger, acquisition, or reverse stock split, re-price up
to 5,325,000 warrants to an exercise price of $0.34 per share. Biotechnology
Development Ltd. is a limited partnership controlled by Mr. Edward Legere, a
member of the Board of Directors since December 29, 1999.
3. STOCKHOLDERS' EQUITY
During June 1998, the Company secured access to $20,000,000 under a
Common Stock Equity Line ("Equity Line") with two institutional investors,
expiring in June 2001. Under the terms of the Equity Line, the Company may, in
its sole discretion, and subject to certain restrictions, periodically sell
("Put") shares of the Company's Common Stock for up to $20,000,000. Under the
Equity Line, $2,250,000 of Puts can be made every quarter, which amount may be
increased up to $5,000,000 by mutual agreement between the Company and the
institutional investors. If the Company's closing bid price falls below $1.00 on
any day during the ten trading days prior to the Put, the Company's ability to
11
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
access funds under the Equity Line in the Put is limited to 15% of what would
otherwise be available and if the closing bid price of the Company's Common
Stock falls below $0.50 or if the Company is delisted from The Nasdaq SmallCap
Market, the Company would have no access to funds under the Equity Line. As of
March 1, 2000, the Company had $5,413,000 available for future Puts under the
Equity Line.
Future Puts under the Equity Line are priced at a discount equal to the
greater of $0.20 or 17.5% off the lowest closing per share bid price during the
ten trading days immediately preceding the date on which such shares are sold to
the institutional investors.
At the time of each Put, the institutional investors are issued
warrants, exercisable only on a cashless basis and expiring on December 31,
2004, to purchase up to 10% of the amount of Common Stock issued to the investor
at the same price as the purchase of the shares sold in the Put.
Placement agent fees under each draw of the Equity Line are issued to
Dunwoody Brokerage Services, Inc., which are equal to 10% of the common shares
and warrants issued to the institutional investors plus an overall cash
commission equal to 8% of the gross draw amount. Mr. Eric Swartz, a member of
the Board of Directors, maintains a contractual right to 50% of the shares and
warrants issued under the Equity Line in the name of Dunwoody Brokerage
Services, Inc.
To maintain the Company operations during a period of time when the
Company's stock was trading around $0.50 per share, the Company issued 2,683,910
shares of common stock in exchange for gross proceeds of $675,000 under two
separate draws under the Equity Line, which occurred during the quarter ended
January 31, 2000. On one Equity Line draw, the Company obtained a limited,
one-time waiver from the institutional investors, whereby the investors reduced
the minimum bid price requirement under the Equity Line Agreement from $0.50 per
share during the ten trading days immediately prior to the closing date for such
funding to $0.40 per share during such ten-day period.
On November 19, 1999, in consideration of a commitment by Swartz
Private Equity, LLC to fund a $35,000,000 equity line financing over a three
year term, the Company issued Swartz Private Equity, LLC a five-year warrant to
purchase up to 750,000 shares of the Company's Common Stock at an initial
exercise price of $0.46875 per share subject to reset provisions as defined in
the agreement. This agreement was entered into and approved by the previous
Board of Directors. Mr. Eric Swartz, a member of the Board of Directors,
maintains a 50% ownership in Swartz Private Equity, LLC.
On December 29, 1999, Swartz Investments, LLC and Biotechnology
Development Ltd. agreed to provide interim funding to the Company for up to
$500,000 to continue the operations of the Company and to avoid the Company from
filing for protection from its creditors. During this period of time, the
closing stock price was $0.41 per share, the Company had minimal amount of cash
12
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
on hand, significant payables to vendors and patent attorneys, and the Company
was near a time of being delisted from The NASDAQ Stock Market. On January 6,
2000, the Company entered into the final agreement, a Regulation D Subscription
Agreement, whereby the Company received $500,000 in exchange for an aggregate of
2,000,000 shares of common stock and issued warrants to purchase up to 2,000,000
shares of common stock at $0.25 per share. Mr. Eric Swartz, a member of the
Board of Directors, maintains a 50% ownership in Swartz Investments, LLC.
Biotechnology Development Ltd. is controlled by Mr. Edward Legere. Mr. Legere
was appointed to the Board of Directors on December 29, 1999.
During the quarter ended January 31, 2000, the Company issued 2,001,767
shares of common stock upon the exercise of outstanding options and warrants in
exchange for gross proceeds of $1,825,000. There are no further options or
warrants outstanding to previous officers, board members or other employees of
the Company.
During the quarter ended January 31, 2000, the Company issued 203,165
shares of common stock to various service vendors of the Company as payment of
liabilities aggregating $311,000. The issuance of shares of common stock in
exchange for services were recorded based on the more readily determinable value
of the services received or the fair value of the common stock issued.
4. STOCK OPTIONS
During December 1999, the Company had a minimal amount of cash on hand
and certain employees of the Company were deferring a percentage of their
salary. In addition, the Company had significant payables to vendors and patent
attorneys and the Company was near a time of being delisted from The NASDAQ
Stock Market. Also, the Company was aware of numerous employees who had job
opportunities with companies who had stronger financial resources. In order for
the Company to continue, the Board of Directors felt it was imperative for the
Company to maintain certain key employees who were familiar with the Company's
technologies, clinical trials and business activities. Therefore, on December
22, 1999, the Board of Directors granted 4,170,000 options to various employees,
consultants and two Board members at exercise prices ranging from $0.34 to
$30.00 per share. The majority of the options granted will vest upon the
achievement of Company milestones as defined by the Board of Directors. Key
milestones as defined by the Board will be based on significant licensing
transactions, financing activities, meeting key clinical trial milestones, and
research and development activities. The options were granted to purchase shares
of the Company's common stock at prices not less than the fair market value of
the stock at the date of grant and generally expire ten years after the date of
grant.
13
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
5. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS
On November 29, 1999, the Company entered into a 90-day option
agreement with a multinational pharmaceutical company to potentially license a
specific use of the TNT technology for a nonrefundable $50,000 option fee. The
Company is in continued negotiations with the multinational pharmaceutical
company. There can be no assurances that the Company will be successful in
entering into such licensing transaction on terms that are mutually acceptable.
On January 12, 2000, the Company signed a letter of intent to license a
segment of its Vascular Targeting Agent (VTA) technology, specifically related
to Vascular Endothelial Growth Factor (VEGF), with SuperGen, Inc. in exchange
for an upfront payment and milestone payments aggregating approximately
$8,000,000 plus a royalty on net sales. The transaction is subject to further
medical, technical, business, financial and legal due diligence and will be
subject to customary closing conditions. There can be no assurance that the
Company will enter into a definitive agreement.
On January 27, 2000, the Company executed its option agreement with the
University of Texas Southwestern Medical Center, Dallas (University) to obtain
an exclusive world-wide license for a novel anti-angiogenesis antibody named 2C3
and its derivatives. The antibody is an anti-VEGF (Vascular Endothelial Growth
Factor) antibody with the ability to block the binding of a growth factor to
receptors found on tumor vasculature, the effect is to inhibit tumor vessel
growth. The license agreement is currently being drafted by the University.
During February 2000, the Company entered into an exclusive worldwide
licensing transaction with the University of Southern California for its
Permeability Enhancing Protein (PEP) in exchange for an up-front payment plus
milestone payments and a royalty on net sales. The PEP technology is a piece of
the Company's Vasopermeability Enhancing (VEA) technology, which is designed to
increase the uptake of chemotherapeutic agents into tumors. PEP is designed to
be used in conjunction the VEA technology platform.
6. CONTINGENCY
On March 18, 1999, the Company was served with notice of a lawsuit
filed in Orange County Superior Court for the State of California (Superior
Court) by a former employee alleging a single cause of action for wrongful
termination. The Company believes this lawsuit is barred by a severance
agreement and release signed by the former employee following his termination
and the Company is defending the action. On September 13, 1999, the Superior
Court granted Techniclone a Motion for Summary Judgement and the Company was not
obligated for any damages. On November 12, 1999, a Notice of Entry of Judgement
was filed by the Superior Court. Subsequently, the former employee appealed the
Summary Judgement. The Company will continue to defend the action.
14
<PAGE>
TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS
During February 2000, the Company received gross proceeds of $4,325,000
in exchange for 1,596,255 shares of common stock under the Equity Line. Dunwoody
Brokerage Services, Inc. was issued 145,114 shares of common stock and warrants
to purchase up to 14,510 shares of common stock as placement agent fees under
the Equity Line.
In early March 2000, the Company signed a Letter of Intent to jointly
develop and commercialize the Company's Vascular Targeting Agent (VTA)
technology with Oxigene, Inc. Oxigene, Inc. will make available to the project
its next generation of tubulin-binding compounds for use in combination with the
VTA technology. The joint venture arrangement will include an upfront licensing
fee and milestone payments to the Company as well as substantial funding of
development expenses related to commercializing a VTA product by Oxigene, Inc.
The Company and Oxigene, Inc. will also share royalties and certain fees
generated by the joint venture. The letter of intent provides for an exclusive
period for the completion of a definitive agreement. The transaction is subject
to further medical, technical, business, financial and legal due diligence and
will be subject to customary closing conditions. There can be no assurance that
the Company will enter into a definitive agreement.
Subsequent to January 31, 2000, the Company has made significant
payments and reduced the amounts owed for accounts payable and other current
liabilities. As of March 9, 2000, the Company reduced its accounts payable
balance by $1,419,000 from $1,587,000 as of January 31, 2000 to approximately
$168,000 as of March 9, 2000. In addition, accrued clinical trial site fees were
reduced by $268,000 from $919,000 as of January 31, 2000 to approximately
$651,000 as of March 9, 2000. The remaining clinical trial site fees will be
paid by the Company once the clinical trial sites have submitted all necessary
paperwork and supporting documentation. After the above payments were made, the
Company had approximately $4,724,000 in cash and cash equivalents as of March 9,
2000.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and included
in the Company's Annual Report on Form 10-K for the year ended April 30, 1999,
filed with the Securities and Exchange Commission on July 28, 1999 and Quarterly
Reports on Form 10-Q for the quarters ended July 31, 1999 and October 31, 1999,
filed with the Securities and Exchange Commission on September 10, 1999 and
December 15, 1999, respectively.
COMPANY OVERVIEW. Techniclone Corporation is a biopharmaceutical
company engaged in the research, development and commercialization of targeted
cancer therapeutics. We are developing product candidates based primarily on
collateral (indirect) tumor targeting for the treatment of solid tumors. In
addition, we are in collaboration with Schering A.G. to develop a direct
tumor-targeting agent (Oncolym(R)) for the treatment of Non-Hodgkins Lymphoma
(NHL).
Collateral targeting is a strategy that has been developed to take
advantage of characteristics common to all solid tumors. These common tumor
characteristics include all solid tumors in excess of 2mm in size which must
develop a blood supply in order to continue growing. While all solid tumors in
excess of 2mm in size do develop a blood supply, they do not develop an adequate
blood supply. The lack of an adequate blood supply results in starvation and
eventually death of tumor cells farthest from the tumor blood vessels. These
dying and dead tumor cells are known as the necrotic core of the tumor. The
inadequate formation of blood vessels to carry blood into and out of the tumor
results in the build-up of pressure inside the tumor. This pressure build-up
makes it difficult to deliver adequate amounts of cancer chemotherapeutics into
the tumor and to the living tumor cells that are the target.
The most clinically advanced of the Collateral Targeting Agents is
known as Tumor Necrosis Therapy (TNT), which utilizes monoclonal antibodies
(targeting molecules that bind to specific structures) that recognize markers
found in the necrotic core of solid tumors. TNT antibodies are potentially
capable of carrying a variety of agents including radiation, chemotherapeutic
agents and cytokines to the interior of solid tumors. A Phase II clinical trial
for a Tumor Necrosis Therapy agent (called Cotara(TM)) for the treatment of
malignant glioma (brain cancer) is currently being conducted at The Medical
University of South Carolina, Temple University, University of Utah-Salt Lake
City and Carolina Neurosurgery & Spine Association. In addition, our Tumor
Necrosis Therapy agent is being used in a Phase I equivalent clinical trial for
the treatment of pancreatic, prostrate and liver cancers at a clinical trial
site in Mexico City.
The second type of Collateral Targeting Agents that we are developing
are Vascular Targeting Agents (VTAs). VTAs utilize monoclonal antibodies that
recognize markers found on tumor blood vessels. The monoclonal antibody carries
an effector molecule that creates a blockage within the blood vessels that
supply oxygen and nutrients to the tumor cells. Cutting off the blood supply to
the tumor results in tumor cell death, potentially destroying the tumor. VTAs
are currently in pre-clinical development in collaboration with researchers at
the University of Texas Southwestern Medical Center at Dallas.
16
<PAGE>
The third type of Collateral Targeting Agents that Techniclone is
currently developing are known as Vasopermeation Enhancement Agents (VEA). VEAs
currently use the same targeting agent as TNT to deliver an agent that makes the
blood vessels inside the tumor more leaky (permeable). The increased
permeability of the tumor blood vessels makes it possible to deliver an
increased concentration of killing agents into the tumor where it can
potentially kill the living tumor cells. VTAs are currently in pre-clinical
development in collaboration with researchers at the University of Southern
California Medical Center.
Techniclone has taken steps to protect its position in the field of
Collateral Targeting Agents. Techniclone currently has exclusive rights to over
30 issued US and Foreign patents protecting various aspects of Collateral
Targeting. In addition, Techniclone still has outstanding U.S. and foreign
patent applications that will potentially provide further protection for its
Collateral Targeting Agents. Techniclone is currently in pre-clinical or
clinical development of three Collateral Targeting Agents for the treatment of
solid tumors.
On March 8, 1999, Techniclone entered into a license agreement with
Schering A.G., a major multinational pharmaceutical company, with respect to the
development, manufacture and marketing of its direct tumor targeting agent
candidate, Oncolym(R). Under the agreement, Schering A.G. controls the clinical
development program and funds 80% of the clinical trial costs. The current Phase
II/III clinical trial has been stopped by Schering A.G. Schering A.G. has
advised the Company that they currently anticipate starting a Phase I/II dosing
trial for 18 patients under a new dosing regiment during the second calendar
quarter of 2000.
RECENT DEVELOPMENTS. The management team and the Board of Directors of
Techniclone Corporation has changed dramatically since November 3, 1999. During
November 1999, four of the Company's five Board members, Larry O. Bymaster,
Rockell Hankin, William C. Shepherd and Thomas R. Testman, resigned. Mr. Eric
Swartz and Mr. Carlton Johnson were appointed as new members of the Board. On
December 29, 1999, the Board appointed Mr. Edward Legere to serve on the Board
of Directors. Currently, the Board is comprised of the following four members:
Mr. Carlton Johnson, Mr. Edward Legere, Mr. Eric Swartz, and Mr. Clive Tayor,
M.D. Also in November 1999, Mr. Bymaster resigned as President Chief Executive
Officer and Mr. Steven C. Burke resigned as Chief Financial Officer and
Corporate Secretary. The Board appointed Dr. John N. Bonfiglio, the Company's
Vice President of Technology and Business Development, as Interim President. The
Company is currently operating with approximately 15 employees compared to
approximately 50 employees who were employed by the Company in October 1999.
With the recent changes in management and the Board of Directors, the
Company has adopted a new strategic business plan. During the quarter ended
January 31, 2000, the Company's new management and Board of Directors conducted
a thorough evaluation of the Company's business plans, operations and funding
requirements. In the past five years, significant financial resources of the
Company have been spent on GMP (Good Manufacturing Practices) manufacturing
infrastructure, corporate facility improvements, staffing and other support
activities. Based on our evaluation of the Company, management and the Board of
Directors have implemented the following plan for the Company:
17
<PAGE>
CORPORATE STRUCTURE. The objective of the new management and Board of
Directors is to focus the Company's resources almost exclusively on clinical
trials, licensing and early product development. The Company's new plan started
with the elimination of the in-house manufacturing activities, which reduced the
level of support staff and fixed overhead costs that it had incurred in the
past. The Company will also outsource various clinical trial activities, which
will allow the Company to better predict and manage its costs on a project
specific basis. The Company will continue to outsource its research efforts
through its agreements with the University of Southern California and the
University of Texas Southwestern Medical Center at Dallas. The Company has
maintained a core group of employees that will plan, coordinate and monitor all
product development and clinical trial activities being conducted by outside
parties. In addition, the core group of employees will also maintain the product
development activities and technology transfer activities associated with
outsourcing manufacturing.
MANUFACTURING. Operating a GMP manufacturing facility requires highly
specialized personnel and equipment which must be maintained on a continual
basis. Although the Company believes it has derived substantial benefits from
its manufacturing operations, management and the Board of Directors believe that
maintaining a GMP manufacturing facility is not an efficient use of Company
resources at this time. The Company plans on utilizing contract manufacturers
with excess capacity to provide cost effective GMP manufacturing of its Oncolym,
Cotara(TM) and future products under development. The Company has manufactured a
sufficient antibody supply to meet its current clinical trial needs for its
Oncolym(R) and Cotara(TM) technologies. The Company has maintained key
development personnel who will be responsible for developing analytical methods
and processes that will facilitate the transfer of technology to contract
manufactures. The Company has prepared for the smooth transfer of manufacturing
technology to contract manufacturers and it does not anticipate any delays in
its ongoing projects.
As part of this new manufacturing strategy, the Company has arranged to
have the owner list the manufacturing facility and related equipment for sale.
As the building and related manufacturing improvements are owned by TNCA, LLC,
only the proceeds from the sale of manufacturing equipment will be paid directly
to the Company. In addition, if the manufacturing facility is sold by TNCA, LLC,
the Company would receive approximately $936,000 as payment on a note receivable
from TNCA, LLC. The note receivable was received upon to the sale and subsequent
leaseback of the Company's facilities in December 1998. To date, the Company has
realized a significant reduction of monthly fixed overhead expenses from the
discontinuation of the manufacturing operations. The Company anticipates
additional reductions in fixed overhead costs related to the cessation of
manufacturing activities and the disposal or subleasing of the manufacturing
facility.
LICENSING. The Company has considered licensing an important part of
its strategic plan. On March 8, 1999, the Company entered into a licensing
agreement for its Oncolym(R) technology with Schering, A.G. As part of the
Oncolym licensing agreement, Schering, A.G. was granted a 90-day exclusive
negotiating period for licensing the Company's VTA technology. The 90-day
exclusive negotiating period expired without the Company and Schering A.G.
entering into an agreement for its VTA technology.
18
<PAGE>
The current management and the Board of Directors do not believe that
the exclusive licensing of its TNT and VTA technology platforms is the optimal
way to exploit these technologies. Because of the broad patent coverage and
potential for multiple products based on these technology platforms, management
and the Board of Directors do not plan on pursuing exclusive licensing
agreements for the TNT and VTA technologies. Since it is difficult, if not
impossible, to predict the effectiveness of a given anti-cancer compound, the
Company does not believe it is wise to develop just one product for each of its
broad platform technologies.
As part of this new licensing strategy, on January 12, 2000, the
Company signed a letter of intent with SuperGen, Inc., to license a segment of
its Vascular Targeting Agent (VTA) technology, specifically related to Vascular
Endothelial Growth Factor (VEGF) in exchange for an upfront payment and
milestone payments aggregating approximately $8,000,000 plus a royalty on net
sales. In addition, in early March 2000, the Company signed a letter of intent
to jointly develop and commercialize the overall Vascular Targeting Agent (VTA)
technology platform with Oxigene, Inc. The joint venture arrangement will
include an upfront licensing fee and milestone payments to the Company as well
as substantial funding related to developing a VTA product. The Company and
Oxigene, Inc. will also share royalties and certain fees generated by the joint
venture. Oxigene, Inc. will also make available to the joint venture, its next
generation of tubulin-binding compounds for use in combination with the VTA
technology. The Company anticipates it can license additional segments of the
VTA technology, which the joint venture does not plan on actively developing.
The overall goal of the Company's licensing strategy is to develop as
many corporate relationships as possible for the development of its platform
technologies, thus increasing the chances that one or several anti-cancer
products will be commercialized utilizing its technologies. The Company believes
there are numerous opportunities for non-exclusive licensing of its TNT and VTA
platform technologies. In addition, by granting non-exclusive licensing to other
companies, the Company maintains the ability to develop its own products for
commercialization, such as Cotara(TM). This approach should increase the revenue
potential of these two promising platform technologies as well as permit the
Company to commercialize its own proprietary anti-cancer product.
CLINICAL TRIALS. Moving forward, the most critical aspect of the
Company's business plan will be centered around clinical trials with the
Company's various technologies. The Company plans to expand its clinical studies
for its Cotara(TM) monoclonal antibody. Cotara(TM) is currently in a U.S.
multi-center clinical trial for the treatment of brain cancer. Because of
Cotara's(TM) ability to selectively target multiple cancer types, the Company
intends to expand its clinical studies to additional cancer types. The
additional clinical studies will be initiated as the Company obtains the
financial resources to support such activities.
In addition, Schering A.G. has advised the Company that they currently
anticipate starting a dosing trial for 18 patients under a new dosing regiment
during the second calendar quarter of 2000 to the treatment of Non-Hodgkins
Lymphoma (NHL) using the Company's Ocolym(R) technology.
19
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
The following is a historical summary of the Company's operational burn
rate for the quarter ended January 31, 2000 compared to the same period in the
prior year. As shown in the schedule below, the Company's operational burn rate
has decreased $1,090,000 or approximately 42% in the current quarter ended
January 31, 2000 compared to the same period in the prior year. As further shown
in the below schedule, the average monthly operational burn rate has decreased
$363,000 per month for each month in the quarter ended January 31, 2000 compared
to the same average monthly periods in the prior year. In addition, the
Company's recurring monthly fixed expenses for salaries, facilities and related
overhead charges and general and administrative expenses (monthly fixed burn
rate) were approximately $316,000 per month for the quarter ended January 31,
2000 compared to approximately $435,000 per month for the same period in the
prior year or a savings of $119,000 per month. The Company has listed its excess
space for sublease and upon the Company subleasing such space, the Company
expects the monthly fixed burn rate to continue to decrease in comparison to the
same periods in the prior year. However, our total operational burn rate will
vary substantially from quarter to quarter based on patient enrollment rates of
our clinical trial programs, and the funding of non-recurring items, which may
include but are not limited to, items associated with product development,
contract manufacturing and contract radiolabeling and the related commercial
scale-up efforts of contract manufacturing and contract radiolabeling.
<TABLE>
<CAPTION>
QUARTER ENDED JANUARY 31,
--------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Net loss $ (2,799,000) $ (4,435,000)
Less non-cash expenses:
Loss on disposal of assets - 1,170,000
Depreciation and amortization 131,000 227,000
Stock issued for interest, services and
under severance agreements 687,000 364,000
Stock-based compensation 467,000 71,000
----------------- ----------------
Net quarterly operational burn rate (cash
consumption rate) $ (1,514,000) $ (2,603,000)
================= ================
Net average monthly operational burn rate
(cash consumption rate) $ (505,000) $ (868,000)
================= ================
</TABLE>
Net Loss. The Company's net loss, before preferred stock discount
accretion and dividends, for the current quarter ended January 31, 2000
decreased $1,636,000 in comparison to the same period in the prior year. This
current quarter decrease in net loss is due to a $1,611,000 decrease in total
costs and expenses combined with an increase in interest and other income of
$25,000.
Total Costs and Expenses. The decrease in total costs and expenses of
$1,611,000 during the current quarter compared to the same period in the prior
quarter resulted primarily from the one-time prior-year quarter non-cash charge
of $1,171,000 recorded in December 1998 in connection with the sale and
subsequent leaseback of the Company's two facilities. This decrease was combined
with a current quarter decrease in research and development expenses of $437,000
and a decrease in general and administrative expenses of $73,000, which were
offset by an increase in interest expense of $70,000.
20
<PAGE>
Research and Development Expenses. The decrease in research and
development expenses of $437,000 during the current quarter ended January 31,
2000 primarily relates to a decrease in personnel, manufacturing, consulting,
radiolabeling and travel expenses offset by an increase in clinical trial,
sponsored research and building lease expenses. The decrease in the above
expense resulted primarily from the Company's direct efforts to reduce its cash
expenses related to internal research and development and manufacturing while
continuing its clinical trial programs and university research and development.
On October 18, 1999, the Company decreased the number of employees from
approximately 50 employees to 25 employees in an effort to reduce the Company's
burn rate or cash consumption rate and to preserve its then cash on hand. The
majority of the personnel reductions came from the Manufacturing Department and
ancillary departments to support the clinical manufacturing of its antibodies
under development. The Company believes it can contract out certain
manufacturing and research services previously performed in-house at a reduced
cost compared to the internal personnel and overhead costs to run such programs.
General and Administrative Expenses. The decrease in general and
administrative expenses of $73,000 during the quarter ended January 31, 2000
compared to the quarter ended January 31, 1999 resulted primarily from a
decrease in consulting fees, severance expenses, personnel costs and other
reductions in general expenses of $468,000. On November 3, 1999, the Company's
former Chief Executive Officer and Chief Financial Officer resigned with a
quarterly aggregate base salary of $109,000 and such positions were replaced
with internal positions, thus decreasing the quarterly general and
administrative personnel costs. The current quarter decrease in the above
expenses was offset by an increase in stock-based compensation expense (a
non-cash expense) of $395,000. The Company expects general and administrative
expenses (excluding stock-based compensation) to decrease in future quarters
compared to the same period in prior quarters as all severance agreements have
been completed and as the Company has decreased its overall headcount and
aggregate gross salaries in the Administration Department.
Interest Expense. The increase in interest expense of approximately
$70,000 for the quarter ended January 31, 2000 compared to the same period in
the prior year is primarily due to an increase in interest charges on a
$3,300,000 note payable to Biotechnology Development Ltd. related to the buyback
of the Oncolym(R) rights on March 8, 1999 as such amounts were not incurred in
the same quarter of the previous year.
Interest and Other Income. The increase in interest and other income of
$25,000 during the three month period ended January 31, 2000 compared to the
same period in the prior year is primarily due a $50,000 nonrefundable option
fee received in November 1999 for a 90-day option agreement with a multinational
pharmaceutical company to potentially license a specific use of the TNT
technology primarily offset by a decrease in rental income. The Company's excess
space is currently being listed for sale by the owner of the buildings and is
also being listed for sublease by the Company. If the Company is able to
sublease the excess space, rental income will increase in future months which
will reduce the Company's overall burn rate. The Company does not expect to
generate product sales for at least the next year.
21
<PAGE>
NINE MONTHS ENDED JANUARY 31, 2000 AND 1999
Net Loss. The Company's net loss for the nine months ended January 31,
2000 increased $205,000 compared to the nine months ended January 31, 1999. The
increased loss for the current nine-month period was due to a $193,000 increase
in total costs and expenses combined with a $12,000 decrease in interest and
other income.
Total Costs and Expenses. The Company's total costs and expenses
increased $193,000 for the nine months ended January 31, 2000 compared to the
same period in the prior year. This nine month increase in expenses resulted
primarily from recording a non-cash expense for the estimated provision of an
uncollectable note receivable of $1,887,000 in October 1999 combined with an
increase in research and development expenses of $148,000. These amounts were
offset by a current nine month period decrease in general and administrative
expenses of $575,000 and a decrease in interest expense of $90,000. In addition,
during the prior quarter ended January 31, 1999, the Company recorded a loss on
the sale and subsequent lease-back of the Company's two facilities and other
property of $1,177,000, which was not incurred during the current nine month
period.
Research and Development Expenses. The increase in research and
development expenses of $148,000 during the nine months ended January 31, 2000
primarily relates to increased research fees from MDS Nordion associated with
the development of a commercial radiolabeling facility combined with an increase
in sponsored research for the development of the Vascular Targeting Agent
technology. Also, the Company incurred increased costs to reengineer the
Company's TNT clone, which will significantly increase the manufacturing
production yields and will significantly reduce future antibody costs. In
addition, during the nine months ended January 31, 2000, the Company incurred
increased building lease expense related to the sale and subsequent leaseback of
the Company's facilities in December 1998 partially offset by a corresponding
decrease in depreciation expense on the related building. The above increase in
costs were partially off-set by a decrease in research and development costs for
the quarter ended January 31, 2000 as described above.
General and Administrative Expenses. General and administrative
expenses decreased approximately $575,000 for the nine months ended January 31,
2000 compared to the same period in the prior year primarily due to decreases in
shareholder meeting costs, consulting fees, legal fees, travel expenses,
severance and personnel expenses, and others expenses aggregating $1,096,000,
which was offset by an increase in stock-based compensation (a non-cash
expenses) of $521,000.
Interest Expense. Interest expense decreased $90,000 during the
nine-month period ended January 31, 2000 compared to the same period in the
prior year primarily due to interest charges on construction costs incurred in
the prior year nine month period related to manufacturing facility enhancements
combined with mortgage interest on the Company's facilities, both of which were
not incurred in the current nine-month period. Such decrease was partially
offset by an increase in interest charges on a $3,300,000 note payable to
Biotechnology Development Ltd. related to the buyback of the Oncolym(R) rights
on March 8, 1999.
Interest and Other Income. The decrease in interest and other income of
$12,000 during the nine months ended January 31, 2000 is primarily due to a
decrease in rental income offset by a $50,000 nonrefundable option fee received
in November 1999 for a 90-day option agreement with a multinational
pharmaceutical company to potentially license a specific use of the TNT
technology.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. The Company experienced losses in
fiscal 1999 and during the first nine months of fiscal 2000 and has an
accumulated deficit of $104,130,000 at January 31, 2000. These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern.
The Company must raise additional funds to sustain research and
development, provide for future clinical trials and continue its operations
until it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company plans to obtain required financing
through one or more methods including, obtaining additional equity or debt
financing and negotiating additional licensing or collaboration agreements with
another company. There can be no assurances that the Company will be successful
in raising such funds on terms acceptable to it, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of the Company's product candidates. The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flows
to meet its obligations on a timely basis, to obtain additional financing as may
be required and, ultimately, to attain successful operations. Management knows
that additional capital must be raised in the near term to support the Company's
continued operations and other short-term cash needs.
The Company believes it has sufficient cash on hand and combined with
amounts available pursuant to the Equity Line Agreement (assuming aggregate
future draws of $5,413,000) and anticipated amounts to be received from signed
letters of intent to enter into collaboration agreements with SuperGen, Inc. and
Oxigene, Inc. to meet its obligations on a timely basis through the first
calendar quarter of 2001. The Company's ability to access funds under the Equity
Line Agreement is subject to the satisfaction of certain conditions as further
described in Note 3 to the accompanying financial statements. The letters of
intent provides for an exclusive period for the completion of a definitive
agreement and will be subject to customary closing conditions. Although the
Company believes it will enter into definitive agreements and will receive the
related up-front payments under the terms as defined in the letters of intent,
there can be no assurance that definitive agreements will be reached.
We have significant commitments to expend additional funds for
preclinical development, clinical trials, radiolabeling contracts, license
contracts and consulting. If we obtain the necessary funding, we expect
operating expenditures related to clinical trials to increase in the future as
our clinical trial activity increases and scale-up for clinical trial production
continues. We have experienced negative cash flows from operations since our
inception, and we expect the negative cash flows from operations to continue for
the foreseeable future. We expect that the monthly negative cash flow will
continue for at least the next year as a result of activities in connection with
the Phase II clinical trials of Cotara(TM) and the equivalent Phase I clinical
trials of Cotara(TM) in Mexico and the development costs associated with
Vasopermeation Enhancement Agents ("VEAs") and Vascular Targeting Agents
("VTAs").
There can be no assurance that we will be successful in raising such
funds on terms acceptable to us, or at all, or that sufficient capital will be
raised to complete the research and development of our product candidates.
23
<PAGE>
COMMITMENTS. At January 31, 2000, we had no capital commitments,
although we have significant obligations, most of which are contingent, for
payments to licensors for technologies and in connection with the acquisition of
the Oncolym(R) rights previously owned by Alpha Therapeutic Corporation
("Alpha").
OTHER RISK FACTORS OF OUR COMPANY. The biotechnology industry includes
many risks and challenges. Our challenges may include, but are not limited to:
uncertainties associated with completing pre-clinical and clinical trials for
our technologies; the significant costs to develop our products as all of our
products are currently in development, preclinical studies or clinical trials
and no revenue has been generated from commercial product sales; obtaining
additional financing to support our operations and the development of our
products; obtaining regulatory approval for our technologies; complying with
other governmental regulations applicable to our business; obtaining the raw
materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity to manufacture, market and sell our products, either
directly or indirectly with collaborative partners; developing market demand for
and acceptance of such products; competing effectively with other pharmaceutical
and biotechnological products; attracting and retaining key personnel;
protecting proprietary rights; accurately forecasting operating and capital
expenditures, other capital commitments, or clinical trial costs and general
economic conditions. For additional information regarding the industry and
Company challenges are discussed in the Company's Annual Report on Form 10-K for
the year ended April 30, 1999, filed with the Securities and Exchange Commission
on July 28, 1999 and Quarterly Reports on Form 10-Q for the quarters ended July
31, 1999 and October 31, 1999, filed with the Securities and Exchange Commission
on September 10, 1999 and December 15, 1999, respectively.
24
<PAGE>
Other risks to consider may include, but are not limited to, the
following:
IF OUR RELATIONSHIP WITH SCHERING A.G. TERMINATES, IT COULD ADVERSELY AFFECT OUR
BUSINESS.
In March 1999, we entered into a license agreement with Schering A.G.,
for the worldwide development, marketing and distribution of our direct tumor
targeting agent product candidate, Oncolym(R). Under the agreement, Schering
A.G. has assumed control of the clinical development program, regulatory
approvals in the United States and all foreign countries and sales and marketing
of this product candidate. Schering A.G. may terminate the agreement under a
number of circumstances as defined in the agreement, including thirty days'
written notice given at any time prior to receiving regulatory approval. We are
relying on Schering A.G. to apply its expertise and know-how to the development,
launch and sale of this product candidate. If Schering A.G. decides to
discontinue the development of this product candidate and terminates our license
agreement, we may have to discontinue development, commercialization and
clinical testing of this product candidate, which could negatively affect our
operations and financial performance. We cannot guarantee that Schering A.G.
will devote the resources necessary to successfully develop and/or market any
product candidate.
THE LIQUIDITY OF OUR COMMON STOCK WILL BE ADVERSELY AFFECTED IF OUR COMMON STOCK
IS DELISTED FROM THE NASDAQ SMALLCAP MARKET.
The Common Stock of the Company is presently traded on The Nasdaq
SmallCap Market. To maintain inclusion on The Nasdaq SmallCap Market, we must
continue to have either net tangible assets of at least $2,000,000, market
capitalization of at least $35,000,000, or net income (in either our latest
fiscal year or in two of our last three fiscal years) of at least $500,000. In
addition, we must meet other requirements, including, but not limited to, having
a public float of at least 500,000 shares and $1,000,000, a minimum closing bid
price of $1.00 per share of Common Stock (without falling below this minimum bid
price for a period of 30 consecutive trading days), at least two market makers
and at least 300 stockholders, each holding at least 100 shares of Common Stock.
At various times from October 19, 1999 through January 6, 2000, we had failed to
meet the $35,000,000 market capitalization requirement. In addition, from
September 9, 1999 through January 6, 2000, the closing bid price of our Common
Stock was less than $1.00 per share. Since January 7, 2000, the Company has been
in compliance with the market capitalization and minimum bid price requirements.
If we are delisted by the The Nasdaq SmallCap Market, the market value of the
Common Stock could fall and holders of Common Stock would likely find it more
difficult to dispose of the Common Stock.
THE SALE OF SUBSTANTIAL SHARES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
As of March 1, 2000, we had approximately 89,677,000 shares of Common
Stock outstanding. All shares under the Class C Preferred Stock Agreement had
been converted as of January 31, 2000. We could issue approximately an
additional 17,078,000 shares of Common Stock upon the exercise of outstanding
options and warrants at an average exercise price of $1.73 for proceeds of up to
approximately $29,545,000.
25
<PAGE>
During June 1998, we secured access to $20,000,000 under a Common Stock
Equity Line ("Equity Line") with two institutional investors, expiring in June
2001. Under the terms of the Equity Line, the Company may, in its sole
discretion, and subject to certain restrictions, periodically sell ("Put")
shares of the Company's Common Stock for up to $20,000,000. Unless an increase
is otherwise agreed to, $2,250,000 of Puts can be made every quarter, subject to
share issuance volume limitations identical to the share resale limitations set
forth in Rule 144(e). If the Company is able to access funds under the Equity
Line, the Company had $5,413,000 available for future Puts. Future Puts under
the Equity Line are priced at a discount equal to the greater of $0.20 or 17.5%
off the lowest closing per share bid price during the ten trading days
immediately preceding the date on which such shares are sold to the
institutional investors. At the time of each Put, the investors will be issued
warrants, exercisable only on a cashless basis and expiring on December 31,
2004, to purchase up to 10% of the amount of Common Stock issued to the investor
at the same price as the purchase of the shares sold in the Put. If we are able
to draw upon the Equity Line, we may issue up to approximately an additional
794,000 shares of Common Stock (assuming a market price of our Common Stock of
$10.00 per share) at our sole option, from time to time, in exchange for an
aggregate purchase price of $5,413,000, which includes commission shares and
warrants equal to 10% of the shares of Common Stock issued under such agreement,
which must be exercised on a cashless basis only.
The exercise price of outstanding options and warrants and the purchase
price for the shares of Common Stock and warrants to be issued under the
Regulation D Common Stock Equity Line Subscription Agreement are at a
significant discount to the market price. The sale and issuance of these shares
of Common Stock, as well as subsequent sales of shares of Common Stock in the
open market, may cause the market price of the Common Stock to fall and might
impair our ability to raise additional capital through sales of equity or
equity-related securities, whether under the Regulation D Common Stock Equity
Line Subscription Agreement or otherwise.
OUR HIGHLY VOLATILE STOCK PRICE AND TRADING VOLUME MAY ADVERSELY AFFECT THE
LIQUIDITY OF THE COMMON STOCK.
The market price of the Common Stock, and the market prices of
securities of companies in the biotechnology industry generally, has been highly
volatile and is likely to continue to be highly volatile. Also, the trading
volume in the Common Stock has been highly volatile, ranging from as few as
76,000 shares per day to as many as 29 million shares per day over the past
year, and is likely to continue to be highly volatile. The market price of the
Common Stock may be significantly impacted by many factors, including
announcements of technological innovations or new commercial products by us or
our competitors, disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by us or our competitors and regulatory developments and product
safety concerns in both the United States and foreign countries. These and other
external factors have caused and may continue to cause the market price and
demand for the Common Stock to fluctuate substantially, which may limit or
prevent investors from readily selling their shares of Common Stock and may
otherwise negatively affect the liquidity of the Common Stock.
26
<PAGE>
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF OUR COMPUTER SYSTEMS AND THE COMPUTER
SYSTEMS OF OUR SUPPLIERS ARE NOT YEAR 2000 COMPLIANT.
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed less than $50,000 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, its internal systems, or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
A significant change in interest rates would not have a material
adverse affect on the Company's financial position or results of operations due
to the amount of cash on hand at January 31, 2000, which consists of highly
liquid investments, and as the Company's debt instruments have fixed interest
rates and terms. In addition, the Company does not invest in derivative
instruments.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
On March 18, 1999, the Company was served with notice of a lawsuit
filed in Orange County Superior Court for the State of California (Superior
Court) by a former employee alleging a single cause of action for wrongful
termination. The Company believes this lawsuit is barred by a severance
agreement and release signed by the former employee following his termination
and the Company is defending the action. On September 13, 1999, the Superior
Court granted Techniclone a Motion for Summary Judgement and the Company was not
obligated for any damages. On November 12, 1999, a Notice of Entry of Judgement
was filed by the Superior Court. Subsequently, the former employee appealed the
Summary Judgement. The Company will continue to defending the action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- ------- ------------------------------------------
The following is a summary of transactions by the Company during the
quarterly period commencing on November 1, 1999 and ending on January 31, 2000
involving issuance and sales of the Company's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities Act").
On various dates during the quarter ended January 31, 2000, the Company
issued an aggregate of 2,683,910 shares of the Company's Common Stock to the two
institutional investors and the placement agent under the Equity Line, for an
aggregate purchase price of $675,000, pursuant to an Equity Line draw and also
issued warrants to the two institutional investors and placement agent to
purchase up to 268,389 shares of Common Stock, which warrants are immediately
exercisable on a cashless basis only and expire on December 31, 2004.
27
<PAGE>
On various dates during the quarter ended January 31, 2000, the Company
issued an aggregate of 276,552 shares of the Company's Common Stock to two
institutional investors upon the cashless exercise of 360,630 warrants issued
under the Equity Line.
On various dates during the quarter ended January 31, 2000, the Company
issued to three unaffiliated investors an aggregate of 261,934 shares of the
Company's Common Stock upon conversion of 91 outstanding shares of the Company's
5% Adjustable Convertible Class C Preferred Stock (the "Class C Stock"). Upon
conversion of the 91 shares of Class C Stock, the Company issued warrants to
such investor to purchase up to an aggregate of 65,483 shares of the Company's
Common Stock at an exercise price of $0.6554 per share.
On various dates during January 2000, the Company issued 2,000,000
shares of common stock and warrants to purchase up to 2,000,000 shares of common
stock at an exercise price of $0.25 per share to two affiliated investors under
an Investment Agreement dated January 6, 2000 in exchange for $500,000.
On various dates during the quarter ended January 31, 2000, the Company
issued to 120,455 shares of common stock to five private placement investors
upon the exercise of 120,455 warrants at an exercise price of $1.00 per share.
The warrants were issued in conjunction with a private placement entered into in
April 1998.
The issuances of the securities of the Company in the above
transactions were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a
transaction by an issuer not involving a public offering. The recipient of such
securities either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
- ------- --------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
- ------- ----------------------------------------------------
ITEM 5. OTHER INFORMATION. None.
- ------- ------------------
28
<PAGE>
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
- ------- --------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
10.64 Regulation D Subscription Agreement dated January 6,
2000 between Registrant and Subscribers, Swartz
Investments, LLC and Biotechnology Development, LTD.
10.65 Registration Right Agreement dated January 6, 2000
between Registrant and Subscribers of the Regulation D
Subscription Agreement dated January 6, 2000.
10.66 Form of Warrant to be issued to Subscribers pursuant to
the Regulation D Subscription Agreement dated January 6,
2000.
10.67 Warrant to purchase 750,000 shares of Common Stock of
Registrant issued to Swartz Private Equity, LLC dated
November 19, 1999.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Current Report on Form 8-K as filed with the Commission on
November 4, 1999 reporting the resignation of three Board
members: Larry O. Bymaster, Rockell N. Hankin, and Thomas R.
Testman, Chairman. The remaining Board members had appointed
Mr. Eric Swartz and Mr. Carl Johnson as new members of the
Board. Mr. Eric Swartz maintains a contractual right to 50% of
the shares and warrants issued under the Equity Line in the
name of Dunwoody Brokage Services, Inc. Mr. Johnson is
securities counsel for an affiliated office of Dunwoody
Brokerage Services, Inc. The Company also announces that Mr.
Bymaster resigned as President and Chief Executive Officer and
Mr. Steven C. Burke resigned as Chief Financial Officer and
Corporate Secretary, both to pursue other personal and
business interests. Mr. John N. Bonfiglio was appointed
Interim President. The Company also announced that it received
a written proposal from Dunwoody Brokerage Services, Inc.
stating that Dunwoody was highly confident that it could
provide a bridge financing facility of up to five million. The
Company also announced that it had reached an agreement in
principal in regard to a common stock equity line facility of
up to $35 million. Mr. Eric Swartz maintains a 50% ownership
in Swartz Private Equity, LLC.
Current Report on Form 8-K as filed with the Commission on
November 23, 1999 reporting the receipt of approximately
$305,000 from two institutional investors under the Common
Stock Equity Line Subscription Agreement subject to a one-time
waiver agreement from the institutional investors whereby the
low closing bid price requirement of the Company's common
stock was reduced from $0.50 per share to $0.40 per share
during the 10-day pricing period.
29
<PAGE>
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 thereunto duly authorized.
TECHNICLONE CORPORATION
By: /s/ John N. Bonfiglio
-------------------------------------
Interim President
By: /s/ Paul J. Lytle
-------------------------------------
V.P. of Finance (signed both as
an officer duly authorized to sign on
behalf of the Registrant and chief
accounting officer)
30
EXHIBIT 10.64
TECHNICLONE CORPORATION
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SUBSCRIBERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE
ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT E.
SEE ADDITIONAL LEGENDS AT SECTIONS 3.7.
THIS REGULATION D SUBSCRIPTION AGREEMENT (this "Agreement") is made as
of the 6th day of January, 2000, by and between Techniclone Corporation, a
corporation duly incorporated and existing under the laws of the State of
Delaware (the "Company"), and the undersigned subscriber executing this
Agreement ("Subscriber").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Agreement is executed by Subscriber in connection with the offer
(the "Offering") by the Company and the purchase by Subscriber of "Units," where
each "Unit" consists of one share of the Company's Common Stock (collectively
referred to as the "Unit Shares") and a warrant ("Warrants") to purchase Common
Stock upon the terms set forth herein and in the Warrants. The Units are being
offered at a purchase price per share that is equal to $0.25, with an initial
offering amount of up to $600,000. The solicitation of this subscription and, if
accepted by the Company, the offer and sale of the Units are being made in
<PAGE>
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Securities Act of 1933, as amended (the "Act"). The Unit Shares and the
Warrants, and the Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") are sometimes referred to herein singularly as "Security" and
collectively as the "Securities."
Subscribers shall have an option (the "Option") to purchase, within
sixty (60) days from the Closing Date (defined in Section 4.12) of the Offering
(the "Option Exercise Date"), up to an additional $300,000 of Units (the
"Optional Tranche") with the amount to be divided equally between Subscribers
under the same terms (including but not limited to the same Unit Price and the
same Warrant Exercise Price) as this Offering. The Option may be exercised by
each Subscriber by paying to the Company the purchase price for such additional
Units on or before the Option Exercise Date. Concurrently with the Closing of
the Option, the Company and the Subscriber shall enter into an agreement
equivalent to this Agreement with respect to the Optional Tranche.
It is agreed as follows:
1. OFFERING
1.1 OFFER TO SUBSCRIBE; PURCHASE PRICE AND CLOSING.
Subject to satisfaction of the conditions to closing set forth in Section 1.2
below, Subscriber hereby agrees to subscribe for and purchase Units in the
Offering for the aggregate purchase price in the amount set forth in Section 10
of this Agreement in accordance with the terms and conditions of this Agreement.
The closing of a sale and purchase of Units as to each Subscriber (the
"Closing") shall be deemed to occur when this Agreement has been executed by
both Subscriber and the Company, full payment for the Units subscribed for shall
have been made by Subscriber, and the conditions to Subscriber's obligations set
forth in Section 1.2 have been satisfied. The date of any Closing of Units shall
be considered the "Closing Date" for such Units.
1.2 CONDITIONS TO SUBSCRIBER'S OBLIGATIONS. Subscriber's obligations
hereunder are conditioned upon all of the following:
(a) the following documents shall have been received by the
Subscriber: (i) the Registration Rights Agreement, in the form
attached hereto as EXHIBIT A (the "Registration Rights
Agreement") (executed by the Company), (ii) certificates
representing the Unit Shares and Warrants for which the
Subscriber has subscribed issued in the name of the
Subscriber; and (iii) a secretary's certificate, as to (A) the
resolutions of the Company's board of directors authorizing
this transaction, (B) the Company's Articles of Incorporation,
and (C) the Company's Bylaws;
(b) the Company's Common Stock shall be listed for and actively
trading on the Nasdaq Small Cap or the O.T.C. Bulletin Board;
2
<PAGE>
(c) other than as described in the Disclosure Documents (as
described in Section 2.2.4), as of the Closing there have been
no material adverse changes in the Company's business,
prospects or financial condition since the date of the last
balance sheet included in the Disclosure Documents (defined in
Section 2.2.4), including but not limited to incurring
material liabilities;
(d) the representations and warranties of the Company are true and
correct at the Closing as if made on such date and the
conditions to Subscriber's obligations set forth in this
Section 1.2 are satisfied as of the Closing, and the Company
shall deliver a certificate, signed by an officer of the
Company, to such effect to the Subscriber;
(e) the Company shall have reserved for issuance a sufficient
number of shares of Common Stock to effect the issuance of the
Unit Shares and the issuance of the Common Stock upon exercise
of the Warrants, which number of shares shall initially be
equal to Seven Million Two Hundred Thousand (7,200,000)
shares.
1.3 TERMS OF THE UNITS. Each "Unit" shall consist of one share of
Common Stock, and a Warrant to purchase one share of Common Stock at an exercise
price equal to $0.25. The purchase price ("Unit Price") for each Unit purchased
in the Offering shall equal $0.25. The terms of the Warrants, including the
terms on which the Warrants may be exercised for Common Stock, are set forth in
the form of the Warrant attached hereto as EXHIBIT B.
1.4 [INTENTIONALLY LEFT BLANK]
1.5 [INTENTIONALLY LEFT BLANK]
1.6 AUTHORIZATION AND RESERVATION OF SHARES OF COMMON STOCK.
(a) AUTHORIZED AND RESERVED AMOUNT. The Company shall at all times
reserve and keep available out of its authorized but unissued
shares of Common Stock a sufficient number of shares of Common
Stock to provide for (i) the issuance of the Unit Shares in
the Offering, and (ii) the full exercise of all outstanding
Warrants.
(b) INTENTIONALLY LEFT BLANK.
1.7 CLOSING. The Closing of the Offering shall occur no later than
January 15, 2000.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SUBSCRIBER. Subscriber
hereby represents and warrants to and agrees with the Company as follows:
3
<PAGE>
2.1 ACCREDITED INVESTOR. Subscriber is an accredited investor, as
defined in Rule 501 of Regulation D, and has checked the applicable box set
forth in Section 10 of this Agreement.
2.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
2.2.1 ACCESS TO INFORMATION. Subscriber or Subscriber's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents and to obtain any additional information which Subscriber
or Subscriber's professional advisor deems necessary concerning the terms and
conditions of this Offering, the Company and its business and prospects.
2.2.2 RELIANCE ON OWN ADVISORS. Subscriber has relied completely
on the advice of, or has consulted with, Subscriber's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
2.2.4).
2.2.3 CAPABILITY TO EVALUATE. Subscriber has such knowledge and
experience in financial and business matters so as to enable such Subscriber to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 2.2.4 below).
2.2.4 DISCLOSURE DOCUMENTS. Subscriber, in making Subscriber's
investment decision to subscribe for the Securities hereunder, represents that
(a) Subscriber has received and had an opportunity to review (i) the Company's
Annual Report on Form 10-K for the year ended April 30, 1999 (ii) the Company's
quarterly reports on Form 10-Q for the quarters ended July 31, 1999 and October
31, 1999, (iii) the Risk Factors, attached as EXHIBIT E, (iv) the Capitalization
Schedule, attached as EXHIBIT F (the "Capitalization Schedule"), and (v) the Use
of Proceeds Schedule, attached as EXHIBIT G (the "Use of Proceeds Schedule"),
(b) Subscriber has read, reviewed, and relied solely on the documents described
in (a) above, the Company's representations and warranties and other information
in this Agreement, including the exhibits, any other written information
prepared by the Company which has been specifically provided to Subscriber in
connection with this Offering and is designated in writing by the Company as a
Disclosure Document (the documents described in Section 2.2.4 (a) and (b) are
collectively referred to as the "Disclosure Documents"), and an independent
investigation made by Subscriber and Subscriber's representatives, if any; (c)
Subscriber has, prior to the date of this Agreement, been given an opportunity
to review material contracts and documents of the Company which have been filed
as exhibits to the Company's filings under the Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
Subscriber acknowledges and agrees that the Company has no responsibility for,
does not ratify, and is under no responsibility whatsoever to comment upon or
correct any reports, analyses or other comments made about the Company by any
third parties, including, but not limited to, analysts' research reports or
comments (collectively, "Third Party Reports"), and Subscriber has not relied
upon any Third Party Reports, in making the decision to invest.
4
<PAGE>
2.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Subscriber has
substantial experience in investing in securities and he, she or it has made
investments in securities other than those of the Company. Subscriber
acknowledges that Subscriber is able to fend for Subscriber's self in the
transaction contemplated by this Agreement, that Subscriber has the ability to
bear the economic risk of Subscriber's investment pursuant to this Agreement and
that Subscriber is an "Accredited Investor" by virtue of the fact that
Subscriber meets the investor qualification standards set forth in Section 2.1
above. Subscriber has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with
Subscriber's purposes.
2.3 EXEMPT OFFERING UNDER REGULATION D.
2.3.1 INVESTMENT; NO DISTRIBUTION. Subscriber is acquiring the
Securities to be issued and sold hereunder for his, her or its own account (or a
trust account if such Subscriber is a trustee) for investment and not as a
nominee and not with a present view to the distribution thereof. Subscriber is
aware that there are legal limits on Subscriber's ability to sell or dispose of
the Securities and, therefore, that Subscriber may be required to bear the
economic risk of the investment for an indefinite period of time and has
adequate means of providing for Subscriber's current needs and possible personal
contingencies. Subscriber's commitment to illiquid investments is reasonable in
relation to Subscriber's net worth. By making the representations in this
Section 2.3.1, the Subscriber does not agree to hold the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the Act, except as otherwise
limited or required by the terms hereof.
2.3.2 [Intentionally Left Blank]
2.3.3 RESTRICTED SECURITIES. Subscriber understands that the
Unit Shares and Warrants issued at Closing are, and the Warrant Shares will be,
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction exempt
from the registration requirements of the federal securities laws and that under
such laws and applicable regulations such securities may not be transferred or
resold without registration under the Act or pursuant to an exemption therefrom.
In this connection, Subscriber represents that Subscriber is familiar with Rule
144 under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
5
<PAGE>
2.3.4 DISPOSITION. Without in any way limiting the
representations set forth above, Subscriber further agrees not to sell,
transfer, assign, pledge (except for any limited pledge in connection with a
margin account of Subscriber to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under
the Act and any applicable state securities laws
covering such proposed disposition and such disposition
is made in accordance with such registration statement;
or
(b) (i) Subscriber shall have notified the Company of the
proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Subscriber shall
have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such
disposition will not require registration of the
Securities under the Act or state securities laws. It is
agreed that the Company will not require the Subscriber
to provide opinions of counsel for transactions made
pursuant to Rule 144 provided that Subscriber and
Subscriber's broker, if necessary, provide the Company
with the necessary representations for counsel to the
Company to issue an opinion with respect to such
transaction.
2.4 DUE AUTHORIZATION.
2.4.1 AUTHORITY. The person executing this Subscription
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Subscriber is executing
this Agreement. Subscriber has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
2.4.2 DUE AUTHORIZATION. If Subscriber is a corporation,
Subscriber is duly and validly organized, validly existing and in good corporate
standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Subscriber and to execute and deliver this Agreement.
2.4.3 [Intentionally Left Blank]
2.4.4 REPRESENTATIVES. If Subscriber is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom
Subscriber is so purchasing.
6
<PAGE>
3. ACKNOWLEDGMENTS Subscriber is aware that:
3.1 RISKS OF INVESTMENT. Subscriber recognizes that an investment in
the Company involves substantial risks, including the potential loss of
Subscriber's entire investment herein. Subscriber recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain all
the information which would be contained in a registration statement under the
Act;
3.2 NO GOVERNMENT APPROVAL. No federal or state agency has passed
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
3.3 NO REGISTRATION. The Securities and any component thereof have
not been registered under the Act or any applicable state securities laws by
reason of exemptions from the registration requirements of the Act and such
laws, and may not be sold, pledged (except for any limited pledge in connection
with a margin account of Subscriber to the extent that such pledge does not
require registration under the Act or unless an exemption from such registration
is available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein)
assigned or otherwise disposed of in the absence of an effective registration of
the Securities and any component thereof under the Act or unless an exemption
from such registration is available;
3.4 [INTENTIONALLY LEFT BLANK].
3.5 NO ASSURANCES OF REGISTRATION. There can be no assurance that
any registration statement will become effective at the scheduled time, or ever.
Subscriber acknowledges that it may be required to bear the economic risk of
Subscriber's investment for an indefinite period of time;
3.6 EXEMPT TRANSACTION. Subscriber understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the representations,
warranties, agreements, acknowledgments and understandings set forth herein are
being relied upon by the Company in determining the applicability of such
exemptions and the suitability of Subscriber to acquire such Securities;
3.7 LEGENDS. It is understood that the certificates evidencing the
Unit Shares, the Warrants, and the Warrant Shares, subject to legend removal
under the terms of Section 5.9 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or applicable
state securities laws, nor the securities laws of any other
jurisdiction. They may not be sold or transferred in the absence
of an effective registration statement under those securities
laws or an exemption therefrom."
7
<PAGE>
3.8 [INTENTIONALLY LEFT BLANK].
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby
makes the following representations and warranties to Subscriber (which shall be
true at the signing of this Agreement and as of Closing) and agrees with
Subscriber that:
4.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, the Securities and Exchange Commission ("SEC"), The
National Association of Securities Dealers, Inc., The Nasdaq Stock Market, Inc.
or any state securities commission, or any other governmental entity, which have
not been disclosed in the Disclosure Documents. The Company does not have any
subsidiaries, other than Peregrine Pharmaceuticals, Inc.
4.2 CORPORATE CONDITION. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. There have been no material
adverse changes in the Company's business, prospects or financial condition
since January 6, 2000 including but not limited to incurring material
liabilities, of which any officer of the Company is aware of or should be aware
of after due inquiry. The financial statements contained in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted by Regulation
S-X of the Exchange Act and except as otherwise disclosed in the footnotes to
the Company's financial statements), and fairly present the financial condition
of the Company as of the dates of the balance sheets included therein and the
consolidated results of its operations and cash flows for the periods then
ended. Without limiting the foregoing, there are no material liabilities,
contingent or actual, that are not disclosed in the Disclosure Documents (other
than liabilities incurred by the Company in the ordinary course of its business,
consistent with its past practice, after the period covered by the Disclosure
Documents). The Company has paid all material taxes which are due, except for
taxes which it reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending, or, to the best of the Company's knowledge,
threatened against the Company or its officers and directors in their capacity
as such, except as disclosed in the Disclosure Documents. The Disclosure
Documents do not contain any untrue statement of a material fact and do not omit
to state any material fact required to be stated therein necessary to make the
statements contained therein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which under applicable law, would require disclosure in a registration
statement for the primary issuance by the Company of its Common Stock but which
has not been so publicly announced or disclosed.
8
<PAGE>
4.3 AUTHORIZATION. All corporate action on the part of the Company
by its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Unit
Shares and Warrants being sold hereunder and the issuance (and the reservation
for issuance) of the Warrant Shares have been taken, and this Agreement, the
Irrevocable Instructions to Transfer Agent, and the Registration Rights
Agreement and the Warrants constitute valid and legally binding obligations of
the Company, enforceable in accordance with their terms, except insofar as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally or
by principles governing the availability of equitable remedies. The Company has
obtained all consents and approvals required for it to execute, deliver and
perform each agreement referenced in the previous sentence.
4.4 VALID ISSUANCE OF SECURITIES. The Unit Shares and the Warrants,
when issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Subscriber in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Subscriber in this Agreement and of the, will be issued in compliance with
all applicable U.S. federal and state securities laws. The Unit Shares and the
Warrants will be issued free of any preemptive rights. The Company currently has
Seven Million Two Hundred Thousand (7,200,000) shares of Common Stock reserved
for the Unit Shares and upon exercise of the Warrants.
4.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws each as amended, and in effect on and as of the date of this Agreement or
of any provision of any instrument or contract to which it is a party or by
which it is bound or of any provision of any federal or state judgment, writ,
decree, order, statute, rule or governmental regulation applicable to the
Company, which would have a material adverse effect on the Company's business or
prospects, or on the performance of its obligations under this Agreement, the
Registration Rights Agreement, and the Irrevocable Instructions to Transfer
Agent, except as described in the Disclosure Documents. The execution, delivery
and performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement and the Irrevocable
Instructions to Transfer Agent, except as described in the Disclosure Documents,
(b) violate the Company's Articles of Incorporation or By-Laws or (c) violate
any statute, rule or governmental regulation applicable to the Company which
violation would have a material adverse effect on the Company's business or
prospects.
9
<PAGE>
4.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company is not in violation of the listing requirements of the
O.T.C. Bulletin Board.
4.7 CAPITALIZATION. The capitalization of the Company as of the
Closing Date is, and the pro forma capitalization as of such date, after taking
into account the offering of the Securities contemplated by this Agreement and
all other share issuances occurring prior to this Offering, will be, as set
forth in the Capitalization Schedule as set forth in EXHIBIT F. There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities.
As of January 6, 2000, the Company's authorized capital stock consisted
of 150,000,000 shares of Common Stock, of which 81,215,305 shares are issued and
outstanding and 23,504,743 (which includes Unit Shares and Warrants Underlying
the Offering) shares were reserved for future issuance and 5,000,000 shares of
preferred stock, of which 10,000 have been designated as Series B Preferred
Stock, none of which are outstanding, 17,200 of which have previously been
designated as Series C Preferred Stock, 50 of which are outstanding and the
remaining 4,972,800 shares are undesignated as to series.
4.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Section A of
EXHIBIT H lists all patents, trademarks, trademark registrations, trade names
and copyrights of the Company. The Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth on Section B of EXHIBIT H.
The Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth on
Section C EXHIBIT H. To the best of the Company's knowledge after due inquiry,
the Company is not infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Company's intellectual property
rights. There are no restrictions in any agreements, licenses, franchises, or
other instruments which preclude the Company from engaging in its business as
presently conducted.
4.9 USE OF PROCEEDS. As of the date hereof, the Company expects to
use the net proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as EXHIBIT G hereto. These purposes and amounts are estimates
and are subject to change without notice to any Subscriber.
4.10 NO RIGHTS OF PARTICIPATION. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
10
<PAGE>
4.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges that
Subscriber may elect to hold the Securities for an indefinite period of time, as
permitted by the terms of this Agreement and other agreements contemplated
hereby, and the Company further acknowledges that Subscriber has made no
representations or warranties, either written or oral, as to how long the
Securities will be held by Subscriber or regarding Subscriber's trading history
or investment strategies.
4.12 TERMINATION DATE OF OFFERING. While there may be more than one
Closing of the purchase and sale of the Units for the Offering, last such
Closing must occur not later than January 15, 2000. The date of such last
Closing shall be referred to as the "Closing Date".
4.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with this Offering.
4.14 AVAILABILITY OF FORM S-3. The Company is currently eligible and
agrees to maintain its eligibility to register the resale of its Common Stock on
a registration statement on Form S-3 under the Act.
4.15 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 of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under the Act pursuant to the
provisions of Regulation D or would require the issuance of any other securities
to be integrated with this Offering under the Rules of Nasdaq. The Company has
not engaged in any form of general solicitation or advertising in connection
with the offering of the Units.
4.16 INTENTIONALLY LEFT BLANK.
4.17 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any subsidiary has, in the course of its actions for, or on behalf
of, the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
4.18 KEY EMPLOYEES. Each Key Employee (as defined below) is
currently serving the Company in the capacity disclosed in EXHIBIT I. No Key
Employee, to the best knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each Key Employee does not subject the Company or any of its
subsidiaries to any liability with respect to any of the foregoing matters. No
Key Employee has, to the best knowledge of the Company, any intention to
terminate his employment with, or services to, the Company. "Key Employee" means
each of John Bonfiglio, Ph.D. and Terrence Chew, M.D.
11
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4.19 TAX STATUS. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
4.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
4.21 [INTENTIONALLY LEFT BLANK].
4.22 OTHER AGREEMENTS. The Company has not, directly or indirectly,
made any agreements with the Subscriber, or any other subscriber under a
subscription in the form of this Agreement for the purchase of Units, relating
to the terms or conditions of the transactions contemplated hereby or thereby
except as expressly set forth herein or therein, respectively, or in exhibits
hereto or thereto.
5. COVENANTS OF THE COMPANY
5.1 INDEPENDENT AUDITORS. The Company shall, until at least three
(3) years after the Closing Date, maintain as its independent auditors an
accounting firm authorized to practice before the SEC.
5.2 CORPORATE EXISTENCE AND TAXES. The Company shall, until at least
the later of (i) the date that is three (3) years after the Closing Date or (ii)
the exercise of all Warrants issued pursuant to this Agreement, maintain its
corporate existence in good standing and remain a "Reporting Issuer" (defined as
a Company which files periodic reports under the Exchange Act) (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Warrants and has Common Stock listed for trading on a stock
exchange or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes
when due except for taxes which the Company disputes.
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5.3 REGISTRATION RIGHTS. The Company will enter into a registration
rights agreement covering the resale of the Unit Shares and the Warrant Shares
in the form of the Registration Rights Agreement attached as EXHIBIT A.
5.4 [INTENTIONALLY LEFT BLANK].
5.5 ASSET TRANSFERS. The Company shall not transfer, sell, convey or
otherwise dispose of any of its material assets to any Subsidiary or affiliate
except for a cash or cash equivalent consideration and for a proper business
purpose, prior to six (6) months from the date of this Agreement without the
consent of the Subscriber.
5.6 RIGHTS OF FIRST REFUSAL.
5.6.1 INTENTIONALLY LEFT BLANK.
5.6.2 RIGHT OF FIRST OFFER. The Company agrees that, during the
period beginning on the date hereof and terminating one year following the
Closing Date, the Company will not, without the prior written consent of each
Subscriber issue or sell, or agree to issue or sell any equity or debt
securities of the Company (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity or debt securities of the
Company) ("Future Offerings") unless the Company shall have first delivered to
each Subscriber at least ten (10) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Subscriber and
its affiliates an option for such ten (10) business day period following
delivery of such notice to purchase up to the amount of the securities, as
designated in Section 5.6.3 below, being offered in the Future Offering on the
same terms as contemplated by such Future Offering (the limitations referred to
in this sentence are collectively referred to as the "Capital Raising
Limitations").
5.6.3 AMOUNT OF SUBSCRIBER'S RIGHT OF FIRST REFUSAL. The amount
of securities which a Subscriber is entitled to purchase in such a Future
Offering shall be a number obtained by multiplying the aggregate amount of
securities being offered in the Future Offering by a fraction, the numerator of
which is the purchase price of the Units purchased by the Subscriber pursuant to
this Agreement and the denominator of which is the aggregate dollar amount of
Units placed in this Offering.
5.7 FINANCIAL 10-K STATEMENTS, ETC. AND CURRENT REPORTS ON FORM 8-K.
The Company shall make available, upon request, to the Subscribers copies of its
annual reports on Form 10-K, and quarterly reports on Form 10-Q and shall
deliver to the Subscriber current reports on form 8-K within two (2) days of
filing for as long as the Preferred Stock may remain outstanding. The Company
shall file a current report on form 8-K, if required pursuant to Section 13 or
15(d) of The Securities Act of 1934, disclosing the terms of this Offering and
the Securities within five (5) business days of the date of Closing.
5.8 [INTENTIONALLY LEFT BLANK].
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5.9 REMOVAL OF LEGEND UPON EXERCISE. Unit Shares and Warrant Shares
shall be issued to transferees thereof without restrictive legend upon the terms
set forth in the Irrevocable Instructions to Transfer Agent. The Company will,
or will instruct the Transfer Agent to, remove the restrictive legend from Unit
Shares and Warrant Shares provided that the applicable shares are eligible for
resale pursuant to Rule 144(k) and the Holder thereof makes the representations
necessary for counsel to the Company to issue a legal opinion to that effect.
5.10 LISTING. The Company shall use its best efforts to (i) continue
the listing and trading of its Common Stock on the O.T.C. Bulletin Board, the
Nasdaq Small Cap Market ("Nasdaq"), or on the Nasdaq National Market System
("NMS"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange
("AMEX"); and (ii) comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
5.11 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company shall
use its best efforts to, within ten (10) business days of the Closing Date,
enter into an agreement with the Company's transfer agent (the "Transfer Agent")
substantially in the form attached hereto as EXHIBIT D (the "Irrevocable
Instructions to Transfer Agent"), with such modifications as are necessary to
reflect the terms of this Offering. The Company will issue to its Transfer Agent
the Irrevocable Instructions to Transfer Agent in the form of EXHIBIT D
instructing the Transfer Agent to issue certificates, registered in the name of
each Subscriber or its nominee, for the Warrant Shares in such amounts as
specified from time to time by such Subscriber to the Company upon the exercise
of the Warrants. The Company warrants that no instruction, other than such
instructions referred to in Section 5.9 hereof will be given by the Company to
its Transfer Agent with respect to the Units, or the Warrant Shares. Nothing in
this Section shall affect in any way each Subscriber's obligations and agreement
set forth in Sections 2.3.3 or 2.3.4 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. The Company hereby agrees that it
will not unilaterally terminate its relationship with the Transfer Agent for any
reason prior to the date which is two (2) years and one month after the Closing
Date or one (1) month after the Nine Month Anniversary Date, whichever is
earlier (the "Ending Date") without the consent of the Subscriber. In the event
the Company's agency relationship with the Transfer Agent should be terminated
for any other reason prior to the date which is three (3) years after the
Closing Date, the Company's Transfer Agent shall continue acting as transfer
agent pursuant to the terms of the Irrevocable Instructions to Transfer Agent
until such time that a successor transfer agent (i) is appointed by the Company;
(ii) is approved by the Subscriber; and (iii) executes and agrees to be bound by
the terms of the Irrevocable Instructions to Transfer Agent.
6. SUBSCRIBER COVENANT/MISCELLANEOUS
6.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING;
SEVERABILITY. The Subscriber's and the Company's representations and warranties
shall survive the Closing of the transactions contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
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6.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber's rights hereunder, in
connection with any private sale of the Warrants of such Subscriber, so long as,
as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
6.3 GOVERNING LAW; JURISDICTION; ARBITRATION. Any controversy or
claim arising out of or related to this Agreement or the breach thereof, shall
be settled by binding arbitration in Wilmington, Delaware in accordance with the
Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). A proceeding shall be commenced upon
written demand by Company or any Subscriber to the other. The arbitrator(s)
shall enter a judgment by default against any party which fails or refuses to
appear in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if they are unable to agree within ten (10)
days, the AAA shall select the arbitrator(s). The arbitrators must be experts in
securities law and financial transactions. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of the parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in Wilmington, Delaware or to the
United States District Court sitting in Delaware for purposes of enforcement of
any discovery order, judgment or award in connection with such arbitration. The
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
6.4 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
6.5 TITLES AND SUBTITLES; GENDER. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 WRITTEN NOTICES, ETC. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing.
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6.7 EXPENSES. Except as set forth in Section 8 hereof and Section 9
of the Registration Rights Agreement, each of the Company and Subscriber shall
pay all costs and expenses that it respectively incurs, with respect to the
negotiation, execution, delivery and performance of this Agreement.
6.8 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This Agreement,
including the Exhibits attached hereto, the Warrants, the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Instructions to Transfer Agent
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.9 [Intentionally Left Blank]
6.10 [Intentionally Left Blank]
7. [INTENTIONALLY LEFT BLANK].
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Subscription Agreement, Registration Rights Agreement, Irrevocable Instructions
to Transfer Agent (the "Transaction Documents") and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the company shall defend, protect, indemnify and hold
harmless Subscriber and all of its stockholders, officers, directors, employees
and direct or indirect investors and any of the foregoing person's agents,
members, partners or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
or (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
16
<PAGE>
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 8, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 8, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 8 to the extent it is prejudicial.
9. [INTENTIONALLY LEFT BLANK].
[INTENTIONALLY LEFT BLANK]
17
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for
_________ Units (at a price of $_______ per Unit) against payment by wire
transfer in the amount of $___________________.
11. ACCREDITED INVESTOR. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being offered
or sold or a director, executive officer or general
partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other
[specify]____________________________________________
18
<PAGE>
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this _____ day of January, 2000.
____________________________________ __________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
----------------------
____________________________________ Please type or print address where
Name: Please Print your security is to be delivered
____________________________________ ATTN.:____________________________
Title/Representative Capacity (if applicable)
____________________________________ __________________________________
Name of Company You Represent (if applicable) Street Address
____________________________________ __________________________________
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
_________________________________________________
Phone Number (For Federal Express) and Fax Number (re: Notice)
WITH A COPY TO:
Please type or print address where copies are to be delivered
ATTN.:____________________________________________
__________________________________________________
Street Address
__________________________________________________
City, State or Province, Country, Offshore Postal Code
__________________________________________________
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $
_________________ ON THE ____ DAY OF JANUARY, 2000.
Techniclone Corporation
By:________________________________
Name:______________________________
Title:_______________________________
19
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for
800,000 Units (at a price of $0.25 per Unit) against payment by wire
transfer in the amount of $200,000.
11. ACCREDITED INVESTOR. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being offered
or sold or a director, executive officer or general
partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [X] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other
[specify]____________________________________________
18
<PAGE>
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this 13th day of January, 2000.
/S/EDWARD J. LEGERE BIOTECHNOLOGY DEVELOPMENT, LTD.
- ------------------------------------ ---------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
----------------------
BUEN HERMANOS, INC. Please type or print address where
- ------------------------------------ your security is to be delivered
Name: Please Print
GENERAL PARTNER ATTN.: EDWARD J. LEGERE
- ------------------------------------ -----------------------
Title/Representative Capacity
(if applicable)
BIOTECHNOLOGY DEVELOPMENT, LTD. 222 SOUTH RAINBOW, SUITE 218
- ------------------------------------ ------------------------------
Name of Company You Represent Street Address
(if applicable)
LAKE WORTH, FL LAS VEGAS, NV 89128
- ------------------------------------ ---------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
Phone Number (For Federal Express) and Fax Number (re: Notice)
WITH A COPY TO:
Please type or print address where copies are to be delivered
ATTN.:____________________________________________
- --------------------------------------------------
Street Address
- --------------------------------------------------
City, State or Province, Country, Offshore Postal Code
- --------------------------------------------------
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $200,000 ON
THE 13th DAY OF JANUARY, 2000.
Techniclone Corporation
By: /S/ JOHN N. BONFIGLIO
--------------------
Name: JOHN N. BONFIGLIO
Title: PRESIDENT
19
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for
400,000 Units (at a price of $0.25 per Unit) against payment by wire transfer in
the amount of $100,000.
11. ACCREDITED INVESTOR. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being offered
or sold or a director, executive officer or general
partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [X] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other
[specify]____________________________________________
18
<PAGE>
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this 25th day of January, 2000.
/S/ EDWARD J. LEGERE BIOTECHNOLOGY DEVELOPMENT, LTD.
- ------------------------------------ ---------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
----------------------
BUEN HERMANOS, INC. Please type or print address where
- ------------------------------------ your security is to be delivered
Name: Please Print
GENERAL PARTNER ATTN.: EDWARD J. LEGERE
- ------------------------------------ ------------------
Title/Representative Capacity
(if applicable)
BIOTECHNOLOGY DEVELOPMENT, LTD. 222 SOUTH RAINBOW, SUITE 218
- ------------------------------------ ------------------------------
Name of Company You Represent Street Address
(if applicable)
LAKE WORTH, FL LAS VEGAS, NV 89128
- ------------------------------------ ---------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
Phone Number (For Federal Express) and Fax Number (re: Notice)
WITH A COPY TO:
Please type or print address where copies are to be delivered
ATTN.:____________________________________________
- --------------------------------------------------
Street Address
- --------------------------------------------------
City, State or Province, Country, Offshore Postal Code
- --------------------------------------------------
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $100,000 ON
THE 25th DAY OF JANUARY, 2000.
Techniclone Corporation
By: /S/ JOHN N. BONFIGLIO
--------------------
Name: JOHN N. BONFIGLIO
Title: PRESIDENT
19
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for
400,000 Units (at a price of $0.25 per Unit) against payment by wire
transfer in the amount of $100,000.
11. ACCREDITED INVESTOR. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being offered
or sold or a director, executive officer or general
partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [X] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other
[specify]____________________________________________
18
<PAGE>
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this 6th day of January, 2000.
/S/ ERIC S.SWARTZ SWARTZ INVESTMENTS, LLC
- ------------------------------------ ----------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
----------------------
ERIC S. SWARTZ Please type or print address where
- ------------------------------------ your security is to be delivered
Name: Please Print
MANAGER ATTN.: ERIC S. SWARTZ
- ------------------------------------ ---------------
Title/Representative Capacity
(if applicable)
200 Roswell Summit, Suite 285
SWARTZ INVESTMENTS, LLC 1080 HOLCOMB BRIDGE ROAD
- ------------------------------------ ----------------------------------
Name of Company You Represent Street Address
(if applicable)
ROSWELL, GEORGIA, U.S.A. ROSWELL, GEORGIA 30076, U.S.A.
- ------------------------------------ --------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
Phone Number (For Federal Express) and Fax Number (re: Notice)
WITH A COPY TO:
Please type or print address where copies are to be delivered
ATTN.:____________________________________________
- --------------------------------------------------
Street Address
- --------------------------------------------------
City, State or Province, Country, Offshore Postal Code
- --------------------------------------------------
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $100,000 ON
THE 6th DAY OF JANUARY, 2000.
Techniclone Corporation
By: /S/ JOHN N. BONFIGLIO
--------------------
Name: JOHN N. BONFIGLIO
Title: PRESIDENT
19
<PAGE>
10. NUMBER OF SHARES AND PURCHASE PRICE. Subscriber subscribes for
400,000 Units (at a price of $0.25 per Unit) against payment by wire
transfer in the amount of $100,000.00, as exercise of option.
11. ACCREDITED INVESTOR. Subscriber is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being offered
or sold or a director, executive officer or general
partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [X] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other
[specify]____________________________________________
18
<PAGE>
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this 25th day of January, 2000.
/S/ ERIC S. SWARTZ SWARTZ INVESTMENTS, LLC
- ------------------------------------ ----------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
----------------------
ERIC S. SWARTZ Please type or print address where
- ------------------------------------ your security is to be delivered
Name: Please Print
MANAGER ATTN.: ERIC S. SWARTZ
- ------------------------------------ ----------------
Title/Representative Capacity
(if applicable)
200 Roswell Summit, Suite 285
SWARTZ INVESTMENTS, LLC 1080 HOLCOMB BRIDGE ROAD
- ------------------------------------ ------------------------
Name of Company You Represent Street Address
(if applicable)
ROSWELL, GEORGIA, U.S.A. ROSWELL, GEORGIA 30076, U.S.A.
- ------------------------------------ ----------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
Phone Number (For Federal Express) and Fax Number (re: Notice)
WITH A COPY TO:
Please type or print address where copies are to be delivered
ATTN.:____________________________________________
- --------------------------------------------------
Street Address
- --------------------------------------------------
City, State or Province, Country, Offshore Postal Code
- --------------------------------------------------
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $100,000 ON
THE 25th DAY OF JANUARY, 2000.
Techniclone Corporation
By: /S/ JOHN N. BONFIGLIO
--------------------
Name: JOHN N. BONFIGLIO
Title: PRESIDENT
19
EXHIBIT 10.65
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
January 6th, 2000, by and among Techniclone Corporation. a corporation duly
incorporated and existing under the laws of the State of Delaware ("Company"),
and the Subscribers (hereinafter referred to as "Subscribers") to the Company's
Offering ("Offering") of up to Six Hundred Thousand Dollars ($600,000) of Units,
with an Option to purchase an additional Three Hundred Thousand Dollars of Units
as stated in the Subscription Agreement, (the "Units"), each Unit consisting of
one share of Common Stock (the "Unit Shares") and a Warrant ("Unit Warrant") to
purchase one share of Common Stock, all pursuant to the Regulation D
Subscription Agreement between the Company and the Subscribers ("Subscription
Agreement").
1. DEFINITIONS. For purposes of this Agreement:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933 (the
"Act"), and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) For purposes hereof, the term "Registrable Securities"
means the shares of the Company's Common Stock together with any capital stock
issued in replacement of, in exchange for or otherwise in respect of such Common
Stock, issuable or issued (i) as Unit Shares, and (ii) upon exercise of the Unit
Warrants.
Notwithstanding the above:
1. Common Stock which would otherwise be deemed to be
Registrable Securities shall not constitute Registrable
Securities if and to the extent that those shares of Common
Stock may be resold in a public transaction pursuant to Rule
144(k) under the Act; and
2. any Registrable Securities resold in a public transaction
shall cease to constitute Registrable Securities.
(c) [Intentionally Left Blank].
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities;
1
<PAGE>
(e) The term "Filing Date" means the date which is sixty (60)
days after the Closing Date (as defined in the Subscription Agreement) and the
term "Due Date" means either (i) the date which is one hundred fifty (150) days
after such Closing Date, if the Registration Statement is not filed by the
Filing Date, or (ii) the date which is one hundred twenty (120) days after such
Closing Date, if the Registration Statement is filed by the Filing Date, or.
2. REQUIRED REGISTRATION.
(a) The Company shall use its best efforts to file, by the
Filing Date, a registration statement ("Registration Statement") on Form S-3 (or
other suitable form, at the Company's discretion, but subject to the reasonable
approval of the Holders), covering no more than 7,200,000 shares for holders of
piggyback rights at the time of this Agreement, plus covering the resale of 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 the exercise of the Warrants to prevent dilution resulting from
stock splits, stock dividends or similar transactions. The Company shall use its
best efforts to have the Registration Statement declared effective as soon as
possible. In the event that the Company is notified by a Holder of Registrable
Securities relating to the Units that the Registration Statement does not cover
a sufficient number of shares of Common Stock to effect the resales of a number
of shares of Common Stock equal to at least (i) one hundred fifty percent (150%)
of the number of shares of Common Stock that would be issuable to such Holder (a
"Registration Shortfall"), the Company shall, within seven (7) business days,
amend the Registration Statement or file a new Registration Statement (an
"Amended" or "New" Registration Statement, respectively), as appropriate, to add
such number of additional shares as would be necessary to effect the resales of
a number of shares of Common Stock equal to at least two hundred percent (200%)
of the number of shares of Common Stock that would be issuable to such Holder.
If for any reason or for no reason, the Registration Statement is not declared
effective under the Securities Act on or prior to the Due Date or is not
available for resales of all Registrable Securities at anytime thereafter
("Registration Failure Period"), the Company shall make payments to each Holder
("Registration Failure Payments") which shall accrue at the rate of 2% per
month, accruing daily, on the principal amount of $600,000, or the actual amount
invested, until the later of (a) the end of such Registration Failure Period ,
payable, at the option of the Holder (i) in shares of Common Stock ("Additional
Shares"), valued at the closing bid price of the Common Stock on the business
day immediately prior to the delivery of the Additional Shares or (ii) in cash,
in each case payable within 5 business days of the last day of the calendar
month in which they accrue
Notwithstanding the above, no Registration Failure Payments shall
accrue prior to the Due Date.
Such Additional Shares shall also be deemed "Registrable Securities" as
defined herein. The Company covenants to use its best efforts to use Form S-3
for the registration required by this Section during all applicable times
contemplated by this Agreement.
2
<PAGE>
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
all Registrable Securities cease to exist.
(c) The Company represents that it is presently eligible to
effect the registration contemplated hereby on Form S-3 and will use its best
efforts to continue to take such actions as are necessary to maintain such
eligibility.
(d) Notwithstanding anything contained herein to the contrary,
the Company shall not be required to register additional shares hereunder if
such shares are not available for issuance as a result of the unavailability of
authorized but unreserved shares of Common Stock.
(e) [Intentionally Left Blank].
3. PIGGYBACK REGISTRATION. If the Registration Statement
described in Section 2 is not effective and if (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
Common Stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely for the
sale of securities to participants in a Company stock plan or a registration on
Form S-4 promulgated under the Act or any successor or similar form registering
stock issuable upon a reclassification, upon a business combination involving an
exchange of securities or upon an exchange offer for securities of the issuer or
another entity), the Company shall, at such time, promptly give each Holder
written notice of such registration (a "Piggyback Registration Statement"). Upon
the written request of each Holder given by fax within ten (10) days after
mailing of such notice by the Company, the Company shall cause to be included in
such registration statement under the Act all of the Registrable Securities that
each such Holder has requested to be registered ("Piggyback Registration") to
the extent such inclusion does not violate the registration rights of any other
security holder of the Company granted prior to the date hereof; nothing herein
shall prevent the Company from withdrawing or abandoning the registration
statement prior to its effectiveness. The election of initiating Holders to
participate in a Piggyback Registration Statement shall not impact the amount
payable to investors pursuant to Section 2(a) herein except that the
Registration Failure Payment shall cease to accrue as of the date of
effectiveness of the Piggyback Registration Statement.
4. LIMITATION ON OBLIGATIONS TO REGISTER.
(a) In the case of a Piggyback Registration involving an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
registration statement, to the extent such Registrable Securities may be
included in such Piggyback Registration Statement, shall be allocated among all
Holders who had requested Piggyback Registration pursuant to the terms hereof,
3
<PAGE>
in the proportion that the number of Registrable Securities which each such
Holder seeks to register bears to the total number of Registrable Securities
sought to be included by all Holders. If required by the managing underwriter of
such an underwritten public offering, the Holders shall enter into a reasonable
agreement limiting the number of Registrable Securities to be included in such
Piggyback Registration Statement and the terms, if any, regarding the future
sale of such Registrable Securities.
(b) In the event the Company believes that shares sought to be
registered under Section 2 or Section 3 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without volume limitation without registration under the Act, by
virtue of Rule 144 or similar provisions.
5. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective and to remain effective for the applicable period.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders of the Registrable Securities covered by such registration statement,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(f) As promptly as practicable after becoming aware of such
event, notify each Holder of Registrable Securities of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare
and file a supplement or amendment to the registration statement to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each Holder as such Holder may reasonably request.
(g) Provide Holders with written notice within one (1)
business day of the date that a registration statement and any amendment thereto
registering the resale of the Registrable Securities is declared effective by
the SEC, and the date or dates when the Registration Statement is no longer
effective.
(h) Provide Holders and their representatives the opportunity
to conduct a reasonable due diligence inquiry of Company's pertinent financial
and other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(i) Provide Holders and their representatives the opportunity
to review the registration statement and all amendments thereto a reasonable
period of time prior to their filing with the SEC if so requested by Holder in
writing.
(j) Provide each Holder with prompt notice of the issuance by
the SEC or any state securities commission or agency of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceeding for such purpose. The Company shall use its best efforts to
prevent the issuance of any stop order, and, if any is issued, to obtain the
removal thereof at the earliest possible dates.
(k) Use its best efforts to list the Registrable Securities
covered by the registration statement with all securities exchanges or markets
on which the Common Stock is then listed and prepare and file any required
filing with the NASD or any such exchange or market.
6. BLACK OUT. In the event that, during the time that the
Registration Statement is effective, the Company reasonably determines, based
upon advice of counsel, that due to the existence of material non-public
information, disclosure of such material non-public information would be
required to make the statements contained in the Registration Statement not
misleading, and the Company has a bona fide business purpose for preserving as
confidential such material non-public information, the Company shall have the
right to suspend the use of the Registration Statement (a "Registration Black
Out"), and no Holder shall be permitted to sell any Registrable Securities
pursuant thereto, until such time as such suspension is no longer required
hereunder; provided, however, that such time shall not exceed a period of sixty
(60) days. As soon as such suspension is no longer required hereunder, the
Company shall, if required, promptly, but in no event later than the date the
Company files any documents with the Securities and Exchange Commission ("SEC")
referencing such material information, file with the SEC an amendment to the
Registration Statement disclosing such information and use its best efforts to
have such amendment declared effective as soon as possible.
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<PAGE>
In the event that the use of the Registration Statement is
suspended by the Company, the Company shall promptly notify all Holders whose
securities are covered by the Registration Statement of such suspension, and
shall promptly notify each such Holder as soon as use of the Registration
Statement may be resumed. Notwithstanding anything to the contrary, the Company
shall cause the Transfer Agent to deliver unlegended shares of Common Stock to a
transferee of a Holder in accordance with the terms of the Subscription
Agreement in connection with any sale of Registrable Securities with respect to
which such Holder has entered into a contract for sale prior to receipt of
notice of such Registration Black Out and for which such Holder has not yet
settled. The Company shall be entitled to effect no more than one Registration
Black Out during any twelve- (12) month period.
7. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with regard to each selling Holder that such selling Holder shall timely furnish
to the Company such information regarding Holder, the Registrable Securities
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of its Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
8. EXPENSES. All expenses other than underwriting discounts
and commissions and fees and expenses of counsel to the selling Holders incurred
in connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, shall be borne by the Company.
9. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement or a Piggyback Registration Statement
under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and agents of each
Holder, any underwriter (as defined in the Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and the Company will reimburse each such Holder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
6
<PAGE>
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a statement which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any statement or
omission in each case to the extent (and only to the extent) that such statement
or omission is made in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration
statement; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company and any such director, officer, controlling
person, underwriter or controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, 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 the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
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<PAGE>
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and the Holders in connection with the statements
or omissions which resulted in such Losses. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the Holders. The Company and the
Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 9,
each person who controls a Holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a Holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each director of the Company,
and each officer of the Company who has signed the registration statement, shall
have the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under this
Section 9 shall survive the completion of any offering of Registrable Securities
in a Registration Statement under this Agreement, and otherwise.
10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration,
the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the Act and
the 1934 Act; and
11. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities provided that the amendment treats all
Holders equally. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each Holder, each future Holder, and the
Company.
12. NOTICES. All notices required or permitted under this
Agreement shall be made in writing signed by the party making the same, shall
specify the section under this Agreement pursuant to which it is given, and
shall be addressed if to (i) the Company at the address, telephone number and
facsimile number set forth on the signature pages of this Agreement and (ii) the
Holders at their respective last address and facsimile number of the party as
shown on the records of the Company. Any notice, except as otherwise provided in
this Agreement, shall be made by fax and shall be deemed given at the time of
transmission of the fax.
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<PAGE>
13. TERMINATION. This Agreement shall terminate on the date
all Registrable Securities cease to exist; but without prejudice to (i) the
parties' rights and obligations arising from breaches of this Agreement
occurring prior to such termination (ii) other indemnification obligations under
this Agreement.
14. ASSIGNMENT. The rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Piggyback
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file a
new registration statement or an amended registration statement including such
transferee or a selling security holder thereunder.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made in and wholly to be performed in that jurisdiction, except for
matters arising under the Act or the Securities Exchange Act of 1934, which
matters shall be construed and interpreted in accordance with such laws.
16. EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
17. SPECIFIC PERFORMANCE. The Holder shall be entitled to the
remedy of specific performance in the event of the Company's breach of this
Agreement, the parties agreeing that a remedy at law would be inadequate.
18. ENTIRE AGREEMENT. This Agreement, including the Exhibits
attached hereto, the Subscription Agreement, , the Irrevocable Instructions to
Transfer Agent, and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 6th day of January, 2000.
TECHNICLONE CORPORATION
By: /S/ JOHN N. BONFIGLIO
------------------------------
President
Address:
14282 Franklin Avenue
Tustin, CA 92780-7017
Phone (714) 838-0500
Fax (714)838-4094
INVESTOR(S)
SWARTZ INVESTMENTS, LLC
----------------------------------
Investor's Name
BY: /S/ ERIC S. SWARTZ, MANAGER
------------------------------
(Signature)
Address: 200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, Georgia 30076
BIOTECHNOLOGY DEVELOPMENT LTD.
----------------------------------
Investor's Name
BY: /S/ EDWARD J. LEGERE
------------------------------
(Signature)
Address: 222 South Rainbow, Suite 218
Las Vegas, NV 89128
10
EXHIBIT 10.66
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
____________ shares
WARRANT TO PURCHASE COMMON STOCK
OF
TECHNICLONE CORPORATION
THIS CERTIFIES that ____________________ or any subsequent holder
hereof ("Holder"), has the right to purchase from TECHNICLONE CORPORATION a
Delaware corporation (the "Company"), up to _____________ fully paid and
nonassessable shares of the Company's common stock, $.001 par value per share
("Common Stock"), subject to adjustment as provided herein, at a price equal to
the Exercise Price as defined in Section 3 below, at any time beginning on the
Date of Issuance (defined below) and ending at 5:00 p.m., New York, New York
time, on January 6, 2005 (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of Techniclone Corporation (this "Warrant") is issued and all rights
hereunder shall be held subject to all of the conditions, limitations and
provisions set forth herein.
1. DATE OF ISSUANCE.
This Warrant shall be deemed to be issued on _________, 2000 ("Date of
Issuance").
2. EXERCISE.
<PAGE>
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may
be exercised as to all or any lesser number of full shares of Common Stock
covered hereby upon surrender of this Warrant, with the Exercise Form attached
hereto as EXHIBIT A (the "Exercise Form") duly completed and executed, together
with the full Exercise Price (as defined below) for each share of Common Stock
as to which this Warrant is exercised, at the office of the Company, at the
address, telephone number and fax number set forth on the signature page hereof,
or at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form sent to the Company
and its Transfer Agent by facsimile (such surrender and payment of the Exercise
Price hereinafter called the "Exercise of this Warrant").
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for
shares of Common Stock is issued shall, for all purposes, be deemed to be the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Common Stock purchased upon the
Exercise of this Warrant. Nothing in this Warrant shall be construed as
conferring upon Holder any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price shall equal $.25 per share ("Exercise Price").
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) CASH EXERCISE: cash, bank or cashiers check or wire transfer; or
(ii) CASHLESS EXERCISE: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock to
be issued upon exercise of this Warrant. In order to effect a Cashless Exercise,
the Holder shall, surrender this Warrant at the principal office of the Company
together with notice of cashless election, in which event the Company shall
issue Holder a number of shares of Common Stock computed using the following
formula:
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X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average closing price of the Common Stock for
the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap Market, or if the Common Stock is
not traded on the Nasdaq Small Cap Market, the Average Closing
Price in any other over-the-counter market; provided, however,
that if the Common Stock is listed on a stock exchange, the
Market Price shall be the Average Closing Price on such
exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not
traded during the five (5) trading days prior to the Date of
Exercise, then the closing price for the last publicly traded
day shall be deemed to be the closing price for any and all
(if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) REGISTRABLE SECURITIES. The Common Stock issuable upon the
exercise of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about January 6, 2000 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. ANTI-DILUTION ADJUSTMENTS.
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<PAGE>
(a) STOCK DIVIDEND. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of this
Warrant after the record date for the determination of holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION. If the Company shall at
any time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be changed
into or become exchangeable for a larger or smaller number of shares, then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be increased
or decreased, as the case may be, in direct proportion to the increase or
decrease in the number of shares of Common Stock by reason of such
recapitalization, reclassification or similar transaction, and the Exercise
Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of shares,
proportionally increased. The Company shall give Holder the same notice it
provides to holders of Common Stock of any transaction described in this Section
5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding year) then, in
any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
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<PAGE>
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the net
effect of increasing the Exercise Price. The number of shares of Common Stock
subject hereto shall increase proportionately with each decrease in the Exercise
Price.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
5
<PAGE>
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall
be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D and exempt from state registration under applicable state laws.
The Warrant and the Common Stock issuable upon the Exercise of this Warrant may
not be pledged, transferred, sold or assigned except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Act and applicable state laws.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as EXHIBIT B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
6
<PAGE>
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed
by and construed in accordance with the laws of the state of Delaware, without
giving effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by
Holder to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, to the
address, telephone number and facsimile number set forth on the signature page
hereof. Notices or demands pursuant to this Warrant to be given or made by the
Company to or on Holder shall be sufficiently given or made if sent by certified
or registered mail, return receipt requested, postage prepaid, and addressed, to
the address of Holder set forth in the Company's records, until another address
is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
__th day of January 2000.
TECHNICLONE CORPORATION
By:
-----------------------------
14282 Franklin Avenue
Tustin, CA 92780-7017
Phone: (714) 838-6000
Fax: (714) 838-9433
7
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: TECHNICLONE CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of TECHNICLONE
CORPORATION, a Delaware corporation (the "Company"), evidenced by the attached
warrant (the "Warrant"), and herewith makes payment of the exercise price with
respect to such shares in full, all in accordance with the conditions and
provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: _____________________
________________________________________________________________________________
Signature
________________________________________________________________________________
Print Name
________________________________________________________________________________
Address
________________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________________
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of TECHNICLONE
CORPORATION, evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ___________ ______________________________
Signature
Fill in for new registration of Warrant:
____________________________________
Name
____________________________________
Address
____________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
________________________________________________________________________________
EXHIBIT 10.67
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
750,000 shares
- -------
WARRANT TO PURCHASE COMMON STOCK
OF
TECHNICLONE CORPORATION
THIS CERTIFIES that SWARTZ PRIVATE EQUITY, LLC or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
TECHNICLONE CORPORATION, a Delaware corporation (the "Company"), up to 750,000
fully paid and nonassessable shares of the Company's common stock, $.01 par
value per share ("Common Stock"), subject to adjustment as provided herein, at a
price equal to the Exercise Price as defined in Section 3 below, at any time
beginning on the Date of Issuance (defined below) and ending at 5:00 p.m., New
York, New York time the date that is five (5) years after the Date of Issuance
(the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common
Stock of TECHNICLONE CORPORATION (this "Warrant") is issued and all rights
hereunder shall be held subject to all of the conditions, limitations and
provisions set forth herein.
1. DATE OF ISSUANCE AND TERM.
This Warrant shall be deemed to be issued on November 19, 1999 ("Date
of Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may
be exercised as to all or any lesser number of full shares of Common Stock
covered hereby (the "Warrant Shares") upon surrender of this Warrant, with the
Exercise Form attached hereto as EXHIBIT A (the "Exercise Form") duly completed
and executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, 14282 Franklin Avenue, Tustin, CA, 92780, Attention: John N.
<PAGE>
Bonfiglio, Interim President, Telephone No. (714) 508-6000, Telecopy No. (714)
838-4094, or at such other office or agency as the Company may designate in
writing, by overnight mail, with an advance copy of the Exercise Form sent to
the Company and its Transfer Agent by facsimile (such surrender and payment of
the Exercise Price hereinafter called the "Exercise of this Warrant").
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed Exercise
Form is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company as soon as practicable thereafter.
Alternatively, the Date of Exercise shall be defined as the date the original
Exercise Form is received by the Company, if Holder has not sent advance notice
by facsimile.
(c) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of Exercise,
Holder shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise of this Warrant, and if this Warrant is not
exercised in full, Holder shall be entitled to receive a new Warrant (containing
terms identical to this Warrant) representing any unexercised portion of this
Warrant in addition to such Common Stock.
(d) HOLDER OF RECORD. Each person in whose name any Warrant for
shares of Common Stock is issued shall, for all purposes, be deemed to be the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of the Common Stock purchased upon the
Exercise of this Warrant. Nothing in this Warrant shall be construed as
conferring upon Holder any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price per share ("Exercise Price") shall initially equal
$0.46875 (the "Initial Exercise Price"). If the average Closing Bid Price of the
Company's Common Stock for the five (5) trading days immediately preceding the
date, if any, that the Company and Swartz Private Equity, LLC enter into an
Investment Agreement ("Investment Agreement") pursuant to the Letter of
Agreement between the Company and Swartz Private Equity, LLC dated on or about
November 5, 1999 (the "Closing Market Price") is less than the Initial Exercise
Price, the Exercise Price shall be reset to equal the Closing Market Price, or,
if the Date of Exercise is more than six (6) months after the Date of Issuance,
the Exercise Price shall be reset to equal the lesser of (i) the Exercise Price
then in effect, or (ii) the "Lowest Reset Price," as that term is defined below.
The Company shall calculate a "Reset Price" on each six-month anniversary date
of the Date of Issuance which shall equal one hundred percent (100%) of the
average Closing Bid Price of the Company's Common Stock for the five (5) trading
days ending on such six-month anniversary date of the Date of Issuance. The
"Lowest Reset Price" shall equal the lowest Reset Price determined on any
six-month anniversary date of the Date of Issuance preceding the Date of
Exercise, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
2
<PAGE>
(i) CASH EXERCISE: cash, bank or cashiers check or wire transfer; or
(ii) CASHLESS EXERCISE: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction under this subsection (ii) if and
only if, on the Date of Exercise, there is not then in effect a current
registration statement that covers the resale of the shares of Common Stock to
be issued upon exercise of this Warrant . In order to effect a Cashless
Exercise, the Holder shall surrender this Warrant at the principal office of the
Company together with notice of cashless election, in which event the Company
shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Bid Price of the Common Stock
for the five (5) trading days prior to the Date of Exercise of
this Warrant (the "Average Closing Price"), as reported by the
O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap
Market, or if the Common Stock is not traded on the Nasdaq
Small Cap Market, the Average Closing Price in any other
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
the Average Closing Price on such exchange for the five (5)
trading days prior to the date of exercise of the Warrants. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise Price.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price of the Company's common stock on the O.T.C. Bulletin Board,
the National Market System ("NMS"), the New York Stock Exchange, the Nasdaq
Small Cap Market, or if no longer traded on the O.T.C. Bulletin Board, the NMS,
the New York Stock Exchange, the Nasdaq Small Cap Market, the "Closing Bid
Price" shall equal the closing price on the principal national securities
exchange or the over-the-counter system on which the Common Stock is so traded
and, if not available, the mean of the high and low prices on the principal
national securities exchange on which the Common Stock is so traded.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise transaction
shall be deemed to have commenced on the date this Warrant was issued.
3
<PAGE>
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
the portion hereof retained.
(b) REGISTRABLE SECURITIES. In addition to any other registration
rights of the Holder, if the Common Stock issuable upon exercise of this Warrant
is not registered for resale at the time the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Common Stock under the Act
(other than a registration relating solely for the sale of securities to
participants in a Company stock plan or a registration on Form S-4 promulgated
under the Act or any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity)(a "Piggyback Registration Statement"), the Company shall cause to be
included in such Piggyback Registration Statement ("Piggyback Registration") all
of the Common Stock issuable upon the exercise of this Warrant ("Registrable
Securities") to the extent such inclusion does not violate the registration
rights of any other securityholder of the Company granted prior to the date
hereof. Nothing herein shall prevent the Company from withdrawing or abandoning
the Piggyback Registration Statement prior to its effectiveness.
(c) LIMITATION ON OBLIGATIONS TO REGISTER UNDER A PIGGYBACK
REGISTRATION. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would interfere
with the successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
Piggyback Registration Statement, to the extent such Registrable Securities may
be included in such Piggyback Registration Statement, shall be allocated among
all Holders who had requested Piggyback Registration pursuant to the terms
hereof, in the proportion that the number of Registrable Securities which each
such Holder seeks to register bears to the total number of Registrable
Securities sought to be included by all Holders. If required by the managing
underwriter of such an underwritten public offering, the Holders shall enter
into a reasonable agreement limiting the number of Registrable Securities to be
included in such Piggyback Registration Statement and the terms, if any,
regarding the future sale of such Registrable Securities.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of this
Warrant after the record date for the determination of holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
4
<PAGE>
(b) RECAPITALIZATION OR RECLASSIFICATION.
(i) STOCK SPLIT. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a LARGER number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder shall
be entitled to purchase upon Exercise of this Warrant shall be increased in
direct proportion to the increase in the number of shares of Common Stock by
reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be proportionally decreased.
(ii) REVERSE STOCK SPLIT. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a SMALLER number of shares (a "Reverse Stock Split"), then upon
the effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be decreased
by reason of such recapitalization, reclassification or similar transaction,
provided, however that the Exercise Price shall be proportionally increased. The
Company shall give Holder the same notice it provides to holders of Common Stock
of any transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which Holder would have been entitled to receive with respect to each such share
of Common Stock as a result of the happening of such event had this Warrant been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board of Directors of the Company in its discretion) and the denominator of
which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities or other assets of the Company or another entity or there
is a sale of all or substantially all the Company's assets (a "Corporate
Change"), then this Warrant shall be exerciseable into such class and type of
securities or other assets as Holder would have received had Holder exercised
this Warrant immediately prior to such Corporate Change; provided, however, that
Company may not affect any Corporate Change unless it first shall have given
thirty (30) days notice to Holder hereof of any Corporate Change.
5
<PAGE>
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 3
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall
be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant,
Holder may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, Holder would be entitled to a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for the Exercise of
this Warrant and payment of the Exercise Price. The Company covenants and agrees
that upon the Exercise of this Warrant, all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D and exempt from state registration under applicable state laws.
The Warrant and the Common Stock issuable upon the Exercise of this Warrant may
not be pledged, transferred, sold or assigned except pursuant to an effective
registration statement or unless the Company has received an opinion from the
Company's counsel to the effect that such registration is not required, or the
Holder has furnished to the Company an opinion of the Holder's counsel, which
counsel shall be reasonably satisfactory to the Company, to the effect that such
registration is not required; the transfer complies with any applicable state
securities laws; and, if no registration covering the resale of the Warrant
Shares is effective at the time the Warrant Shares are issued, the Holder
consents to a legend being placed on certificates for the Warrant Shares stating
that the securities have not been registered under the Securities Act and
referring to such restrictions on transferability and sale.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration or
exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as EXHIBIT B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten (10) days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
6
<PAGE>
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or claim
under this Warrant and this Warrant shall be for the sole and exclusive benefit
of the Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed
by and construed in accordance with the laws of the state of Delaware, without
giving effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by
Holder to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, 14282
Franklin Avenue, Tustin, CA, 92780, Attention: John N. Bonfiglio, Interim
President, Telephone No. (714) 508-6000, Telecopy No. (714) 838-4094. Notices or
demands pursuant to this Warrant to be given or made by the Company to or on
Holder shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, to the address
of Holder set forth in the Company's records, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
the 19TH day of November, 1999.
TECHNICLONE CORPORATION
By: /S/ JOHN N. BONFIGLIO
------------------------------------
John N. Bonfiglio, Interim President
7
<PAGE>
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: TECHNICLONE CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of TECHNICLONE
CORPORATION, a Delaware corporation (the "Company"), evidenced by the attached
warrant (the "Warrant"), and herewith makes payment of the exercise price with
respect to such shares in full, all in accordance with the conditions and
provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of the
undersigned and delivered to the undersigned at the address set forth below:
Dated: ____________
________________________________________________________________________________
Signature
________________________________________________________________________________
Print Name
________________________________________________________________________________
Address
________________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________________
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons below
named the right to purchase _______ shares of the Common Stock of TECHNICLONE
CORPORATION, evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.
________________________________________________________________________________
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE PERIOD ENDED 01/31/00.
</LEGEND>
<CIK> 0000704562
<NAME> TECHNICLONE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1,000
<CASH> 2,671
<SECURITIES> 0
<RECEIVABLES> 490
<ALLOWANCES> 363
<INVENTORY> 49
<CURRENT-ASSETS> 3,155
<PP&E> 3,192
<DEPRECIATION> 1,453
<TOTAL-ASSETS> 5,041
<CURRENT-LIABILITIES> 6,783
<BONDS> 0
<COMMON> 88
0
0
<OTHER-SE> (5,246)
<TOTAL-LIABILITY-AND-EQUITY> 5,041
<SALES> 0
<TOTAL-REVENUES> 278
<CGS> 0
<TOTAL-COSTS> 11,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> (11,450)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,450)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
