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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 MARCH 31, 1997
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-18006
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THE IMMUNE RESPONSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0255679
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
5935 DARWIN COURT, CARLSBAD, CA 92008
(Address of Principal Executive Offices)
(Zip Code)
TELEPHONE (760) 431-7080
(Registrant's Telephone Number, Including Area Code)
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
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 1997, 22,328,026 shares of common stock were outstanding.
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THE IMMUNE RESPONSE CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1997 December 31,
ASSETS (unaudited) 1996
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,760,041 $ 3,785,433
Marketable securities-available-for-sale 34,396,446 42,736,310
Short-term investment 1,265,000 1,265,000
Other current assets 634,089 679,847
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Total current assets 40,055,576 48,466,590
Property and equipment, net 6,009,363 5,570,378
Deposits and other assets 117,508 49,016
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$ 46,182,447 $ 54,085,984
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,021,233 $ 1,870,853
Accrued expenses 380,402 497,671
Deferred rent obligation 399,060 413,901
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Total current liabilities 2,800,695 2,782,425
Stockholders' Equity:
Common stock, $.0025 par value, 40,000,000 shares authorized,
20,288,722 and 20,229,719 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 50,722 50,574
Additional paid-in capital 171,261,277 171,055,691
Unrealized gain (loss) on marketable securities (4,241) 139,976
Accumulated deficit (127,926,006) (119,942,682)
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Total stockholders' equity 43,381,752 51,303,559
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$ 46,182,447 $ 54,085,984
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</TABLE>
See accompanying notes.
3
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended March 31,
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1997 1996
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Contract research revenue $ 1,000,000 $ ---
Expenses:
Research and development 8,598,579 5,477,067
General and administrative 993,582 768,229
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9,592,161 6,245,296
Other revenue:
Investment income 608,837 744,332
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Net loss $ (7,983,324) $(5,500,964)
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Net loss per share (Note 2) $ (0.39) $ (0.33)
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Shares used in computing net loss
per share (Note 2) 20,259,837 16,800,488
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See accompanying notes.
4
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1997 1996
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<S> <C> <C>
Operating activities:
Net loss $ (7,983,324) $ (5,500,964)
Adjustments to reconcile net loss to net cash provided from
(used by) operating activities:
Depreciation and amortization 239,396 201,260
Deferred rent expense (14,841) (7,488)
Changes in operating assets and liabilities:
Other current assets 45,758 323,261
Accounts payable 150,380 11,377
Accrued expenses (117,269) (38,512)
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Net cash used by operating activities (7,679,900) (5,011,066)
Investing activities:
Liquidation of short-term investments, net 8,195,647 4,016,650
Purchase of property and equipment (678,381) (267,541)
Deposits and other assets (68,492) ---
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Net cash provided from investing activities 7,448,774 3,749,109
Financing activities:
Net proceeds from exercise of stock options 205,734 43,547
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Net cash provided from financing activities 205,734 43,547
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Net decrease in cash and cash equivalents (25,392) (1,218,410)
Cash and cash equivalents at beginning of period 3,785,433 1,462,676
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Cash and cash equivalents at end of period $ 3,760,041 $ 244,266
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</TABLE>
See accompanying notes.
5
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THE IMMUNE RESPONSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of The Immune Response
Corporation (the "Company") for the three months ended March 31, 1997 and
1996 are unaudited. These financial statements reflect all adjustments,
consisting of only normal recurring adjustments which, in the opinion of
management, are necessary to fairly present the consolidated financial
position as of March 31, 1997, and the consolidated results of operations
for the three months ended March 31, 1997 and 1996. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the year ended December 31,
1997. For more complete financial information, these financial statements,
and the notes thereto, should be read in conjunction with the consolidated
audited financial statements for the year ended December 31, 1996 included
in the Company's Form 10-K filed with the Securities and Exchange
Commission.
2. NET LOSS PER SHARE
Net loss per share for the three months ended March 31, 1997 and 1996 is
computed using the weighted average number of common shares outstanding
during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, "Earnings per Share."
The Company will be required to adopt these new rules effective December
15, 1997. Management does not anticipate any impact resulting from the
adoption of this new standard upon current or previously reported earnings
per share.
3. SUBSEQUENT EVENT
During April 1997, the Company completed a $15.8 million private placement
of units consisting of common stock and warrants to purchase common stock
of the Company. These units were separately purchased at a price of $7.80
per unit by Kevin B. Kimberlin, a director of the Company, and Dennis J.
Carlo, Ph.D., a director and president and chief executive officer of the
Company. The units sold in the private placement consisted of 2,029,719
shares of common stock plus warrants exercisable for 2,029,719 shares of
common stock. The warrants have a four year term. The warrants, with an
exercise price of $14 per share, are callable by the Company if the stock
trades at $28 per share or greater for 45 consecutive days. The terms of
the agreements included an initial 25% downpayment, with the remaining
balance, covered by a promissory note to the Company, due by September 30,
1997. The shares and warrants are not transferable until April 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
SUMMARY
The Immune Response Corporation (the "Company") is a biopharmaceutical company
engaged in the development of proprietary products in the areas of HIV,
autoimmune disease, gene therapy and cancer.
This discussion contains forward-looking statements concerning the Company's
operating results and timing of anticipated expenditures. Such statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected. For a further description of potential risks
and uncertainties involved related to the Company, this document should be read
in conjunction with the Company's Form 10-K filed with the Securities and
Exchange Commission. These forward-looking statements speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
During January 1997, the Company announced the results from a Phase II clinical
trial in rheumatoid arthritis. This double-blind, placebo-controlled trial
involved 99 rheumatoid arthritis patients and was designed to determine the
ability of the rheumatoid arthritis therapy to stimulate responses against the
targeted T cells and to determine an optimal dose of the therapy. Results from
this trial indicated safety and a statistically significant clinical improvement
in disease condition using the American College of Rheumatology guidelines (ACR
20). The ACR 20 criteria require an improvement in tender and swollen joint
counts of at least 20% from baseline, along with improvement in three of five
other disease-related criteria. Pending Food and Drug Administration ("FDA")
approval, the Company expects to begin a Phase III clinical trial during 1997.
Also during January 1997, the Company announced the results from a Phase II
clinical trial in psoriasis. This double-blind, placebo-controlled clinical
trial involved 93 psoriasis patients and was designed to determine the ability
of the psoriasis therapy to stimulate responses against the targeted T cells and
to determine an optimal dose of the therapy. Results demonstrated the product
was safe. There was no statistically significant difference between the treated
and control groups. The Company is evaluating a new formulation of T cell
receptor derived peptides for a second Phase II clinical trial in psoriasis
expected to begin in 1997.
In February 1997, the Company began, in collaboration with Glaxo Wellcome, plc
("Glaxo") and Merck & Co. ("Merck"), a 32-week Phase II combination drug trial
using REMUNE-TM- in combination with Glaxo's AZT and 3TC and Merck's protease
inhibitor Crixivan. This clinical trial is double-blind, placebo-controlled and
is designed to involve up to 150 HIV-infected individuals with CD4 cell counts
greater than 400. Since AIDS is a virus induced immune suppression, this trial
is designed to examine the potential synergy between triple antiviral drug
therapy and REMUNE on HIV-1 specific immune responses. The Principal
Investigator of this trial, Dr. Fred Valentine, is Professor of Medicine at New
York University Medical Center and the former Chairman of the Food and Drug
Administration's Antiviral Drugs Advisory Committee. The trial will be
conducted at eight clinical sites across the United States.
During April 1997, the Company completed a $15.8 million private placement of
units consisting of common stock and warrants to purchase common stock of the
Company. These units were separately purchased at a price of $7.80 per unit by
Kevin B. Kimberlin, a director of the Company, and Dennis J. Carlo, Ph.D., a
director and president and chief executive officer of the Company. The units
sold in the private placement consisted of 2,029,719 shares of common stock plus
warrants exercisable for 2,029,719 shares of common stock. The warrants have a
four year term. The warrants, with an exercise price of $14 per share, are
callable by the Company if the stock trades at $28 per share or greater for 45
consecutive days. The terms of the agreements included an initial 25%
downpayment, with the remaining balance, covered by a promissory note to the
Company, due by September 30, 1997. The shares and warrants are not
transferable until April 1998.
The Company has not been profitable since inception and had an accumulated
deficit of $128 million as of March 31, 1997. To date, the Company has not
recorded any revenues from the sale of products.
7
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Revenues recorded through March 31,1997 were earned in connection with contract
research and investment income. The Company expects its operating losses to
continue over the next several years, as well as to have quarter-to-quarter
fluctuations, some of which could be significant, due to expanded research,
development and clinical trial activities. There can be no assurance that the
Company will be able to generate sufficient product revenue to become profitable
at all or on a sustained basis.
RESULTS OF OPERATIONS
The Company had $1 million in contract research revenue during the quarter ended
March 31, 1997 and no contract research revenue for the quarter ended March 31,
1996. Contract research revenue was received from Bayer Corporation related to
a research collaboration for a potential therapy for hemophilia. The Company
has not received any revenue from the commercial sale of products and does not
expect to derive revenue from the sale of products for the foreseeable future.
Investment income decreased to $609,000 for the quarter ended March 31, 1997,
from $744,000 during the same period in 1996. The decrease in investment income
in 1997 compared to 1996, was due primarily to a decrease in the Company's cash
position from the first quarter of 1996 compared to 1997.
Research and development expenditures of $8.6 million during the first quarter
of 1997 exceeded such expenditures during the same period in 1996 of $5.5
million. These additional expenditures in the first quarter of 1997, over the
amounts expended during the same period in 1996, were due primarily to the
expansion of clinical testing and regulatory management of REMUNE. In addition,
research and development expenditures have increased related to research related
to gene drug delivery and cancer treatments. Research and development expenses
should continue to rise in the foreseeable future due to expanding preclinical
and clinical testing of the proposed autoimmune disease, gene therapy and cancer
treatments. Research and development expenses related to the Company's ongoing
large scale Phase III clinical trial with REMUNE are expected to remain
consistent with first quarter levels.
General and administrative expenses for the first quarter of 1997 were $994,000
as compared to $768,000 for the same period in 1996. The increase in these
expenses during the first quarter ended March 31, 1997 compared to the expenses
during the same period of 1996, is due primarily to an increase in personnel and
other operational expenses. General and administrative expenses for the
remainder of 1997 necessary to support the Company's expanded research and
development activities are expected to remain consistent with first quarter
levels.
For the quarter ended March 31, 1997, the Company's net loss was $8.0 million,
or $.39 per share, as compared to a net loss of $5.5 million, or $.33 per share,
for the same period in 1996. The primary factors causing the net loss to
increase in 1997 were the initiation of the Phase III clinical trial with
REMUNE, which began late in the first quarter of 1996, as well as the expansion
of research related to cancer treatments.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of $37.3 million,
including $39.4 million of cash, cash equivalents, marketable securities and
short-term investments. This compares with working capital at December 31,
1996, of $45.7 million, including $47.8 million of cash, cash equivalents,
marketable securities and short-term investments. The decrease in working
capital was due to the costs of operating the business.
The Company will need to raise additional funds to conduct research and
development, preclinical studies and clinical trials necessary to bring its
potential products to market and establish manufacturing and marketing
capabilities. The Company anticipates that the REMUNE Phase III clinical trial
costs will be approximately $10 million per year, with an additional $10 million
cost per year for manufacturing, research and other costs associated with the
product for up to three years. The anticipated costs with respect to REMUNE
will depend on many factors, including the time required for the Phase III
clinical trial, the number of patients enrolled in the Phase III clinical trial,
the availability of third party reimbursement for expanded access protocols for
REMUNE, the potential for accelerated approval and certain other factors which
will
8
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influence the Company's determination of the appropriate continued investment of
the Company's financial resources in this program. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing scale-up, effective commercialization activities and
arrangement and other factors not within the Company's control. The Company
intends to seek additional funding through public or private financings,
arrangement with corporate collaborations or other sources. Adequate funds may
not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to scale back or eliminate some or
all of its research and development programs or license to third parties
products or technologies that the Company would otherwise seek to develop
itself. The Company believes that its existing resources, including the funds
received from the sale of equity units in a private placement in April 1997,
will meet its anticipated requirements through late-1998.
CERTAIN RISK FACTORS (For a discussion of additional Risk Factors applicable to
the Company, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.)
UNCERTAINTY OF PRODUCT DEVELOPMENT AND CLINICAL TESTING. The Company has not
completed the development of any products and there can be no assurance any
products will be successfully developed. The Company's potential HIV,
autoimmune disease, gene therapy and cancer products currently under development
will require significant additional research and development efforts and
regulatory approvals prior to potential commercialization.
The Company's potential HIV product, REMUNE, is in a Phase III clinical trial
designed to provide evidence of efficacy based on clinical endpoints; however
there can be no assurance that the results of such clinical trial will
demonstrate that REMUNE is safe and efficacious or, that even if the results of
the clinical trial are considered successful by the Company, that the FDA will
not require the Company to conduct additional large scale clinical trials with
REMUNE before the FDA will consider approving REMUNE for commercial sale. In
addition, REMUNE is being tested in a Phase II clinical trial in Thailand, in a
pediatric Phase I clinical trial in the United States and in combination trials
with approved HIV therapies in the United States and Spain. Failure of these
trials to demonstrate the safety and effectiveness of REMUNE could have a
material adverse effect on the regulatory approval process for this potential
product. The Company's other potential products and technologies are at a much
earlier stage of development than REMUNE. The Company's gene therapy technology
and certain of its technologies for the treatment of cancer have not yet been
tested in humans and there can be no assurance that human testing of potential
products based on such technologies will be permitted by regulatory authorities
or, that even if human testing is permitted, that products based on such
technologies will be shown to be safe or efficacious. Potential products based
on the Company's autoimmune technology and certain of its cancer technologies
are at an early stage of clinical testing and there can be no assurance that
such products will be shown to be safe or efficacious.
There can be no assurance that the results of the Company's preclinical studies
and clinical trials will be indicative of future clinical trial results. A
commitment of substantial resources to conduct time-consuming research,
preclinical studies and clinical trials will be required if the Company is to
develop any products. Delays in planned patient enrollment in the Company's
current clinical trials or future clinical trials may result in increased costs,
program delays or both. There can be no assurance that any of the Company's
potential products will prove to be safe and effective in clinical trials, that
FDA or other regulatory approvals will be obtained or that such products will
achieve market acceptance. Any products resulting from these programs are not
expected to be successfully developed or commercially available for a number of
years, if at all.
There can be no assurance that unacceptable toxicities or side effects will not
occur at any time in the course of human clinical trials or, if any products are
successfully developed and approved for marketing, during commercial use of the
Company's products. The appearance of any such unacceptable toxicities or side
effects could interrupt, limit, delay or abort the development of any of the
Company's products or, if previously approved, necessitate their withdrawal from
the market. Furthermore, there can be no assurance that disease resistance will
not limit the efficacy of potential products.
9
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LENGTHY APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS.
Clinical testing, manufacture, promotion and sale of the Company's drug products
are subject to extensive regulation by numerous governmental authorities in the
United States, principally the FDA, and corresponding state and foreign
regulatory agencies. The Company believes that REMUNE and most of its other
potential immune-based therapies will be regulated by the FDA as biological drug
products under current regulations of the FDA. In general, the regulatory
framework for biological drug products is more rigorous than that for
nonbiological drug products. The Food, Drug and Cosmetic Act and the Public
Health Service Act, and other federal and state statutes and regulations govern
or influence the testing, manufacture, safety, effectiveness, labeling, storage,
recordkeeping, approval, advertising, distribution and promotion of biological
prescription drug products. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, seizure of products, total or
partial suspension of product marketing, failure of the government to grant
premarket approval, withdrawal of marketing approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the required
preclinical studies and clinical testing, is lengthy and expensive and there can
be no assurance that necessary FDA clearances will be obtained in a timely
manner, if at all. There can be no assurance as to the length of the clinical
trial period or the number of patients the FDA will require to be enrolled in
the clinical trials in order to establish the safety and efficacy of the
Company's products. The Company may encounter significant delays or excessive
costs in its efforts to secure necessary approvals, and regulatory requirements
are evolving and uncertain. Future United States or foreign legislative or
administrative acts could also prevent or delay regulatory approval of the
Company's products. There can be no assurance that the Company will be able to
obtain the necessary approvals for clinical trials, manufacturing or marketing
of any of its products under development. Even if commercial regulatory
approvals are obtained, they may include significant limitations on the
indicated uses for which a product may be marketed. In addition, a marketed
product is subject to continual FDA review. Later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market, as well as possible civil or criminal
sanctions. Failure of the Company to obtain marketing approval for REMUNE or
any of its other products under development on a timely basis, or FDA withdrawal
of marketing approval once obtained, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an
Investigational New Drug ("IND") application with the FDA. Reports of results
of preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a PLA for approval for marketing and
commercial shipment. Submission of a Product License Application ("PLA") does
not assure FDA approval for marketing. The PLA review process may take a number
of years to complete, although reviews of applications for treatments of AIDS,
cancer and other life-threatening diseases may be accelerated or expedited.
Failure of the Company to receive FDA marketing approval for REMUNE or any of
its other products under development on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition to obtaining approval for each biological drug product,
an Establishment License Application ("ELA") usually must be filed and approved
by the FDA.
Among the other requirements for ELA approval is the requirement that
prospective manufacturers conform to the FDA's drug Good Manufacturing Practices
("GMP") requirements specifically for biological drugs, as well as for other
drugs. In complying with the FDA's drug GMP requirements, manufacturers must
continue to expend time, money and effort in production, recordkeeping and
quality control to assure that the product meets applicable specifications and
other requirements. Failure to comply with the FDA's drug GMP requirements
subjects the manufacturer to possible FDA regulatory action. There can be no
assurance that the Company or its contract manufacturers, if any, will be able
to maintain compliance with the FDA's drug GMP requirements on a continuing
basis. Failure to maintain such compliance could have a material adverse effect
on the Company's business, financial condition and results of operations.
Another requirement for many biological drug products is lot-by-lot release
approval, which necessitates FDA approval of the release of each lot of a
biologic drug before commercialization. The lot-to-lot release
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and ELA requirements may be applied to some or all of the Company's potential
immune-based therapies. The FDA amended its regulations to permit certain
biotechnology and synthetic biological drug products to be eligible for approval
under a biological product license that does not entail lot-to-lot release and
establishment licensing requirements. The Company believes that its potential
synthetic protein autoimmune disease products will be subject to these new
regulations. There can be no assurance that REMUNE or any of the Company's
other products will be eligible for approval under a biological drug product
license or otherwise be subject to less rigorous regulation than traditional
biological products.
The Company believes its proprietary GeneDrug-TM- and cancer treatment therapies
will likely be regulated more like traditional biological products, subject to
both PLA and ELA requirements. As with the Company's other potential products,
the gene therapy and cancer products will be subject to extensive FDA regulation
throughout the product development process, and there can be no assurance that
any of these products will be successful at securing the requisite FDA marketing
approval on a timely basis, if at all.
A number of procedures are available to expedite approval or to allow expanded
access to investigational drugs. Certain investigational drugs, including
products for the treatment of AIDS, can be distributed outside of traditional
IND requirements on a "treatment IND" basis. Generally, the FDA may permit an
investigational drug, including an investigational biological drug, to be used
under a "treatment IND" for patients outside of controlled clinical trials under
certain conditions. Although the FDA has granted expanded access to REMUNE for
those patients who are ineligible to enroll in the Phase III clinical trial, the
FDA has to date not designated expanded access protocols for REMUNE as
"treatment" protocols. Either expanded access or a treatment protocol
designation might permit third party reimbursement of some of the costs
associated with making REMUNE available to patients in such an expanded access
context. There can be no assurance that the FDA will determine that REMUNE
meets all of the FDA's criteria for use of an investigational drug for treatment
use or that, even if the product is allowed for treatment use, that third party
payers will provide reimbursement for any of the costs of treatment with REMUNE.
The FDA also has issued regulations to accelerate the approval of or to expedite
the review of new biological drug products for serious or life-threatening
illnesses that provide meaningful therapeutic benefit to patients over existing
treatments. Under the accelerated approval program, the FDA may grant marketing
approval for a biological or nonbiological drug product earlier than would
normally be the case. In addition to the accelerated approval process, the FDA
has established procedures designed to expedite the development, evaluation and
marketing of new therapies intended to treat persons with life-threatening and
severely-debilitating illnesses, especially when no satisfactory alternative
therapy exists. There can be no assurance that the FDA will consider REMUNE or
any other of the Company's products under development to be an appropriate
candidate for accelerated approval or expedited review.
To market any drug products outside of the United States, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing the design and conduct of human clinical
trials and marketing approval. The approval procedure varies among countries
and can involve additional testing, and the time required to obtain approval may
differ from that required to obtain FDA approval. The foreign regulatory
approval process includes all of the risks associated with obtaining FDA
approval set forth above, and approval by the FDA does not ensure approval by
the health authorities of any other country.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company has filed, or participated as
licensee, in the filing of a number of patent applications in the United States
and many international countries. The Company files applications as appropriate
for patents covering its products and processes. The Company has been issued
patents, or has licensed patents, covering certain aspects of its proposed HIV,
autoimmune disease, gene therapy and cancer technologies. The Company's success
may depend in part on its ability to obtain patent protection for its products
and processes. The Company is aware that a group working with Connective
Therapeutics, Inc. has filed patent applications related to autoimmune disease
research that covers technology similar to that used by the Company. There can
be no assurance that the Company's patent applications will be issued as patents
or that any of its issued patents, or any patent that may be issued in the
future, will provide the Company with adequate protection for the covered
products, processes or technology.
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The patent positions of biotechnology and pharmaceutical companies can be highly
uncertain, and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. The Company also relies upon unpatented trade secrets and know how,
and no assurance can be given that others will not independently develop
substantially equivalent trade secrets or know how. In addition, whether or not
the Company's patents are issued, or issued with limited coverage, others may
receive patents which contain claims applicable to the Company's product. There
can be no assurance that any of the Company's patents, or any patents issued to
the Company in the future, will afford meaningful protection against
competitors. Defending any such patent could be costly to the Company, and
there can be no assurance that the patent would be held valid by a court of
competent jurisdiction.
The Company also relies on protecting its proprietary technology in part through
confidentiality agreements with its corporate collaborators, employees,
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently discovered by its competitors.
It is possible that the Company's products or processes will infringe, or will
be found to infringe, patents not owned or controlled by the Company. If any
relevant claims of third-party patents are upheld as valid and enforceable, the
Company could be prevented from practicing the subject matter claimed in such
patents, or would be required to obtain licenses or redesign its products or
processes to avoid infringement. There can be no assurance that such licenses
would be available at all or on terms commercially reasonable to the Company or
that the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to the Company or to protect trade secrets. Such litigation
could result in substantial costs and diversion of management efforts regardless
of the results of such litigation and an adverse result could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed or require the Company to cease using such technology.
TECHNOLOGICAL CHANGE AND COMPETITION. The biotechnology industry continues to
undergo rapid change and competition is intense and is expected to increase.
There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or which would render the Company's
technology and products obsolete and noncompetitive. Many of the Company's
competitors have substantially greater experience, financial and technical
resources and production, marketing and development capabilities than the
Company. Accordingly, certain of the Company's competitors may succeed in
obtaining regulatory approval for products more rapidly or effectively than the
Company. If the Company commences commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and sales and
marketing capabilities, areas in which it currently has no experience.
DEPENDENCE ON THIRD PARTIES. The Company's strategy for the research,
development and commercialization of its products requires entering into various
arrangements with corporate collaborators (such as the Company's agreement with
Bayer Corporation ("Bayer")), licensors, licensees and others, and the Company's
commercial success is dependent upon these outside parties performing their
respective contractual responsibilities. The amount and timing of resources
such third parties will devote to these activities may not be within the control
of the Company. There can be no assurance that such parties will perform their
obligations as expected or that the Company will derive any revenue from such
arrangements. Although the Company has collaborative agreements with several
universities and research institutions, the Company's agreement with Bayer is
the only collaborative agreement that will provide the Company with contract
revenue. There can be no assurance that these collaborations will result in the
development of any commercial products. Immune Response intends to seek
additional collaborative arrangements to develop and commercialize certain of
its products. There can be no assurance that the Company will be able to
negotiate collaborative arrangements on favorable terms, or at all, in the
future, or that its current or future collaborative arrangements will be
successful.
12
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LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE. The Company has a
manufacturing facility for REMUNE located in King of Prussia, Pennsylvania, and
a pilot manufacturing facility in Carlsbad, California for its other products.
The Company has not yet manufactured its product candidates in commercial
quantities. No assurance can be given that the Company, on a timely basis, will
be able to make the transition from manufacturing clinical trial quantities to
commercial production quantities successfully or be able to arrange for contract
manufacturing. The Company believes it will be able to manufacture REMUNE for
initial commercialization, if the product obtains FDA approval, but it has not
yet demonstrated the capability to manufacture REMUNE in commercial quantities,
or its autoimmune disease, gene therapy and cancer treatments in large-scale
clinical or commercial quantities. The Company has no experience in the sales,
marketing and distribution of pharmaceutical products. There can be no
assurance that the Company will be able to establish sales, marketing and
distribution capabilities or make arrangements with its collaborators, licensees
or others to perform such activities or that such efforts will be successful.
The manufacture of the Company's products involves a number of steps and
requires compliance with stringent quality control specifications imposed by the
Company itself and by the FDA. Moreover, the Company's products can only be
manufactured in a facility that has undergone a satisfactory inspection by the
FDA. For these reasons, the Company would not be able quickly to replace its
manufacturing capacity if it were unable to use its manufacturing facilities as
a result of a fire, natural disaster (including an earthquake), equipment
failure or other difficulty, or if such facilities are deemed not in compliance
with the FDA's drug GMP requirements and the non-compliance could not be rapidly
rectified. The Company's inability or reduced capacity to manufacture its
products would have a material adverse effect on the Company's business and
results of operations.
The Company may enter into arrangements with contract manufacturing companies to
expand its own production capacity in order to meet requirements for its
products, or to attempt to improve manufacturing efficiency. If the Company
chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its finished products, clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Further, contract manufacturers must also operate in compliance with the FDA's
drug GMP requirements; failure to do so could result in, among other things, the
disruption of product supplies. Until recently, biologic product licenses could
not be held by any company unless it performed significant manufacturing
operations. The FDA amended its regulations in this regard, and the Company
believes that under these new regulations it can now hold licenses for its
biological products without performing significant manufacturing steps.
Nonetheless, the Company's potential dependence upon third parties for the
manufacture of its products may adversely affect the Company's profit margins
and its ability to develop and deliver such products on a timely and competitive
basis.
13
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PART II -- OTHER INFORMATION
ITEM 2. -- CHANGES IN SECURITIES
On April 17, 1997, the Company issued 2,029,719 units (the "Units"), each Unit
consisting of one share of common stock and one warrant to purchase one share of
common stock, to Kevin B. Kimberlin, a director of the Company, and Dennis J.
Carlo, Ph.D., a director and president and chief executive officer of the
Company, at a price of $7.80 per Unit. The aggregate consideration of
$15,831,808, consisted of $3,957,952 in cash and promissory notes in the
principal amount of $11,873,856, which are due September 30, 1997, with interest
of 5.73% per annum. The warrants have an exercise price of $14 per share, a
four year term and are callable by the Company at $.05 per share if the fair
market value of the Company's common stock is equal to or greater than $28 per
share over any consecutive 45 day period. The Company has agreed to sell an
aggregate of 21,562 additional Units at $7.80 per share to Mr. Kimberlin and Dr.
Carlo on or before May 27, 1997, if such sale is approved by the National
Association of Securities Dealers, Inc. The Company relied on the exemption
provided for by Rule 506 under Regulation D and Section 4(2) of the Securities
Act of 1933, as amended.
The recipients of the above-described securities represented their intention to
acquire the securities for investment only and not with a view to distribution
thereof. Appropriate legends were affixed to the stock certificates and
debenture issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Company.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.58* Collaboration Agreement by and between The Immune Response
Corporation and Bayer Corporation, dated as of July 8, 1996
10.59 Unit Purchase Agreement, dated April 15, 1997, between The Immune
Response Corporation and Kevin B. Kimberlin, including Common
Stock Purchase Warrant, Promissory Note and Stock Pledge
Agreement
10.60 Unit Purchase Agreement, dated April 15, 1997, between The Immune
Response Corporation and Dennis J. Carlo, Ph.D., including Common
Stock Purchase Warrant, Promissory Note and Stock Pledge
Agreement
10.61 Amendment No. 1 to Rights Agreements (Exhibit 10.47), dated April
17, 1997, between The Immune Response Corporation and Harris
Trust Company of California
27 Financial Data Schedule
* Incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, as amended, dated July 8, 1996. Confidential treatment has
been granted for certain portions of the Exhibit.
b) Reports on Form 8-K
Not applicable
14
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SIGNATURE
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.
THE IMMUNE RESPONSE CORPORATION
Date: May 6, 1997 s/Charles J. Cashion
-------------------------- --------------------------------------
Charles J. Cashion
Vice President, Finance
Secretary and Treasurer
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UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (the "Agreement") is made as of this 15th
day of April, 1997 by and between THE IMMUNE RESPONSE CORPORATION, a Delaware
corporation (the "Company"), and KEVIN B. KIMBERLIN, an individual (the
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF THE UNITS.
1.1 SALE AND ISSUANCE OF COMMON STOCK AND COMMON STOCK WARRANTS AT
THE INITIAL CLOSING. Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Initial Closing and the Company agrees to
sell and issue to Investor at the Initial Closing, 1,776,004 Units at the
purchase price per Unit equal to the product of (a) the sum of (i) the closing
price of the Company's common stock on April 11, 1997 ($7.69) and (ii) $1.19 per
share of common stock into which the Warrant (as defined below) is exercisable,
multiplied by (b) .879 (the "Per Unit Price"), for an aggregate price of
$13,852,831.20 (the "Initial Investment"). Each Unit consists of one share of
the Company's Common Stock, par value $.0025 per share (the "Common Stock"), and
a nontransferable warrant to purchase one share of the Company's Common Stock
(the "Warrant") in the form attached hereto as EXHIBIT A.
The shares of Common Stock sold to Investor pursuant to this Agreement
are hereinafter referred to as the "Shares," and the shares of Common Stock
arising from the exercise of the Warrant are hereinafter referred to as the
"Warrant Shares." The Shares, the Warrant and the Warrant Shares are hereinafter
referred to collectively as the "Securities."
1.2 SALE AND ISSUANCE OF COMMON STOCK AND COMMON STOCK WARRANTS AT
THE NASD APPROVAL CLOSING. Subject only to the written approval by the National
Association of Securities Dealers, Inc. ("NASD"), which approval must be
received by the Company no later than six weeks from the date hereof in a form
reasonably acceptable to the Company, Investor agrees to purchase at the NASD
Approval Closing and the Company agrees to sell and issue to Investor at the
NASD Approval Closing, 18,867 Units (as defined above) at the Per
<PAGE>
Unit Price for an aggregate price of $147,162.60 (the "NASD Approval
Investment").
At the option of Investor, Investor may prepare a letter for
submission by the Company to the NASD outlining the nature of the Initial
Investment and the NASD Approval Investment and requesting confirmation from the
NASD that the NASD Approval Investment may be consummated without first
obtaining approval from the Company's stockholders. The Company will submit
such letter to the NASD as promptly as practicable after receiving the same from
Investor.
1.3 INITIAL CLOSING. The purchase and sale of the Securities for
the Initial Investment shall take place at the offices of Pillsbury Madison &
Sutro LLP, 235 Montgomery Street, San Francisco, California, at 11:00 A.M., on
April 15, 1997, or at such other time and place as the Company and Investor
mutually agree (which time and place are designated as the "Initial Closing").
At the Initial Closing, Investor shall deliver to Company (i) a bank wire in the
amount of $3,463,207.80 payable to the Company's order and (ii) a promissory
note in the form attached hereto as EXHIBIT B in the principal amount of
$10,389,623.40 payable to the Company's order (the "Promissory Note"). Upon
payment in full of all amounts due under the Promissory Note, the Company shall
deliver to Investor the Warrant and a certificate representing the Shares;
provided, however, that the Company hereby acknowledges that Investor shall be
the sole record and beneficial owner of the Shares upon the Initial Closing.
1.4 NASD APPROVAL CLOSING. The purchase and sale of the securities
for the NASD Approval Investment shall take place at the offices of Pillsbury
Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California, within
five business days after receipt by the Company from Investor of written NASD
approval for such sale, or at such other time and place as the Company and
Investor mutually agree (which time and place are designated as the "NASD
Approval Closing"). At the NASD Approval Closing, the Company shall deliver to
Investor 18,867 Units against delivery to the Company by Investor of a bank wire
in the amount of $147,162.60 payable to the Company's order.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified as a foreign corporation in
all jurisdictions in which the failure to so qualify would have a material
adverse effect on the Company.
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2.2 VALID ISSUANCE OF THE SECURITIES. The issuance, sale and
delivery of the Securities are within the Company's corporate powers and have
been duly authorized by all required corporate action on the part of the Company
and its stockholders and when such Securities are issued, sold and delivered in
accordance with the terms hereof, such Securities will be duly and validly
issued, fully paid and nonassessable. The issuance, sale and delivery of the
Securities are not subject to preemptive or any similar rights of the
stockholders of the Company or any liens or encumbrances arising through the
Company.
2.3 AUTHORIZATION. This Agreement has been duly authorized,
validly executed and delivered on behalf of the Company and is a valid and
binding agreement enforceable against the Company in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) to the extent the indemnification provisions contained in
Section 7.8 of this Agreement may be limited by applicable federal or state
securities laws.
2.4 CAPITALIZATION. The authorized capital of the Company consists
of:
(a) PREFERRED STOCK. 5,000,000 shares of Preferred Stock, of which
20,000 shares have been designated Series E Participating Preferred Stock, par
value $.001 per share (the "Participating Preferred Stock"). There are no
shares of Participating Preferred Stock issued and outstanding.
(b) COMMON STOCK. 40,000,000 shares of Commons Stock, of which
20,298,207 shares were issued and outstanding on April 10, 1997.
(c) AGREEMENTS FOR PURCHASE OF SHARES. Except for (i) the purchase
privileges under the Company's Stockholder Rights Plan, as described in the
Company's filings with the Securities and Exchange Commission ("SEC"); (ii)
options to purchase an aggregate of 2,963,155 shares of Common Stock granted
pursuant to the various stock plans of the Company as of February 28, 1997; and
(iii) the agreement of Trinity Medical Group Co., Ltd of Bangkok, Thailand to
make an additional equity investment of up to $10 million, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. The Company has no obligations
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or agreements concerning the repurchase of any of the shares of its outstanding
capital stock.
2.5 NON-CONTRAVENTION. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities do not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions, of or constitute a default under the certificate of incorporation or
by-laws of the Company, or any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation of the United States or any state thereof or any applicable
decree, judgment or order of any federal or state court, federal or state
regulatory body, administrative agency or other United States governmental body
having jurisdiction over the Company or any of its properties or assets.
2.6 RIGHTS AGREEMENT. As a registered holder of the Shares,
Investor will be a beneficiary under that certain Rights Agreement, dated as of
February 26, 1992, between the Company and First Interstate Bank, Ltd. (the
"Rights Agreement"), and will be entitled to receive one Right for each share of
Common Stock issued pursuant to this Agreement, including the Warrant Shares,
each Right representing the right to purchase one one-thousandth of a share of
Participating Preferred Stock having the rights, powers and preferences set
forth in the Rights Agreement. The Company shall amend the Rights Agreement so
that the execution and delivery of this Agreement and the consummation of the
issuance of the Securities will not cause Investor to become an Acquiring Person
(as defined in the Rights Agreement) thereunder.
2.7 SEC FILINGS. The Company has registered its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Common Stock is listed and trades on the NASDAQ
National Market System. The Company has filed all forms, reports and documents
required to be filed pursuant to the federal securities laws and the rules and
regulations promulgated thereunder for a period of at least twelve (12) months
immediately preceding the offer or sale of the Shares and the Warrant (or for
such shorter period that the Company has been required to file such material).
The Company's filings with the SEC complied as of their respective filing dates,
or in the case of registration statements, their respective effective dates, in
all material respects with all applicable requirements of the Securities Act of
1933 (the "Securities Act") and the Exchange Act and the rules and regulations
promulgated thereunder. None of such filings, including, without limitation,
any exhibits, financial statements or schedules included therein, at the time
filed,
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or in the case of registration statements, at their respective filing dates,
contained any untrue statement of a material fact or omitted 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.
2.8 LITIGATION. Except as disclosed in the Company's filings with
the SEC, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company, threatened, against or affecting the Company, or any
of its properties, which might result in any material adverse change in the
condition (financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and adversely
affect the properties or assets thereof.
2.9 NO DEFAULT. Except as disclosed in the Company's filings with
the SEC, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material agreement or instrument to
which it is a party or by which it or its property may be bound.
2.10 SUBSEQUENT EVENTS. Since December 31, 1996, (i) the Company
has incurred no liability or obligation, contingent or otherwise, that taken as
a whole, is material in the aggregate to the Company, except in the ordinary
course of business, and (ii) there has been no material adverse change in the
condition or results of operations, financial or otherwise, of the Company,
taken as a whole.
2.11 CONSENTS AND APPROVALS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority or any third party is required on the part of the Company
in connection with the Company's valid execution, delivery or performance of
this Agreement, or the offer, sale or issuance of the Shares by the Company,
other than the filings that have been made prior to the Initial Closing or the
NASD Approval Closing, as the case may be, except that any notices of sale
required to be filed by the Company with the SEC under Regulation D of the
Securities Act, or such post-closing filings as may be required under applicable
state securities laws, which will be timely filed within the applicable periods
therefor.
2.12 REGISTRATION STATEMENT. To the best of the Company's
knowledge, there exist no facts or circumstances that would inhibit or delay the
preparation and filing of a registration statement with the SEC under the
Securities Act in accordance with Section 7 of this Agreement.
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2.13 REMOVAL OF LEGENDS.
(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Common Stock represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public transaction, (ii) if such shares may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) subject to the provisions of Section 3.6(c) hereof, if the holder of
such shares shall have provided the Company with an opinion of counsel, in form
and substance acceptable to the Company and its counsel and from attorneys
reasonably acceptable to the Company and its counsel, stating that a public
sale, transfer or assignment of such shares may be made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7(c)
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Shares provides
the Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
2.14 FINDER'S FEE. The Company neither is nor will be obligated for
any finder's fee or commission in connection with this transaction. The Company
agrees to indemnify and hold harmless Investor from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR.
Investor hereby represents and warrants that:
3.1 AUTHORIZATION. Investor has full power and authority to enter
into this Agreement and this Agreement constitutes its valid and binding
obligation except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) to the extent the indemnification provisions contained in
Section 7.8 of this Agreement may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be
received by Investor will be acquired for
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investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same, except in compliance with the Securities Act and
applicable state securities laws. Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 DISCLOSURE OF INFORMATION. Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Securities. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to bear
the economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
3.5 RESTRICTED SECURITIES. Investor understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in reliance on an exemption therefrom. In this
connection Investor represents that it is familiar with SEC Rule 144, as
presently in effect ("Rule 144"), and understands the resale limitations imposed
thereby and by the Securities Act.
3.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Securities unless and until:
(a) One (1) year from the date hereof has elapsed; and
(b) The entire principal balance of the promissory note attached
hereto as EXHIBIT B, together with all accrued and unpaid interest, fees and
late charges
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thereon, has been paid in full by Investor to the Company; and
(c) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(d) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a reasonably
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144, as currently in
existence, except in unusual circumstances.
3.7 LEGENDS. Each certificate representing any of the Securities
shall bear substantially one or all of the following legends:
(a) IN THE CASE OF ALL SECURITIES:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS REGISTERED UNDER THE 1933 ACT AND QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT AND THE QUALIFICATION REQUIREMENTS OF APPLICABLE STATE
SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE
NOT REQUIRED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AND OTHER RESTRICTIONS, AND THE HOLDER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE (INCLUDING ANY FUTURE HOLDERS) IS BOUND BY THE TERMS OF A
UNIT PURCHASE AGREEMENT BETWEEN THE ORIGINAL PURCHASER AND THE COMPANY
(COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY).
(b) IN THE CASE OF THE WARRANT:
THIS WARRANT IS NON-TRANSFERABLE AND MAY ONLY BE EXERCISED BY THE ORIGINAL
PURCHASER.
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(c) Any legend required by the laws of the State of California or
other jurisdiction, including any legend required by the California Department
of Corporations and sections 417 and 418 of the California Corporations Code.
3.8 ACCREDITED INVESTOR. Investor is an accredited investor as
defined in Rule 501(a) of Regulation D under the Securities Act.
3.9 CONFIDENTIALITY. Investor hereby represents, warrants and
covenants that Investor shall maintain in confidence, and shall not use or
disclose without the prior written consent of the Company, any information
identified as confidential that is furnished to Investor by the Company in
connection with this Agreement. This obligation of confidentiality shall not
apply, however, to any information (a) in the public domain through no
unauthorized act or failure to act by Investor, (b) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (c) known previously by Investor or lawfully developed by
Investor independent of any disclosure by the Company. Investor further
covenants that Investor shall return to the Company all tangible materials
containing such information upon request by the Company.
3.10 FINDER'S FEE. Investor neither is nor will be obligated for
any finder's fee or commission in connection with this transaction. Investor
agrees to indemnify and hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Investor or any of its officers, partners, employees or representatives is
responsible.
3.11 COVENANT. Investor hereby covenants and agrees to pledge
shares of capital stock (i) set forth on Schedule 1 to the Stock Pledge
Agreement between the Company and Investor as collateral for the Promissory Note
and (ii) set forth on Schedule 1 to the Stock Pledge Agreement among the
Company, Investor and Dennis J. Carlo for the promissory note payable to the
Company by Dennis J. Carlo, in amounts equal to double the principal amount of
such promissory notes. Upon expiration on August 7, 1997 of that certain
lock-up agreement with respect to such shares of capital stock, Investor will
take all such action as is necessary or appropriate to perfect the pledge of
such shares of capital stock as a first priority security interest.
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT
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BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The
obligations of Investor under this Agreement are subject to the fulfillment on
or before each Closing of each of the following conditions, the waiver of which
shall not be effective unless Investor consents in writing thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of each
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before each Closing.
5.3 COMPLIANCE CERTIFICATE. The Chief Financial Officer of the
Company shall deliver to Investor at each Closing a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since
December 31, 1996.
5.4 QUALIFICATION. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities to Investor (i) pursuant to Section 1.1 of this Agreement shall
be duly obtained and effective as of the Initial Closing, and (ii) pursuant to
Section 1.2 of this Agreement shall be duly obtained and effective as of the
NASD Approval Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at each Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investor and its special counsel, and Investor shall have received
all such counterpart original and
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certified or other copies of such documents as it may reasonably request.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Investor contained in Section 3 hereof shall be true on and as of
each Closing with the same effect as though such representations and warranties
had been made on and as of such Closing.
6.2 PAYMENT OF PURCHASE PRICE. Investor shall have delivered to
the Company the purchase price specified in Section 1.1 on or before the Initial
Closing, and shall have delivered to the Company the purchase price specified in
Section 1.2 on or before the NASD Approval Closing.
6.3 QUALIFICATION. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities to Investor (i) pursuant to Section 1.1 of this Agreement shall
be duly obtained and effective as of the Initial Closing, and (ii) pursuant to
Section 1.2 of this Agreement shall be duly obtained and effective as of the
NASD Approval Closing.
6.4 STOCK PLEDGE AGREEMENT. Investor shall have executed a Stock
Pledge Agreement for the benefit of the Company in the form attached hereto as
EXHIBIT C.
6.5 FAIRNESS OPINION. The Company shall have received from its
investment banker, Montgomery Securities, an opinion that the proposed
consideration to be received by the Company from Investor in exchange for the
Units is fair to the Company from a financial point of view, such opinion to be
in the form attached hereto as Exhibit D.
7. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
7.1 CERTAIN ADDITIONAL DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
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covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"REGISTRABLE SECURITIES" shall mean (i) the Shares, (ii) the shares of
Common Stock issued pursuant to that certain Unit Purchase Agreement of even
date herewith between the Company and Dennis J. Carlo, and (iii) any Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in (i) and (ii) above, PROVIDED,
HOWEVER, that Registrable Securities shall not include any shares of Common
Stock which have previously been registered or which have been sold in a public
offering.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
7.2 REGISTRATION. If after one year following the Initial Closing,
but no later than five years following the Initial Closing, Investor requests in
writing that the Company file a Registration Statement for a public offering of
the Registerable Securities (a "Demand Request"), the Company will use its
reasonable best efforts to effect a registration to permit the sale of such
Registrable Securities as described below, and pursuant thereto the Company
will:
(a) within ten (10) days of the Company's receipt of a
Demand Request, give written notice of such request to all holders of
Registerable Securities ("Holders");
(b) prepare and file with the SEC within sixty (60) days of
the Company's receipt of a Demand Request, and use its reasonable best efforts
to have declared effective by the SEC, a Registration Statement on any
appropriate form under the Securities Act as may then be available to the
Company relating to resale of all of the Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of the
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notice required under Section 7.2(a) and use its reasonable best efforts to
cause such Registration Statement to remain continuously effective for a period
of one year or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold; PROVIDED that
a registration will not count as the permitted demand registration until the
Registration Statement becomes effective and remains effective for the period
specified herein, so long as such registration is not withdrawn at the request
of the holder;
(c) prepare and file with the SEC such amendments,
supplements and post-effective amendments to the Registration Statement and the
Prospectus as may be necessary to keep such Registration Statement effective for
the period specified in Section 7.2(b) and to comply with the provisions of the
Securities Act and the Exchange Act with respect to the distribution of all
Registrable Securities during such period;
(d) notify the Investor promptly, and confirm such notice
in writing, (i) when the Prospectus or any supplement or post-effective
amendment has been filed and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to the Registration Statement
or Prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) when a Prospectus or a
Prospectus supplement is required to be delivered under the Securities Act upon
discovery that the Prospectus, as then in effect, includes an untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein not misleading in light of the circumstances then existing,
which requires amendment or supplementation of the Registration Statement or
Prospectus;
(e) use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
(f) deliver to the Investor without charge as many copies
of the Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities in compliance with the Securities Act;
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(g) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange or market on
which shares of the Common Stock are then listed, and if shares of the Common
Stock are not so listed, use its reasonable best efforts promptly to cause all
such Registerable Securities to be listed on either the New York Stock Exchange,
the American Stock Exchange or the Nasdaq Stock Market;
(h) use its reasonable best efforts to qualify or register
the Registrable Securities for sale under (or obtain exemptions from the
application of) the Blue Sky laws of such jurisdictions as are reasonably
requested by Investor. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
such jurisdiction where it is not presently qualified or where it would be
subject to general service of process or taxation as a foreign corporation in
any jurisdiction where it is not now so subject;
(i) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the SEC under the Securities Act
and the Exchange Act and take such other actions as may be reasonably necessary
to facilitate the registration of the Registrable Securities hereunder.
Investor shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
If the Company delivers a certificate in writing to Investor to the
effect that a delay in the sale of Registrable Securities by Investor under the
Registration Statement is necessary because a sale pursuant to such Registration
Statement in its then current form would reasonably be expected to constitute a
violation of the federal securities laws, then Investor shall agree not to sell
or otherwise transfer such Registrable Securities for the period of time
specified by the Company in its certificate. In no event shall such delay
exceed ten (10) business days; PROVIDED, HOWEVER, that if, prior to the
expiration of such ten (10) business day period, the Company delivers a
certificate in writing to Investor to the effect that a further delay in such
sale beyond such ten (10) business day period is necessary because a sale
pursuant to such Registration Statement in its then current form would
reasonably be expected to constitute a violation of the federal securities laws,
the Company may refuse to permit Investor to resell any Registrable Securities
pursuant to such Registration Statement for one additional period not to exceed
five (5) business days.
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7.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees with respect to the filings required to
be made with the NASD, fees and expenses of compliance with the securities or
Blue Sky laws, printing expenses, messenger, telephone and delivery expenses,
fees and disbursements of counsel for the Company, fees and disbursements of all
independent certified public accountants of the Company, fees and expenses
incurred in connection with the listing of the securities, rating agency fees
and the fees and expenses of any person, including special experts, retained by
the Company, will be borne by the Company, regardless of whether the
Registration Statement becomes effective; PROVIDED, HOWEVER, that the Company
will not be required to pay discounts, commissions or fees of underwriters,
selling brokers, dealer managers or similar securities industry professionals
relating to the distribution of the Registrable Securities or fees or
disbursements of any counsel to Investor.
7.4 UNDERWRITTEN REGISTRATIONS; SELECTION OF UNDERWRITER. If
Investor so elects, the offering of Registerable Securities shall be in the form
of an underwritten offering and the Company shall have the exclusive right to
designate the managing underwriter or underwriters with respect to the related
offering of the Registerable Securities, which underwriter or underwriters must
be reasonably acceptable to the Investor.
7.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as Investor may reasonably request, all to the
extent required to enable Investor to sell Registrable Securities without
registration under the Securities Act in reliance on the exemption provided by
Rule 144 or Rule 144A or any successor or similar rules or statues. Upon the
request of Investor, the Company will deliver to Investor a written statement as
to whether the Company has complied with such information and requirements.
7.6 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Securities and all related rights granted to
Investor by the Company under this Section 7 may be transferred or assigned by
Investor only to a transferee or assignee of not less than 100,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like), PROVIDED that the Company is given written notice at the time of or
within a reasonable time after such transfer or assignment, stating the name and
address of the transferee or assignee and identifying the Securities with
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respect to which such registration rights are being transferred or assigned,
and, PROVIDED FURTHER, that the transferee or assignee of such rights assumes
the obligations of Investor under this Section 7.
7.7 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, Investor
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Investor (other than those included in the
registration) during the one hundred twenty (120) day period following the
effective date of a registration statement of the Company filed under the
Securities Act.
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while Investor is entitled to make a Demand Request, the period
during which Investor shall be entitled to make a Demand Request under Section
7.2 hereof shall be extended by an additional one hundred twenty (120) days;
PROVIDED, HOWEVER, that Investor's Demand Request period will not be extended
following the first Market Stand-Off unless such Market Stand-Off occurs within
one hundred twenty (120) days of the expiration of Investor's Demand Request
period.
7.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, any person or entity to or through
whom Investor sells Registerable Securities that may be deemed to be an
underwriter (as defined in the Securities Act), any officer, director, partner
or agent thereof, and each person, if any, who controls the Investor or
underwriter within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
United States federal or state securities 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
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statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in any
related registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto or
offering circular or in any application or other document or communication
executed by or on behalf of the Company relating to such registration (together,
"Selling Documents"), (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, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or other United States federal
or state securities law, or any rule or regulation promulgated under the
Securities Act, the Exchange Act or other United States federal or state
securities law; and the Company will pay to the Investor, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action as incurred; PROVIDED, HOWEVER, that the indemnity
agreement contained in this subsection 7.8(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
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by the Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed a Selling Document, each person, if any, who controls
the Company within the meaning of the Securities Act, any underwriter, any
officer, director, partner or agent thereof and any controlling person of any
such underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor expressly for use in connection with such registration; and the
Investor will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 7.8(b), in
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connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection 7.8(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 Investor, which consent shall not be unreasonably
withheld; PROVIDED FURTHER, that in no event shall any indemnity under this
subsection 7.8(b) exceed the proceeds (net of underwriting discounts and
commissions) from the related offering of the Registerable Securities received
by the Investor.
(c) After receipt by an indemnified party under this
Section 7.8 of notice of the commencement of any action (including any
governmental action) involving a claim referred to in Sections 7.8(a) or 7.8(b)
hereof, such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7.8, 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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses 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 differing
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 7.8, 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 7.8.
(d) If the indemnification provided for in this Section 7.8
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the
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statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations; PROVIDED,
HOWEVER, that in any such case, (A) the Investor will not be required to
contribute any amount in excess of the proceeds (net of underwriting discounts
and commissions) received by the Investor from all Registrable Securities
offered and sold by the Investor pursuant to the applicable Selling Document;
and (B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the Violation relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in any underwriting
agreement entered into by the Company in connection with an underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control, PROVIDED that Investor is a signatory to
the underwriting agreement.
(f) The obligations of the Company and the Investor under
this Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The representations and warranties of
the Company contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and each Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of Investor or the Company.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, 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.
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8.3 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware, except as they
may be preempted by federal law. In any action brought or arising out of this
Agreement, Investor and the Company hereby consent to the jurisdiction of any
federal or state court having proper venue within the State of California and
also consent to the service of process by any means authorized by California or
federal law.
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 TITLES AND SUBTITLES. 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.
8.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified (or upon
the date of attempted delivery where delivery is refused) or, if sent by
telecopier, telex, telegram, or other facsimile means, upon receipt of
appropriate confirmation of receipt, or five (5) days after deposit with the
United States Postal Service, by registered or certified mail, or one (1) day
after deposit with next day air courier, with postage and fees prepaid and
addressed to the party entitled to such notice at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days advance written notice to the other parties to this
Agreement.
8.7 EXPENSES. Except as otherwise specified in this Agreement,
irrespective of whether the Initial Closing or the NASD Approval Closing is
effected, each party hereto shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise specified in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investor. Any amendment
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or waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding
(including securities into which such Securities are convertible), each future
holder of all such Securities, and the Company.
8.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.10 AGGREGATION OF STOCK. All shares of Common Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
8.11 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and
other documents delivered expressly hereby constitute the full and entire
understanding and agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants or agreements except as
specifically set forth herein and therein.
8.12 PRESS RELEASES. The Company agrees not to issue any press
release concerning the transactions contemplated by this Agreement, the terms of
which are not reasonably acceptable to Investor.
8.13 EXCHANGE ACT FILINGS. The Company agrees to consult with
Investor before filing with the SEC any information required under the Exchange
Act concerning the transactions contemplated by this Agreement and agrees to
consider in good faith all reasonable comments received from Investor in
connection therewith.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
-----------------------------------------
Title Vice President
---------------------------------------
Address: 5935 Darwin Court
Carlsbad, CA 92008
INVESTOR
/s/ Kevin B. Kimberlin
---------------------------------------------
Kevin B. Kimberlin
Address: Spencer Trask, Inc.
535 Madison Avenue
New York, NY 10022
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THIS WARRANT IS NON-TRANSFERABLE AND
MAY ONLY BE EXERCISED BY THE ORIGINAL PURCHASER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
*****************************************
The Immune Response Corporation
COMMON STOCK PURCHASE WARRANT
*****************************************
This certifies that, for good and valuable consideration, The Immune
Response Corporation, a Delaware corporation (the "Company"), grants to Kevin
B. Kimberlin (the "Warrantholder"), the right to subscribe for and purchase
from the Company 1,776,004 validly issued, fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Stock, $.0025 par value
(the "Common Stock"), at the purchase price per share of $14 (the "Exercise
Price"), exercisable at any time and from time to time during the period (the
"Exercise Period") commencing on the 17th day of April, 1997 and ending on
the fourth anniversary of the date hereof, all subject to the terms,
conditions and adjustments herein set forth.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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1. DURATION AND EXERCISE OF WARRANT; CALL OF WARRANT; PAYMENT OF
TAXES; INFORMATION.
1.1 DURATION AND EXERCISE OF WARRANT.
(a) CASH EXERCISE. This Warrant may be exercised in whole or in part by
the Warrantholder by (i) the surrender of this Warrant to the Company, with a
duly executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day during the Exercise
Period and (ii) the delivery of payment to the Company, for the account of the
Company, by wire transfer of immediately available funds to a bank account
specified by the Company of the Exercise Price for the number of Warrant Shares
specified in the Exercise Form in lawful money of the United States of America.
(b) NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised in whole or in part by the
Warrantholder by the surrender of this Warrant to the Company, with a duly
executed Exercise Form marked to reflect Net Issue Exercise and specifying the
number of Warrant Shares to be purchased, during normal business hours on any
Business Day during the Exercise Period. Upon such exercise, the Warrantholder
shall be entitled to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant to the Company
together with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant, or any lesser number of shares as to which this
Warrant is being exercised (at the date of such
calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
(c) OTHER FORMS OF EXERCISE. This Warrant may also be exercised in
whole or in part by the Warrantholder by (i) the surrender of this Warrant to
the Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day during
the Exercise Period and (ii) payment of the Exercise
2
<PAGE>
Price, in whole or in part, by delivery to the Company of (A) shares of Common
Stock owned by the Warrantholder having a fair market value as of the close of
business on the date on which this Warrant shall have been surrendered equal to
the portion of the Exercise Price being paid in such shares, or (B) irrevocable
instructions to a broker-dealer to sell (or margin) a sufficient portion of the
Warrant Shares and deliver the sale (or margin loan) proceeds directly to the
Company to pay for the Exercise Price.
(d) PROCEDURAL ISSUES. All Warrant Shares issued pursuant to this
Section 1.1 shall be deemed to be issued to the Warrantholder as the record
holder of such Warrant Shares as of the close of business (i) on the date on
which this Warrant shall have been surrendered and payment made for the Warrant
Shares, if issued pursuant to Section 1.1(a) or Section 1.1(c), or (ii) on the
date on which this Warrant shall have been surrendered, if issued pursuant to
Section 1.1(b). A stock certificate or certificates for the Warrant Shares
specified in the Exercise Form shall be delivered to the Warrantholder as
promptly as practicable, and in any event within ten (10) days, thereafter. The
stock certificate or certificates so delivered shall be in denominations of 100
shares each or such lesser or greater denominations as may be reasonably
specified by the Warrantholder in the Exercise Form. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of the
stock certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(e) FAIR MARKET VALUE. For purposes of Sections 1.1(b), 1.1(c), 1.2 and
6.1(d), fair market value of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common
Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or,
(ii) if not listed or traded on any such exchange, the last
reported sales price per share on the Nasdaq National Market or the
Nasdaq Small-Cap Market (collectively, "Nasdaq") or,
(iii) if not listed or traded on any such exchange or Nasdaq,
the average of the bid and asked price per share as reported in the
"pink sheets"
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published by the National Quotation Bureau, Inc. (the "pink sheets") or,
(iv) if such quotations are not available, the fair market
value per share of the Company's Common Stock on the date such notice
was received by the Company as reasonably determined by the Board of
Directors of the Company.
1.2 CALL OF WARRANT BY COMPANY. If at any time prior to the exercise of
this Warrant in full, the fair market value of one share of the Company's Common
Stock remains equal to or greater than $28 over any consecutive forty-five (45)
day period (the "Threshold Period"), the Company shall have the option to
purchase this Warrant from Warrantholder for $.05 per Warrant Share. To
exercise this call option, the Company shall, within thirty (30) days following
termination of the Threshold Period, and at least thirty (30) days prior to
exercise of the option, provide the Warrantholder with written notice specifying
the date the option will be exercised. The Warrantholder then shall have ten
(10) days after receipt of such notice to exercise its rights under this
Warrant.
If the Company fails to exercise this call option in the manner and within
the time periods specified in this Section 1.2, the Company shall be deemed to
have waived its right to invoke such option and Warrantholder shall retain all
rights granted to it under this Warrant as though the Threshold Period had never
occurred; PROVIDED, HOWEVER, that the Company's call option shall be revived
should the Company's Common Stock again trade at or above $28 for an additional
Threshold Period following any previous waiver by the Company of such option.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; PROVIDED, HOWEVER, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.4 INFORMATION. Upon receipt of a written request from a
Warrantholder, the Company agrees to deliver promptly to such Warrantholder a
copy of its current publicly available financial statements and to provide such
other publicly available information concerning the business and operations of
the Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
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2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1 RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES LAWS. This
Warrant is not assignable. The Warrant Shares issued upon the exercise of the
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and transferee (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if such are
requested by the Company). The Warrantholder, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Warrantholder's own account and not as
a nominee for any other party, and for investment, and that the Warrantholder
will not offer, sell or otherwise dispose of any Warrant Shares to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the Securities Act or any state securities laws. Upon exercise of
this Warrant, the Warrantholder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the Warrantholder's own account and not
as a nominee for any other party, for investment, and not with a view toward
distribution or resale.
2.2 RESTRICTIVE LEGENDS. This Warrant shall (and each Warrant issued in
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
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Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. RESERVATION AND LISTING OF SHARES, ETC.
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company
reasonably may require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor. The term "Warrant" as used in this agreement shall be deemed to
include any Warrants issued in substitution or exchange for this Warrant.
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
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(a) STOCK DIVIDENDS. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) COMBINATION OF STOCK. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) REORGANIZATION, ETC. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets, including cash
(whether such stock, other securities or assets are issued or distributed by the
Company or another person) with respect to or in exchange for Common Stock,
then, upon exercise of this Warrant the Warrantholder shall have the right to
receive the kind and amount of stock, other securities or assets receivable upon
such reorganization, reclassification, consolidation, merger or sale, lease or
other transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
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(d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current fair market value per share of
Common Stock, determined in accordance with Section 1.1(e) hereof.
(e) CARRYOVER. Notwithstanding any other provision of this Section 6,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) EXERCISE PRICE ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) NO DUPLICATE ADJUSTMENTS. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
6.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the
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facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
7. REGISTRATION RIGHTS.
7.1 CERTAIN ADDITIONAL DEFINITIONS.
As used in this Warrant, the following capitalized terms shall have the
following meanings:
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"REGISTRABLE SECURITIES" shall mean (i) the Warrant Shares and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Warrant Shares.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Warrant, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
7.2 REGISTRATION. Upon the written request of Warrantholder (a "Demand
Request"), but in no event later than four (4) years from the date hereof, the
Company shall:
(a) within ten (10) days of the Company's receipt of a Demand Request,
give written notice of such request to all holders of Registerable Securities
("Holders");
(b) prepare and file with the SEC within sixty (60) days of the
Company's receipt of a Demand Request, and use its reasonable best efforts to
have declared effective by the SEC, a Registration Statement on any appropriate
form under the Securities Act as may then be available to the Company relating
to resale of all of the Registrable Securities which the Holders
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request to be registered within twenty (20) days of the mailing of the notice
required under Section 7.2(a) and use its reasonable best efforts to cause such
Registration Statement to remain continuously effective for a period of one (1)
year or such shorter period which will terminate when all Registrable Securities
covered by such Registration Statement have been sold; PROVIDED that a
registration will not count as the permitted demand registration until the
Registration Statement becomes effective and remains effective for the period
specified herein, so long as such registration is not withdrawn at the request
of the holder;
(c) prepare and file with the SEC such amendments, supplements and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep such Registration Statement effective for the period
specified in Section 7.2(a) and to comply with the provisions of the Securities
Act and the Exchange Act with respect to the distribution of all Registrable
Securities during such period;
(d) notify the Warrantholder promptly, and confirm such notice in
writing, (i) when the Prospectus or any supplement or post-effective amendment
has been filed and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to the Registration Statement
or Prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) when a Prospectus or a
Prospectus supplement is required to be delivered under the Securities Act upon
discovery that the Prospectus, as then in effect, includes an untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein not misleading in light of the circumstances then existing,
which requires amendment or supplementation of the Registration Statement or
Prospectus;
(e) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(f) deliver to the Warrantholder without charge as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Warrantholder may reasonably request in order to
facilitate the disposition of the Registrable Securities in compliance with the
Securities Act;
(g) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange or market on which shares of
the Common Stock are then listed,
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and if the shares of the Common Stock are not so listed, use its reasonable best
efforts promptly to cause all such Registerable Securities to be listed on
either the New York Stock Exchange, the American Stock Exchange or the Nasdaq
Stock Market;
(h) use its reasonable best efforts to qualify or register the
Registrable Securities for sale under (or obtain exemptions from the application
of) the Blue Sky laws of such jurisdictions as are reasonably requested by
Investor. The Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any such jurisdiction
where it is not presently qualified or where it would be subject to general
service of process or taxation as a foreign corporation in any jurisdiction
where it is not now so subject;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder.
Warrantholder shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
If the Company delivers a certificate in writing to Warrantholder to the
effect that a delay in the sale of Registrable Securities by Warrantholder under
the Registration Statement is necessary because a sale pursuant to such
Registration Statement in its then current form would reasonably be expected to
constitute a violation of the federal securities laws, then Warrantholder shall
agree not to sell or otherwise transfer such Registrable Securities for the
period of time specified by the Company in its certificate. In no event shall
such delay exceed ten (10) business days; PROVIDED, HOWEVER, that if, prior to
the expiration of such ten (10) business day period, the Company delivers a
certificate in writing to Warrantholder to the effect that a further delay in
such sale beyond such ten (10) business day period is necessary because a sale
pursuant to such Registration Statement in its then current form would
reasonably be expected to constitute a violation of the federal securities laws,
the Company may refuse to permit Warrantholder to resell any Registrable
Securities pursuant to such Registration Statement for one additional period not
to exceed five (5) business days.
7.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees with respect to the filings required to
be made with the National Association of Securities Dealers, Inc., fees and
expenses of compliance with the securities or Blue Sky laws, printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, fees
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and disbursements of all independent certified public accountants of the
Company, fees and expenses incurred in connection with the listing of the
securities, rating agency fees and the fees and expenses of any person,
including special experts, retained by the Company, will be borne by the
Company, regardless of whether the Registration Statement becomes effective;
PROVIDED, HOWEVER, that the Company will not be required to pay discounts,
commissions or fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the
Registrable Securities or fees or disbursements of any counsel to Warrantholder.
7.4 UNDERWRITTEN REGISTRATIONS; SELECTION OF UNDERWRITER. If the
Warrantholder so elects, the offering of Registerable Securities shall be in the
form of an underwritten offering and the Company shall have the exclusive right
to designate the managing underwriter or underwriters with respect to the
related offering of the Registerable Securities, which underwriter or
underwriters must be reasonably acceptable to the Warrantholder.
7.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as Warrantholder may reasonably request, all to
the extent required to enable Warrantholder to sell Registrable Securities
without registration under the Securities Act in reliance on the exemption
provided by Rule 144 or Rule 144A or any successor or similar rules or statues.
Upon the request of Warrantholder, the Company will deliver to Warrantholder a
written statement as to whether the Company has complied with such information
and requirements.
7.6 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Securities and all related rights granted to
Warrantholder by the Company under this Section 7 may be transferred or assigned
by Warrantholder only to a transferee or assignee of not less than 100,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), PROVIDED that the Company is given written notice at the time of
or within a reasonable time after such transfer or assignment, stating the name
and address of the transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and, PROVIDED FURTHER, that the transferee or assignee of such rights assumes
the obligations of Warrantholder under this Section 7.
7.7 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, Warrantholder
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Warrantholder (other than those included in
the registration) during the one hundred twenty (120) day period
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following the effective date of a registration statement of the Company filed
under the Securities Act.
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while the Warrantholder is entitled to make a Demand Request, the
period during which the Warrantholder shall be entitled to make a Demand Request
under Section 7.2 hereof shall be extended by an additional one hundred twenty
(120) days; PROVIDED, HOWEVER, that the Warrantholder's Demand Request period
will not be extended following the first Market Stand-Off unless such Market
Stand-Off occurs within one hundred twenty (120) days of the expiration of the
Warrantholder's Demand Request period.
7.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Warrantholder, any person or entity to or through whom the
Warrantholder sells Registerable Securities that may be deemed to be an
underwriter (as defined in the Securities Act), any officer, director, partner
or agent thereof, and each person, if any, who controls the Warrantholder or
underwriter within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
United States federal or state securities 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, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in any related registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto or offering circular or in any application
or other document or communication executed by or on behalf of the Company
relating to such registration (together, "Selling Documents"), (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, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or other United States federal or state securities law, or any rule
or
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regulation promulgated under the Securities Act, the Exchange Act or other
United States federal or state securities law; and the Company will pay to the
Warrantholder, underwriter or controlling person any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action as incurred; PROVIDED, HOWEVER,
that the indemnity agreement contained in this subsection 7.8(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 for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Warrantholder, underwriter or
controlling person.
(b) To the extent permitted by law, the Warrantholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the Selling Document, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any officer,
director, partner or agent thereof and any controlling person of any such
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Warrantholder expressly for use in connection with such registration; and the
Warrantholder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 7.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection 7.8(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 Warrantholder, which consent shall not be
unreasonably withheld; PROVIDED FURTHER, that in no event shall any indemnity
under this subsection 7.8(b) exceed the proceeds (net of underwriting discounts
and commissions) from the related offering of the Registerable Securities
received by the Warrantholder.
(c) After receipt by an indemnified party under this Section 7.8 of
notice of the commencement of any action (including any governmental action)
involving a claim referred to in Sections 7.8(a) or 7.8(b) hereof, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7.8, deliver to the
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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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses 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 differing
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 7.8, 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 7.8.
(d) If the indemnification provided for in this Section 7.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations;
PROVIDED, HOWEVER, that in any such case, (A) the Warrantholder will not be
required to contribute any amount in excess of the proceeds (net of underwriting
discounts and commissions) received by the Warrantholder from all Registrable
Securities offered and sold by the Warrantholder pursuant to the applicable
Selling Document; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into by the Company in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control, PROVIDED that the Warrantholder is a signatory to the
underwriting agreement.
(f) The obligations of the Company and the Warrantholder under this
Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. NOTICES OF CORPORATE ACTION.
In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivision (i), and at least 20 days prior to the date therein
specified, in the case of the date referred to in the foregoing subdivision
(ii).
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9. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
BUSINESS DAY: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of New York, State of
New York.
CHANGE OF CONTROL: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corporation, (ii) the sale of all or substantially all of the
assets of the Company to any other person or (iii) any sale or transfer of any
capital stock of the Company after the date of this agreement, following which
more than fifty percent (50%) of the combined voting power of the Company
becomes beneficially owned by one person or group acting together. For purposes
of this definition, "group" shall have the meaning as such term is used in
Section 13(d)(1) under the Exchange Act.
COMPANY: The Immune Response Corporation, a Delaware corporation.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
EXERCISE FORM: an Exercise Form in the form annexed hereto as Exhibit A.
EXERCISE PRICE: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 6 hereof.
NASDAQ: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
SECURITIES ACT: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
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WARRANTHOLDER: the meaning specified on the cover of this Warrant.
WARRANT SHARES: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 6.
10. MISCELLANEOUS.
10.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant and
supersede all prior agreements and understandings, both written and oral, with
regard to the subject matter hereof.
10.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Warrantholder and their
respective successors. Nothing in this Warrant, expressed or implied, is
intended to or shall confer on any person other than the Company and the
Warrantholder, or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
10.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.5 FURTHER ASSURANCES. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this agreement.
10.6 NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
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(a) if to the Company, addressed to:
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Attention: President
Telecopier: (619) 431-8636
(b) if to the Warrantholder, addressed to:
Kevin B. Kimberlin
Spencer Trask, Inc.
535 Madison Avenue
New York, NY 10022
Telecopier: (212) 751-3483
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 SEVERABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.8 GOVERNING LAW. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this Warrant,
the Warrantholder and the Company hereby consent to the jurisdiction of any
federal or state court having proper venue within the State of California and
also consent to the service of process by any means authorized by California or
federal law.
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10.9 TERMINATION. This Warrant shall expire at 5:00 P.M., Pacific
standard time, on the fourth anniversary hereof; PROVIDED, HOWEVER, that the
rights and obligations of the Company and the Warrantholder under Section 7.8
hereof shall survive such termination.
10.10 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company until the Warrantholder exercises this Warrant in
whole or in part, or as imposing any liabilities on the Warrantholder to
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purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: April 17, 1997.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
-------------------------------------
Title Vice President
----------------------------------
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EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
/ / herewith tenders payment for _______ of the Warrant Shares to the
order of The Immune Response Corporation in the amount of $_________
in accordance with the terms of this Warrant; or
/ / herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired for investment solely
for the account of the undersigned and not as a nominee for any other party, and
that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: .
-------------------
Signature
---------------------------------------------
---------------------------------------------
(Print Name)
---------------------------------------------
(Street Address)
---------------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
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<PAGE>
PROMISSORY NOTE
Loan Amount: $10,389,623.40 Carlsbad, California
Interest Rate: 5.73% April 17, 1997
FOR VALUE RECEIVED, the undersigned, KEVIN B. KIMBERLIN ("Borrower"),
hereby promises to pay to the order of THE IMMUNE RESPONSE CORPORATION, a
Delaware corporation ("Lender"), at 5935 Darwin Court, Carlsbad, California,
92008 or such other place as Lender may designate by written notice to Borrower,
by wire transfer of immediately available funds, the principal sum of TEN
MILLION THREE HUNDRED EIGHTY-NINE THOUSAND SIX HUNDRED TWENTY-THREE AND 40/100
DOLLARS ($10,389,623.40), with interest, to be paid as set forth below.
1. PAYMENTS. The entire principal balance of this Promissory Note (this
"Note"), together with all accrued and unpaid interest thereon, shall be due and
payable on September 30, 1997 (the "Maturity Date"). Interest on the
outstanding principal balance hereunder shall accrue at the rate of 5.73% per
annum, calculated on the basis of a three hundred and sixty-five day year.
2. PURPOSE OF NOTE. Borrower acknowledges that the purpose of the loan
evidenced by this Note is to provide partial financing for the purchase of
1,776,004 shares of Lender's common stock and warrants to purchase 1,776,004
shares of such common stock.
3. PREPAYMENT. Borrower may prepay all or any portion of this Note at
any time without penalty, fee or acceleration prior to the Maturity Date of this
Note.
4. SECURITY. This Note is a full-recourse note. Payment of this Note is
secured by a certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith from Borrower, as Pledgor, to Lender, as Pledgee, encumbering
Borrower's interest in certain shares of capital stock at such time as permitted
under that certain lock-up agreement to which Borrower is a party (described in
EXHIBIT A hereto), and as more particularly described in the Pledge Agreement.
5. ACCELERATION OF DUE DATE. The entire unpaid principal balance of this
Note, together with all accrued and unpaid interest thereon, shall, at the
election of Lender, become immediately due and payable upon the
<PAGE>
occurrence of any of the following, irrespective of the payment schedule set
forth in Paragraph 1 of this Note:
(a) Any failure on the part of Borrower to make any payment
under this Note when the same is due;
(b) Any failure on the part of Borrower to perform or observe
any of his obligations under the Pledge Agreement or any other
security instrument which secures this Note as and when performance is
due;
(c) If at any time Borrower shall admit in writing his inability
to pay his debts as they become due, or shall make any assignment for
the benefit of any creditors, or shall file a petition seeking any
reorganization, arrangement, composition, readjustment or similar
release under any present or future statute, law or regulation, or on
the filing or commencement of any petition, action, case or
proceeding, voluntary or involuntary, under any state or federal law
regarding bankruptcy or insolvency.
6. COLLECTION COSTS BORNE BY BORROWER. Borrower agrees to pay all costs
and expenses, including without limitation reasonable attorneys' fees, incurred
by Lender in any action brought to enforce the terms of this Note and/or to
collect this Note, and any appeal thereof.
7. MISCELLANEOUS.
(a) No delay or omission on the part of Lender in exercising any right
under this Note or under the Pledge Agreement or any other security agreement
given to secure this Note shall operate as a waiver of such right or of any
other right under this Note.
(b) In the event of default under this Note, Borrower shall have fifteen
(15) days from the date of notice of default and demand for payment in which to
cure such default. Such notice may be by written notice mailed to Borrower at
the last address given to Lender by Borrower and shall be deemed received three
(3) days after being mailed by certified, first-class mail, return receipt
requested or the next day mailed by overnight delivery.
(c) Borrower hereby waives presentment for payment, demand, notice of
demand and of dishonor and non-payment of this Note, protest and notice of
protest, diligence in collecting, and the bringing of suit against any other
party. The pleading of any statute of limitations as a defense to any demand
against the Borrower, any endorsers,
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<PAGE>
guarantors and sureties of this Note is expressly waived by each and all of such
parties to the extent permitted by law. Time is of the essence under this Note,
subject to Section 7(b).
(d) Any payment hereunder shall first be applied to any collection costs,
then against accrued and unpaid interest hereunder and then against the
outstanding principal balance of this Note.
8. LATE CHARGE. If payment of principal or interest under this Note
shall not be made within ten (10) days after the date due, Borrower agrees to
pay, in addition to the unpaid principal or interest, a sum equal to two percent
(2%) of the unpaid principal or interest, which sum Borrower agrees represents a
fair and reasonable estimate, considering all of the circumstances existing on
the date of this Note, of the costs and expenses incident to handling and
collecting such delinquent payment that will be sustained by Lender due to the
failure of Borrower to make timely payment. The parties further agree that
proof of actual damages would be costly and impracticable. Such charge shall be
paid without prejudice to the right of Lender to collect any other amounts
provided to be paid or to declare a default under this Note or under the Pledge
Agreement or from exercising any of the other rights and remedies of Lender.
9. GOVERNING LAW. This Note shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this Note,
Borrower and Lender hereby consent to the jurisdiction of any federal or state
court having proper venue within the State of California and also consent to the
service of process by any means authorized by California or federal law.
10. DEFINITIONS.
BUSINESS DAY. As used in this Note the term "Business Day" shall mean
any day other than a Saturday, Sunday or a legal holiday observed by employees
of the State of California.
11. SUCCESSORS. This Note shall be binding upon Borrower and the personal
representatives, heirs, successors and assigns of Borrower.
12. SEVERABILITY. If any part of this Note is determined to be illegal or
unenforceable, all other parts shall remain in full force and effect.
13. MAXIMUM INTEREST PAYABLE. All agreements between the undersigned and
the holder hereof, whether now existing
3
<PAGE>
or hereafter arising and whether written or oral, are hereby limited so that in
no contingency, whether by reason of acceleration of the maturity hereof or
otherwise, shall the interest contracted for, charged, received, paid or agreed
to be paid to the holder hereof exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, interest would otherwise
be payable to the holder hereof in excess of the maximum lawful amount, the
interest payable to the holder hereof shall be reduced to the maximum amount
permitted under applicable law; and if from any circumstance the holder hereof
shall ever receive anything of value deemed interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive interest shall be
applied to the reduction of the principal hereof and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to the undersigned. All interest paid or
agreed to be paid to the holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the maximum amount permitted by applicable law. This paragraph
shall control all agreements between the undersigned and the holder hereof.
/s/ Kevin B. Kimberlin
---------------------------------------------
Kevin B. Kimberlin
4
<PAGE>
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT (this "Agreement") is made and entered into as
of April 15, 1997 by and between KEVIN B. KIMBERLIN, an individual ("Pledgor")
and THE IMMUNE RESPONSE CORPORATION, a Delaware corporation ("Pledgee") with
reference to the facts set forth in the Recitals below:
RECITALS
WHEREAS, Pledgor is a co-founder of Pledgee and has been a director of
Pledgee since 1986;
WHEREAS, Pledgor is an individual of substantial net worth;
WHEREAS, Pledgor and Pledgee have entered into a Unit Purchase
Agreement, of even date herewith, pursuant to which Pledgor has purchased
from Pledgee 1,776,004 Units, each Unit consisting of one share of Pledgee's
Common Stock and a warrant to purchase one share of Pledgee's Common Stock.
As partial consideration for Pledgee's Units, and for other good and valuable
consideration, Pledgor has delivered to Pledgee that certain Promissory Note
(the "Note"), dated as of April 17, 1997, executed by Pledgor in favor of
Pledgee in the principal amount of TEN MILLION THREE HUNDRED EIGHTY-NINE
THOUSAND SIX HUNDRED TWENTY-THREE AND 40/100 DOLLARS ($10,389,623.40)(the
"Loan");
WHEREAS, to induce Pledgee to make the Loan, Pledgor has agreed to pledge
to Pledgee as security for repayment of the Loan certain shares of capital stock
with a fair market value approximately equal to double the principal amount of
the Loan; and
WHEREAS, Pledgor has agreed not to sell any shares of Pledgee's Common
Stock purchased pursuant to the Unit Purchase Agreement prior to maturity of the
Note and repayment of the Loan:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees with Pledgee as follows:
1. PLEDGE. In consideration of Pledgee's making of the Loan to Pledgor,
receipt of which is hereby acknowledged, Pledgor hereby agrees and covenants to
pledge,
<PAGE>
grant a security interest in, assign, transfer and deliver to Pledgee, as
collateral security for the payment and performance in full when due by Pledgor
of the Obligations (defined below), and on the earliest date permitted under
that certain lock-up agreement to which Pledgor is a party (described in EXHIBIT
A hereto, the "Lock-up Agreement"), a number of shares of capital stock, more
particularly described on the attached SCHEDULE 1, having an aggregate fair
market value at the time transferred to Pledgee equal to double the principal
amount of the Loan (collectively, the "Pledged Shares"), together with the
certificates evidencing same, which certificates shall be duly endorsed in blank
or accompanied by stock powers duly executed in blank.
From the date hereof until such time as the Pledged Shares may be
transferred to Pledgee in accordance with this Section 1 and the Lock-up
Agreement, Pledgor shall segregate and hold separate for safekeeping the Pledged
Shares and the certificates evidencing the same.
2. OBLIGATIONS SECURED. Subject only to the time restrictions contained
in the Lock-up Agreement, this Agreement is made, and the security interest
pledged herein will be given, to secure payment and performance in full by
Pledgor of all obligations (collectively the "Obligations") of Pledgor owing to
Pledgee under the Note and this Agreement, together with all extensions,
amendments, restatements, modifications, supplements and renewals thereof, when
the same shall become due, whether at maturity, at a time fixed for payment or
by acceleration or otherwise, in accordance with the terms of the Note, together
with Pledgor's performance and compliance with all other terms and conditions of
this Agreement and any other agreement now or in the future entered into between
Pledgor and Pledgee with respect to the Loan or any modifications, amendments,
restatements, supplements or renewals thereof.
3. ATTORNEY-IN-FACT. Subject to the rights of Pledgor provided for in
this Agreement and the time restrictions contained in the Lock-up Agreement,
Pledgor hereby irrevocably agrees and covenants to appoint Pledgee as Pledgor's
attorney-in-fact, coupled with an interest, with full authority in the place and
stead of Pledgor and in the name of Pledgor, Pledgee or otherwise, from time to
time to take any action, execute any document, instrument or other agreement
which Pledgee reasonably may deem necessary or advisable, in its sole
discretion, to accomplish the purposes of this Agreement, including without
limitation, to arrange for the transfer of the Pledged Shares on the books of
the issuer to the name of Pledgee.
4. DIVIDENDS. After the Pledged Shares have been transferred to Pledgee
in accordance with Section 1 hereof
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<PAGE>
and for the remaining term of this Agreement, all dividends and other amounts
received in cash by Pledgee as a result of Pledgee's record ownership of the
Pledged Shares shall be applied to the payment of the principal and interest on
the Loan.
5. VOTING RIGHTS. During the term of this Agreement, and as long as
Pledgor is not in default in the performance of any of the terms of this
Agreement, or in the payment of the principal or interest of the Loan, or with
respect to any of the other Obligations, Pledgor shall have the right to vote
the Pledged Shares on all corporate questions. Pledgee shall execute due and
timely proxies in favor of Pledgor to this end.
6. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents and
warrants: that Pledgor is the legal and beneficial owner of the Pledged Shares;
that Pledgor has owned the Pledged Shares for two (2) or more years; that there
are no restrictions on the transfer of any of the Pledged Shares, other than as
may appear on the face of the certificates thereof and those contained in the
Lock-up Agreement; that Pledgor has the right and power to transfer the Pledged
Shares free of any encumbrances or liens, without obtaining the consents of any
other party or parties; that Pledgor is not now and has never been an officer or
director of the issuer of the Pledged Shares; and that Pledgor is not now an
affiliate (as such term is defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended) of the issuer
of the Pledged Shares.
7. ADJUSTMENTS. In the event that during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of the company that has issued the Pledged Shares,
all new, substituted and additional shares, or other securities issued by reason
of any such change with respect to the Pledged Shares, shall be transferred to
and held by Pledgee in the same manner as the Pledged Shares originally pledged
to Pledgee under this Agreement.
8. WARRANTS AND RIGHTS. In the event that during the term of this
Agreement, subscription warrants or any other rights or options shall be issued
in connection with the Pledged Shares, such warrants, rights and options shall
be immediately assigned by Pledgee to Pledgor, and if exercised by Pledgor, all
new shares or other securities so acquired by Pledgor as a result thereof shall
be immediately assigned to Pledgee to be held in the same manner as the Pledged
Shares originally pledged under this Agreement and shall in all respects be
subject to the terms of this Agreement.
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9. PAYMENT OF LOAN. Upon payment in full, at maturity, of all principal
and interest due to Pledgee under the Note, together with any other amounts due
to Pledgee under the terms of the Note or this Agreement, less amounts received
and applied by Pledgee in reduction of the Loan, and upon full satisfaction of
all of the other Obligations provided for under this Agreement and the Note,
Pledgee shall transfer to Pledgor all of the Pledged Shares and all rights
received by Pledgee as a result of Pledgee's record ownership of the Pledged
Shares and this Agreement shall terminate. Notwithstanding the above
requirement that the Obligations be satisfied in full prior to Pledgee's release
of its interest in the Pledged Shares under this Agreement, Pledgee shall extend
all reasonable cooperation to Pledgor in connection with any proposed sale by
Pledgor of the Pledged Shares, provided the proceeds of such sale shall be
applied by Pledgor to repay the Loan in full, together with all other amounts
owed to Pledgee with respect to the Obligations.
10. DEFAULT. In the event that Pledgor defaults in the performance of any
of the material terms of this Agreement, or on the payment at maturity of the
principal or interest of the Loan, or defaults with respect to any of the
Obligations, Pledgee shall have all of the rights and remedies provided to it
and be subject to the obligations under the Delaware Uniform Commercial Code
with respect to such default or nonperformance. In this connection, after the
Pledged Shares have been transferred to Pledgee in accordance with Section 1
hereof, Pledgee may, as permitted by the Delaware Uniform Commercial Code, and
without liability for any diminution in price that may have occurred, sell all
of the Pledged Shares in the manner and for the price that Pledgee may determine
upon fifteen (15) days written notice to Pledgor of the time and place of any
public sale or the time after which any private sale is to be made. At any bona
fide public sale, Pledgee shall be free to purchase all or any part of the
Pledged Shares. Out of the proceeds of any sale of the Pledged Shares, Pledgee
may retain an amount equal to the principal and interest then due with respect
to the Loan under the Note, plus any other amounts due with respect to the
Obligations or otherwise under the Note, plus the amount of the expenses of the
sale, and shall pay any balance of the proceeds of any sale to Pledgor after
satisfaction of all of the Obligations. If Pledgor defaults in the performance
of any of the Obligations before the Pledged Shares have been transferred to
Pledgee in accordance with Section 1 hereof, or if the proceeds of the sale of
such Pledged Shares are insufficient to cover the principal and interest of the
Loan and other amounts due with respect to the Obligations, including expenses
of the sale, Pledgor shall remain liable to Pledgee for any deficiency in
accordance with applicable provisions of the Delaware Uniform Commercial Code.
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11. MISCELLANEOUS. This Agreement and the Note shall be governed by and
interpreted in accordance with the laws of the State of Delaware, except as they
may be preempted by federal law. In any action brought or arising out of this
Agreement or the Note, Pledgor and Pledgee hereby consent to the jurisdiction of
any federal or state court having proper venue within the State of California
and also consent to the service of process by any means authorized by California
or federal law. The headings used in this Agreement are for convenience only
and shall be disregarded in interpreting the substantive provisions of this
Agreement. Time is of the essence in each term of this Agreement and the Note.
If any provision of this Agreement or the Note shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed therefrom and the remaining parts shall remain in full
force as though the invalid, illegal or unenforceable portion had never been a
part thereof. This Agreement may be executed in one or more counterparts, all
of which, taken together, shall constitute one and the same Agreement. The
Recitals and any Schedules attached to this Agreement are hereby incorporated
into this Agreement by this reference.
12. INTEGRATION; INTERPRETATION. The Agreement and the Note contain or
expressly incorporate by reference the entire agreement of the parties with
respect to the matters contemplated herein and supersede all prior negotiations.
The Agreement and the Note shall not be modified except by written instrument
executed by all parties.
13. FURTHER ASSURANCES; SUBSTITUTION OF COLLATERAL. Pledgor shall
execute, acknowledge and deliver, upon written request of Pledgee, any and all
further documents, agreements or other instruments, and take such further
actions, as Pledgee may reasonably require for carrying out the purpose and
intent of the covenants set forth in this Agreement. If at any time, the value
of the Pledged Shares declines to such an extent that in the reasonable opinion
of Pledgee such collateral is inadequate either to secure satisfaction of
Pledgor's Obligations or to satisfy the requirements of Federal Reserve Board
Regulation G, Pledgee may require Pledgor to substitute reasonably equivalent
collateral for some or all of the Pledged Shares as security for Pledgor's
satisfaction of the Obligations, which substituted collateral shall be
acceptable to Pledgee in its sole discretion and shall be subject, in all
respects, to the terms and conditions of this Agreement upon such substitution.
Pledgor shall execute, acknowledge and deliver such additional documents,
agreements and instruments with respect to such substituted collateral as
Pledgee may require, including without limitation,
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mortgages, deeds of trust or financing statements, in form and content
sufficient to perfect Pledgee's security interest in such substituted
collateral.
IN WITNESS WHEREOF, Pledgor and Pledgee have caused this Agreement to be
duly executed as of the date first written above.
PLEDGOR PLEDGEE
THE IMMUNE RESPONSE CORPORATION
/s/ Kevin B. Kimberlin
- ----------------------------- By: /s/ Charles J. Cashion
Kevin B. Kimberlin -------------------------
Title: Vice President
-----------------------
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UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (the "Agreement") is made as of this 15th
day of April, 1997 by and between THE IMMUNE RESPONSE CORPORATION, a Delaware
corporation (the "Company"), and DENNIS J. CARLO, PH.D., an individual (the
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF THE UNITS.
1.1 SALE AND ISSUANCE OF COMMON STOCK AND COMMON STOCK WARRANTS AT
THE INITIAL CLOSING. Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the Initial Closing and the Company agrees to
sell and issue to Investor at the Initial Closing, 253,715 Units at the purchase
price per Unit equal to the product of (a) the sum of (i) the closing price of
the Company's common stock on April 11, 1997 ($7.69) and (ii) $1.19 per share of
common stock into which the Warrant (as defined below) is exercisable,
multiplied by (b) .879 (the "Per Unit Price"), for an aggregate price of
$1,978,977.00 (the "Initial Investment"). Each Unit consists of one share of
the Company's Common Stock, par value $.0025 per share (the "Common Stock"), and
a nontransferable warrant to purchase one share of the Company's Common Stock
(the "Warrant") in the form attached hereto as EXHIBIT A.
The shares of Common Stock sold to Investor pursuant to this Agreement
are hereinafter referred to as the "Shares," and the shares of Common Stock
arising from the exercise of the Warrant are hereinafter referred to as the
"Warrant Shares." The Shares, the Warrant and the Warrant Shares are hereinafter
referred to collectively as the "Securities."
1.2 SALE AND ISSUANCE OF COMMON STOCK AND COMMON STOCK WARRANTS AT
THE NASD APPROVAL CLOSING. Subject only to the written approval by the National
Association of Securities Dealers, Inc. ("NASD"), which approval must be
received by the Company no later than six weeks from the date hereof in a form
reasonably acceptable to the Company, Investor agrees to purchase at the NASD
Approval Closing and the Company agrees to sell and issue to Investor at the
NASD Approval Closing, 2,695 Units (as defined above) at the Per Unit Price for
an aggregate price of $21,021.00 (the "NASD Approval Investment").
<PAGE>
At the option of Investor, Investor may prepare a letter for
submission by the Company to the NASD outlining the nature of the Initial
Investment and the NASD Approval Investment and requesting confirmation from the
NASD that the NASD Approval Investment may be consummated without first
obtaining approval from the Company's stockholders. The Company will submit
such letter to the NASD as promptly as practicable after receiving the same from
Investor.
1.3 INITIAL CLOSING. The purchase and sale of the Securities for the
Initial Investment shall take place at the offices of Pillsbury Madison & Sutro
LLP, 235 Montgomery Street, San Francisco, California, at 11:00 A.M., on April
15, 1997, or at such other time and place as the Company and Investor mutually
agree (which time and place are designated as the "Initial Closing"). At the
Initial Closing, Investor shall deliver to the Company (i) a bank wire in the
amount of $494,744.25 payable to the Company's order and (ii) a promissory note
in the form attached hereto as EXHIBIT B in the principal amount of
$1,484,232.75 payable to the Company's order (the "Promissory Note"). Upon
payment in full of all amounts due under the Promissory Note, the Company shall
deliver to Investor the Warrant and a certificate representing the Shares;
provided, however, that the Company hereby acknowledges that Investor shall be
the sole record and beneficial owner of the Shares upon the Initial Closing.
1.4 NASD APPROVAL CLOSING. The purchase and sale of the securities
for the NASD Approval Investment shall take place at the offices of Pillsbury
Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California, within
five business days after receipt by the Company from Investor of written NASD
approval for such sale, or at such other time and place as the Company and
Investor mutually agree (which time and place are designated as the "NASD
Approval Closing"). At the NASD Approval Closing, the Company shall deliver to
Investor 2,695 Units against delivery to the Company by Investor of a bank wire
in the amount of $21,021 payable to the Company's order.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the Company.
2.2 VALID ISSUANCE OF THE SECURITIES. The issuance, sale and
delivery of the Securities are within the Company's corporate powers and have
been duly authorized by all required corporate action on the part of the Company
and
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its stockholders and when such Securities are issued, sold and delivered in
accordance with the terms hereof, such Securities will be duly and validly
issued, fully paid and nonassessable. The issuance, sale and delivery of the
Securities are not subject to preemptive or any similar rights of the
stockholders of the Company or any liens or encumbrances arising through the
Company.
2.3 AUTHORIZATION. This Agreement has been duly authorized, validly
executed and delivered on behalf of the Company and is a valid and binding
agreement enforceable against the Company in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions contained in Section 7.8 of this Agreement
may be limited by applicable federal or state securities laws.
2.4 CAPITALIZATION. The authorized capital of the Company consists
of:
(a) PREFERRED STOCK. 5,000,000 shares of Preferred Stock, of which
20,000 shares have been designated Series E Participating Preferred Stock, par
value $.001 per share (the "Participating Preferred Stock"). There are no
shares of Participating Preferred Stock issued and outstanding.
(b) COMMON STOCK. 40,000,000 shares of Commons Stock, of which
20,298,207 shares were issued and outstanding on April 10, 1997.
(c) AGREEMENTS FOR PURCHASE OF SHARES. Except for (i) the purchase
privileges under the Company's Stockholder Rights Plan, as described in the
Company's filings with the Securities and Exchange Commission ("SEC"); (ii)
options to purchase an aggregate of 2,963,155 shares of Common Stock granted
pursuant to the various stock plans of the Company as of February 28, 1997; and
(iii) the agreement of Trinity Medical Group Co., Ltd of Bangkok, Thailand to
make an additional equity investment of up to $10 million, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. The Company has no obligations or agreements
concerning the repurchase of any of the shares of its outstanding capital stock.
2.5 NON-CONTRAVENTION. The execution and delivery of this Agreement
and the consummation of the
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issuance of the Securities do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions, of or constitute a
default under the certificate of incorporation or by-laws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, or any existing applicable law, rule or regulation of the United
States or any state thereof or any applicable decree, judgment or order of any
federal or state court, federal or state regulatory body, administrative agency
or other United States governmental body having jurisdiction over the Company or
any of its properties or assets.
2.6 RIGHTS AGREEMENT. As a registered holder of the Shares, Investor
will be a beneficiary under that certain Rights Agreement, dated as of February
26, 1992, between the Company and First Interstate Bank, Ltd. (the "Rights
Agreement"), and will be entitled to receive one Right for each share of Common
Stock issued pursuant to this Agreement, including the Warrant Shares, each
Right representing the right to purchase one one-thousandth of a share of
Participating Preferred Stock having the rights, powers and preferences set
forth in the Rights Agreement. The Company shall amend the Rights Agreement so
that the execution and delivery of this Agreement and the consummation of the
issuance of the Securities will not cause Investor to become an Acquiring Person
(as defined in the Rights Agreement) thereunder.
2.7 SEC FILINGS. The Company has registered its Common Stock pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Common Stock is listed and trades on the NASDAQ National Market
System. The Company has filed all forms, reports and documents required to be
filed pursuant to the federal securities laws and the rules and regulations
promulgated thereunder for a period of at least twelve (12) months immediately
preceding the offer or sale of the Shares and the Warrant (or for such shorter
period that the Company has been required to file such material). The Company's
filings with the SEC complied as of their respective filing dates, or in the
case of registration statements, their respective effective dates, in all
material respects with all applicable requirements of the Securities Act of 1933
(the "Securities Act") and the Exchange Act and the rules and regulations
promulgated thereunder. None of such filings, including, without limitation,
any exhibits, financial statements or schedules included therein, at the time
filed, or in the case of registration statements, at their respective filing
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
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therein, in light of the circumstances under which they were made, not
misleading.
2.8 LITIGATION. Except as disclosed in the Company's filings with
the SEC, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Company, threatened, against or affecting the Company, or any
of its properties, which might result in any material adverse change in the
condition (financial or otherwise) or in the earnings, business affairs or
business prospects of the Company, or which might materially and adversely
affect the properties or assets thereof.
2.9 NO DEFAULT. Except as disclosed in the Company's filings with
the SEC, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material agreement or instrument to
which it is a party or by which it or its property may be bound.
2.10 SUBSEQUENT EVENTS. Since December 31, 1996, (i) the Company has
incurred no liability or obligation, contingent or otherwise, that taken as a
whole, is material in the aggregate to the Company, except in the ordinary
course of business, and (ii) there has been no material adverse change in the
condition or results of operations, financial or otherwise, of the Company,
taken as a whole.
2.11 CONSENTS AND APPROVALS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority or any third party is required on the part of the Company
in connection with the Company's valid execution, delivery or performance of
this Agreement, or the offer, sale or issuance of the Shares by the Company,
other than the filings that have been made prior to the Initial Closing or the
NASD Approval Closing, as the case may be, except that any notices of sale
required to be filed by the Company with the SEC under Regulation D of the
Securities Act, or such post-closing filings as may be required under applicable
state securities laws, which will be timely filed within the applicable periods
therefor.
2.12 REGISTRATION STATEMENT. To the best of the Company's knowledge,
there exist no facts or circumstances that would inhibit or delay the
preparation and filing of a registration statement with the SEC under the
Securities Act in accordance with Section 7 of this Agreement.
2.13 REMOVAL OF LEGENDS.
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(a) Any legend endorsed on a certificate pursuant to Section 3.7
hereof shall be removed (i) if the shares of the Common Stock represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public transaction, (ii) if such shares may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) subject to the provisions of Section 3.6(c) hereof, if the holder of
such shares shall have provided the Company with an opinion of counsel, in form
and substance acceptable to the Company and its counsel and from attorneys
reasonably acceptable to the Company and its counsel, stating that a public
sale, transfer or assignment of such shares may be made without registration.
(b) Any legend endorsed on a certificate pursuant to Section 3.7(c)
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Shares provides
the Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
2.14 FINDER'S FEE. The Company neither is nor will be obligated for
any finder's fee or commission in connection with this transaction. The Company
agrees to indemnify and hold harmless Investor from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
3. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants that:
3.1 AUTHORIZATION. Investor has full power and authority to enter
into this Agreement and this Agreement constitutes its valid and binding
obligation except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) to the extent the indemnification provisions contained in
Section 7.8 of this Agreement may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be received
by Investor will be acquired for investment for Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of
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any part thereof, and Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same, except in compliance with
the Securities Act and applicable state securities laws. Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Securities. Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of Investor to rely thereon.
3.4 INVESTMENT EXPERIENCE. Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to bear the
economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
3.5 RESTRICTED SECURITIES. Investor understands that the Securities
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in reliance on an exemption therefrom. In this connection Investor represents
that it is familiar with SEC Rule 144, as presently in effect ("Rule 144"), and
understands the resale limitations imposed thereby and by the Securities Act.
3.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) One (1) year from the date hereof has elapsed; and
(b) The entire principal balance of the promissory note attached
hereto as EXHIBIT B, together with all accrued and unpaid interest, fees and
late charges thereon, has been paid in full by Investor to the Company; and
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(c) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(d) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a reasonably detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144, as currently in existence,
except in unusual circumstances.
3.7 LEGENDS. Each certificate representing any of the Securities
shall bear substantially one or all of the following legends:
(a) IN THE CASE OF ALL SECURITIES:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS REGISTERED UNDER THE 1933 ACT AND QUALIFIED
UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT AND THE QUALIFICATION REQUIREMENTS OF APPLICABLE STATE
SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE
NOT REQUIRED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AND OTHER RESTRICTIONS, AND THE HOLDER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE (INCLUDING ANY FUTURE HOLDERS) IS BOUND BY THE TERMS OF A
UNIT PURCHASE AGREEMENT BETWEEN THE ORIGINAL PURCHASER AND THE COMPANY
(COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY).
(b) IN THE CASE OF THE WARRANT:
THIS WARRANT IS NON-TRANSFERABLE AND MAY ONLY BE EXERCISED BY THE ORIGINAL
PURCHASER.
(c) Any legend required by the laws of the State of California or
other jurisdiction, including any legend
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required by the California Department of Corporations and sections 417 and 418
of the California Corporations Code.
3.8 ACCREDITED INVESTOR. Investor is an accredited investor as
defined in Rule 501(a) of Regulation D under the Securities Act.
3.9 CONFIDENTIALITY. Investor hereby represents, warrants and
covenants that Investor shall maintain in confidence, and shall not use or
disclose without the prior written consent of the Company, any information
identified as confidential that is furnished to Investor by the Company in
connection with this Agreement. This obligation of confidentiality shall not
apply, however, to any information (a) in the public domain through no
unauthorized act or failure to act by Investor, (b) lawfully disclosed to
Investor by a third party who possessed such information without any obligation
of confidentiality or (c) known previously by Investor or lawfully developed by
Investor independent of any disclosure by the Company. Investor further
covenants that Investor shall return to the Company all tangible materials
containing such information upon request by the Company.
3.10 FINDER'S FEE. Investor neither is nor will be obligated for any
finder's fee or commission in connection with this transaction. Investor agrees
to indemnify and hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Investor
or any of its officers, partners, employees or representatives is responsible.
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations
of Investor under this Agreement are subject to the fulfillment on or before
each Closing of each of the following conditions, the waiver of which shall not
be effective unless Investor consents in writing thereto:
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5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of each
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each Closing.
5.3 COMPLIANCE CERTIFICATE. The Chief Financial Officer of the
Company shall deliver to Investor at each Closing a certificate certifying that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since
December 31, 1996.
5.4 QUALIFICATION. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities to Investor (i) pursuant to Section 1.1 of this Agreement shall be
duly obtained and effective as of the Initial Closing, and (ii) pursuant to
Section 1.2 of this Agreement shall be duly obtained and effective as of the
NASD Approval Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at each Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Investor and its special counsel, and Investor shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Investor contained in Section 3 hereof shall be true on and as of
each Closing with the same effect as though such representations and warranties
had been made on and as of such Closing.
6.2 PAYMENT OF PURCHASE PRICE. Investor shall have delivered to the
Company the purchase price specified in Section 1.1 on or before the Initial
Closing, and shall
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have delivered to the Company the purchase price specified in Section 1.2 on or
before the NASD Approval Closing.
6.3 QUALIFICATION. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities to Investor (i) pursuant to Section 1.1 of this Agreement shall be
duly obtained and effective as of the Initial Closing, and (ii) pursuant to
Section 1.2 of this Agreement shall be duly obtained and effective as of the
NASD Approval Closing.
6.4 STOCK PLEDGE AGREEMENT. Investor shall have executed a Stock
Pledge Agreement for the benefit of the Company in the form attached hereto as
EXHIBIT C.
6.5 FAIRNESS OPINION. The Company shall have received from its
investment banker, Montgomery Securities, an opinion that the proposed
consideration to be received by the Company from Investor in exchange for the
Units is fair to the Company from a financial point of view, such opinion to be
in the form attached hereto as Exhibit D.
7. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
7.1 CERTAIN ADDITIONAL DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"REGISTRABLE SECURITIES" shall mean (i) the Shares, (ii) the shares of
Common Stock issued pursuant to that certain Unit Purchase Agreement of even
date herewith between the Company and Kevin B. Kimberlin, and (iii) any Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the
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shares referenced in (i) and (ii) above, PROVIDED, HOWEVER, that Registrable
Securities shall not include any shares of Common Stock which have previously
been registered or which have been sold in a public offering.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
7.2 REGISTRATION. If after one year following the Initial Closing,
but no later than five years following the Initial Closing, Investor requests in
writing that the Company file a Registration Statement for a public offering of
the Registerable Securities (a "Demand Request"), the Company will use its
reasonable best efforts to effect a registration to permit the sale of such
Registrable Securities as described below, and pursuant thereto the Company
will:
(a) within ten (10) days of the Company's receipt of a Demand
Request, give written notice of such request to all holders of Registerable
Securities ("Holders");
(b) prepare and file with the SEC within sixty (60) days of the
Company's receipt of a Demand Request, and use its reasonable best efforts to
have declared effective by the SEC, a Registration Statement on any appropriate
form under the Securities Act as may then be available to the Company relating
to resale of all of the Registrable Securities which the Holders request to be
registered within twenty (20) days of the mailing of the notice required under
Section 7.2(a) and use its reasonable best efforts to cause such Registration
Statement to remain continuously effective for a period of one year or such
shorter period which will terminate when all Registrable Securities covered by
such Registration Statement have been sold; PROVIDED that a registration will
not count as the permitted demand registration until the Registration Statement
becomes effective and remains effective for the period specified herein, so long
as such registration is not withdrawn at the request of the holder;
(c) prepare and file with the SEC such amendments, supplements
and post-effective amendments to the Registration Statement and the Prospectus
as may be necessary to keep such Registration Statement effective for the period
specified in Section 7.2(b) and to comply with the provisions of the Securities
Act and the Exchange Act
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with respect to the distribution of all Registrable Securities during such
period;
(d) notify the Investor promptly, and confirm such notice in
writing, (i) when the Prospectus or any supplement or post-effective amendment
has been filed and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to the Registration Statement
or Prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) when a Prospectus or a
Prospectus supplement is required to be delivered under the Securities Act upon
discovery that the Prospectus, as then in effect, includes an untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein not misleading in light of the circumstances then existing,
which requires amendment or supplementation of the Registration Statement or
Prospectus;
(e) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(f) deliver to the Investor without charge as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities in compliance with the Securities Act;
(g) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange or market on which shares of
the Common Stock are then listed, and if shares of the Common Stock are not so
listed, use its reasonable best efforts promptly to cause all such Registerable
Securities to be listed on either the New York Stock Exchange, the American
Stock Exchange or the Nasdaq Stock Market;
(h) use its reasonable best efforts to qualify or register the
Registrable Securities for sale under (or obtain exemptions from the application
of) the Blue Sky laws of such jurisdictions as are reasonably requested by
Investor. The Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any such jurisdiction
where it is not presently qualified or where it would be subject to general
service of process or taxation as a foreign corporation in any jurisdiction
where
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<PAGE>
it is not now so subject;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder.
Investor shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
If the Company delivers a certificate in writing to Investor to the
effect that a delay in the sale of Registrable Securities by Investor under the
Registration Statement is necessary because a sale pursuant to such Registration
Statement in its then current form would reasonably be expected to constitute a
violation of the federal securities laws, then Investor shall agree not to sell
or otherwise transfer such Registrable Securities for the period of time
specified by the Company in its certificate. In no event shall such delay
exceed ten (10) business days; PROVIDED, HOWEVER, that if, prior to the
expiration of such ten (10) business day period, the Company delivers a
certificate in writing to Investor to the effect that a further delay in such
sale beyond such ten (10) business day period is necessary because a sale
pursuant to such Registration Statement in its then current form would
reasonably be expected to constitute a violation of the federal securities laws,
the Company may refuse to permit Investor to resell any Registrable Securities
pursuant to such Registration Statement for one additional period not to exceed
five (5) business days.
7.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees with respect to the filings required to
be made with the NASD, fees and expenses of compliance with the securities or
Blue Sky laws, printing expenses, messenger, telephone and delivery expenses,
fees and disbursements of counsel for the Company, fees and disbursements of all
independent certified public accountants of the Company, fees and expenses
incurred in connection with the listing of the securities, rating agency fees
and the fees and expenses of any person, including special experts, retained by
the Company, will be borne by the Company, regardless of whether the
Registration Statement becomes effective; PROVIDED, HOWEVER, that the Company
will not be required to pay
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discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registrable Securities or fees or disbursements of any counsel to Investor.
7.4 UNDERWRITTEN REGISTRATIONS; SELECTION OF UNDERWRITER. If
Investor so elects, the offering of Registerable Securities shall be in the form
of an underwritten offering and the Company shall have the exclusive right to
designate the managing underwriter or underwriters with respect to the related
offering of the Registerable Securities, which underwriter or underwriters must
be reasonably acceptable to the Investor.
7.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as Investor may reasonably request, all to the
extent required to enable Investor to sell Registrable Securities without
registration under the Securities Act in reliance on the exemption provided by
Rule 144 or Rule 144A or any successor or similar rules or statues. Upon the
request of Investor, the Company will deliver to Investor a written statement as
to whether the Company has complied with such information and requirements.
7.6 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Securities and all related rights granted to
Investor by the Company under this Section 7 may be transferred or assigned by
Investor only to a transferee or assignee of not less than 100,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like), PROVIDED that the Company is given written notice at the time of or
within a reasonable time after such transfer or assignment, stating the name and
address of the transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and, PROVIDED FURTHER, that the transferee or assignee of such rights assumes
the obligations of Investor under this Section 7.
7.7 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, Investor shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Investor (other than those included in the
registration) during the one hundred twenty (120) day period following the
effective date of a registration statement of the Company filed under the
Securities Act.
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<PAGE>
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while Investor is entitled to make a Demand Request, the period
during which Investor shall be entitled to make a Demand Request under Section
7.2 hereof shall be extended by an additional one hundred twenty (120) days;
PROVIDED, HOWEVER, that Investor's Demand Request period will not be extended
following the first Market Stand-Off unless such Market Stand-Off occurs within
one hundred twenty (120) days of the expiration of Investor's Demand Request
period.
7.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Investor, any person or entity to or through whom Investor
sells Registerable Securities that may be deemed to be an underwriter (as
defined in the Securities Act), any officer, director, partner or agent thereof,
and each person, if any, who controls the Investor or underwriter within the
meaning of the Securities Act or the Exchange Act against any and all losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other United States
federal or state securities 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, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in any related registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto or offering circular or in any application or other
document or communication executed by or on behalf of the Company relating to
such registration (together, "Selling Documents"), (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, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
other United States federal or state securities law, or any rule or regulation
promulgated under the Securities
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<PAGE>
Act, the Exchange Act or other United States federal or state securities law;
and the Company will pay to the Investor, underwriter or controlling person any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action as
incurred; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 7.8(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 for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed a Selling Document, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any officer,
director, partner or agent thereof and any controlling person of any such
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor expressly for use in connection with such registration; and the
Investor will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 7.8(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 7.8(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 Investor, which consent shall not be unreasonably withheld;
PROVIDED FURTHER, that in no event shall any indemnity under this
subsection 7.8(b) exceed the proceeds (net of underwriting discounts and
commissions) from the related offering of the Registerable Securities received
by the Investor.
(c) After receipt by an indemnified party under this Section 7.8
of notice of the commencement of any action (including any governmental action)
involving a claim
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<PAGE>
referred to in Sections 7.8(a) or 7.8(b) hereof, such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 7.8, 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 (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses 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
differing 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 7.8, 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 7.8.
(d) If the indemnification provided for in this Section 7.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; PROVIDED, HOWEVER, that in any such case, (A) the Investor will
not be required to contribute any amount in excess of the proceeds (net of
underwriting discounts and commissions) received by the Investor from all
Registrable Securities offered and sold by the Investor pursuant to the
applicable Selling Document; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the Violation
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relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in any underwriting
agreement entered into by the Company in connection with an underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control, PROVIDED that Investor is a signatory to
the underwriting agreement.
(f) The obligations of the Company and the Investor under this
Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The representations and warranties of the
Company contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and each Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of Investor or the Company.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, 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.
8.3 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware, except as they
may be preempted by federal law. In any action brought or arising out of this
Agreement, Investor and the Company hereby consent to the jurisdiction of any
federal or state court having proper venue within the State of California and
also consent to the service of process by any means authorized by California or
federal law.
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
8.5 TITLES AND SUBTITLES. 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.
8.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified (or upon
the date of attempted delivery where delivery is refused) or, if sent by
telecopier, telex, telegram, or other facsimile means, upon receipt of
appropriate confirmation of receipt, or five (5) days after deposit with the
United States Postal Service, by registered or certified mail, or one (1) day
after deposit with next day air courier, with postage and fees prepaid and
addressed to the party entitled to such notice at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days advance written notice to the other parties to this
Agreement.
8.7 EXPENSES. Except as otherwise specified in this Agreement,
irrespective of whether the Initial Closing or the NASD Approval Closing is
effected, each party hereto shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise specified in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investor. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Securities purchased under this Agreement at the time outstanding (including
securities into which such Securities are convertible), each future holder of
all such Securities, and the Company.
8.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
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<PAGE>
8.10 AGGREGATION OF STOCK. All shares of Common Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
8.11 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and other
documents delivered expressly hereby constitute the full and entire
understanding and agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants or agreements except as
specifically set forth herein and therein.
8.12 PRESS RELEASES. The Company agrees not to issue any press
release concerning the transactions contemplated by this Agreement, the terms of
which are not reasonably acceptable to Investor.
8.13 EXCHANGE ACT FILINGS. The Company agrees to consult with
Investor before filing with the SEC any information required under the Exchange
Act concerning the transactions contemplated by this Agreement and agrees to
consider in good faith all reasonable comments received from Investor in
connection therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
------------------------------------------
Title Vice President
----------------------------------------
Address: 5935 Darwin Court
Carlsbad, CA 92008
INVESTOR
/s/ Dennis J. Carlo, Ph.D.
---------------------------------------------
Dennis J. Carlo, Ph.D.
Address: The Immune Response
Corporation
5935 Darwin Court
Carlsbad, CA 92008
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THIS WARRANT IS NON-TRANSFERABLE AND
MAY ONLY BE EXERCISED BY THE ORIGINAL PURCHASER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
*****************************************
The Immune Response Corporation
COMMON STOCK PURCHASE WARRANT
*****************************************
This certifies that, for good and valuable consideration, The Immune
Response Corporation, a Delaware corporation (the "Company"), grants to Dennis
J. Carlo, Ph.D. (the "Warrantholder"), the right to subscribe for and purchase
from the Company 253,715 validly issued, fully paid and nonassessable shares
(the "Warrant Shares") of the Company's Common Stock, $.0025 par value (the
"Common Stock"), at the purchase price per share of $14 (the "Exercise Price"),
exercisable at any time and from time to time during the period (the "Exercise
Period") commencing on the 17th day of April, 1997 and ending on the fourth
anniversary of the date hereof, all subject to the terms, conditions and
adjustments herein set forth.
- --------------------------------------------------------------------------------
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<PAGE>
1. DURATION AND EXERCISE OF WARRANT; CALL OF WARRANT; PAYMENT OF TAXES;
INFORMATION.
1.1 DURATION AND EXERCISE OF WARRANT.
(a) CASH EXERCISE. This Warrant may be exercised in whole or in part by
the Warrantholder by (i) the surrender of this Warrant to the Company, with a
duly executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business hours on any Business Day during the Exercise
Period and (ii) the delivery of payment to the Company, for the account of the
Company, by wire transfer of immediately available funds to a bank account
specified by the Company of the Exercise Price for the number of Warrant Shares
specified in the Exercise Form in lawful money of the United States of America.
(b) NET ISSUE EXERCISE. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised in whole or in part by the
Warrantholder by the surrender of this Warrant to the Company, with a duly
executed Exercise Form marked to reflect Net Issue Exercise and specifying the
number of Warrant Shares to be purchased, during normal business hours on any
Business Day during the Exercise Period. Upon such exercise, the Warrantholder
shall be entitled to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant to the Company
together with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y x (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock purchasable under this
Warrant, or any lesser number of shares as to which this
Warrant is being exercised (at the date of such calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation);
B = the Exercise Price (as adjusted to the date of such calculation).
(c) OTHER FORMS OF EXERCISE. This Warrant may also be exercised in whole
or in part by the Warrantholder by (i) the surrender of this Warrant to the
Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day during
the Exercise Period and (ii) payment of the Exercise
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<PAGE>
Price, in whole or in part, by delivery to the Company of (A) shares of Common
Stock owned by the Warrantholder having a fair market value as of the close of
business on the date on which this Warrant shall have been surrendered equal to
the portion of the Exercise Price being paid in such shares, or (B) irrevocable
instructions to a broker-dealer to sell (or margin) a sufficient portion of the
Warrant Shares and deliver the sale (or margin loan) proceeds directly to the
Company to pay for the Exercise Price.
(d) PROCEDURAL ISSUES. All Warrant Shares issued pursuant to this Section
1.1 shall be deemed to be issued to the Warrantholder as the record holder of
such Warrant Shares as of the close of business (i) on the date on which this
Warrant shall have been surrendered and payment made for the Warrant Shares, if
issued pursuant to Section 1.1(a) or Section 1.1(c), or (ii) on the date on
which this Warrant shall have been surrendered, if issued pursuant to Section
1.1(b). A stock certificate or certificates for the Warrant Shares specified in
the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within ten (10) days, thereafter. The stock
certificate or certificates so delivered shall be in denominations of 100 shares
each or such lesser or greater denominations as may be reasonably specified by
the Warrantholder in the Exercise Form. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of Common
Stock prior to the date as of which the Warrantholder shall be deemed to be the
record holder of such Warrant Shares.
(e) FAIR MARKET VALUE. For purposes of Sections 1.1(b), 1.1(c), 1.2 and
6.1(d), fair market value of one share of the Company's Common Stock shall mean:
(i) the closing price per share of the Company's Common Stock on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading or,
(ii) if not listed or traded on any such exchange, the last reported
sales price per share on the Nasdaq National Market or the Nasdaq Small-Cap
Market (collectively, "Nasdaq") or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked price per share as reported in the "pink
sheets"
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published by the National Quotation Bureau, Inc. (the "pink sheets") or,
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 CALL OF WARRANT BY COMPANY. If at any time prior to the exercise of
this Warrant in full, the fair market value of one share of the Company's Common
Stock remains equal to or greater than $28 over any consecutive forty-five (45)
day period (the "Threshold Period"), the Company shall have the option to
purchase this Warrant from Warrantholder for $.05 per Warrant Share. To
exercise this call option, the Company shall, within thirty (30) days following
termination of the Threshold Period, and at least thirty (30) days prior to
exercise of the option, provide the Warrantholder with written notice specifying
the date the option will be exercised. The Warrantholder then shall have ten
(10) days after receipt of such notice to exercise its rights under this
Warrant.
If the Company fails to exercise this call option in the manner and within
the time periods specified in this Section 1.2, the Company shall be deemed to
have waived its right to invoke such option and Warrantholder shall retain all
rights granted to it under this Warrant as though the Threshold Period had never
occurred; PROVIDED, HOWEVER, that the Company's call option shall be revived
should the Company's Common Stock again trade at or above $28 for an additional
Threshold Period following any previous waiver by the Company of such option.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; PROVIDED, HOWEVER, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.4 INFORMATION. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the business and operations of the
Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
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<PAGE>
2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1 RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES LAWS. This
Warrant is not assignable. The Warrant Shares issued upon the exercise of the
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and transferee (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if such are
requested by the Company). The Warrantholder, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon exercise
hereof are being acquired solely for the Warrantholder's own account and not as
a nominee for any other party, and for investment, and that the Warrantholder
will not offer, sell or otherwise dispose of any Warrant Shares to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the Securities Act or any state securities laws. Upon exercise of
this Warrant, the Warrantholder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the Warrantholder's own account and not
as a nominee for any other party, for investment, and not with a view toward
distribution or resale.
2.2 RESTRICTIVE LEGENDS. This Warrant shall (and each Warrant issued in
substitution for this Warrant issued pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
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Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. RESERVATION AND LISTING OF SHARES, ETC.
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company
reasonably may require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor. The term "Warrant" as used in this agreement shall be deemed to
include any Warrants issued in substitution or exchange for this Warrant.
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
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(a) STOCK DIVIDENDS. If at any time prior to the exercise of this Warrant
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of subdivision or split-up, as the case may be, the number of
shares of Common Stock to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(b) COMBINATION OF STOCK. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) REORGANIZATION, ETC. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or any sale, lease or
other transfer of all or substantially all of the assets of the Company to any
other person, shall be effected in such a way that the holders of Common Stock
shall be entitled to receive stock, other securities or assets, including cash
(whether such stock, other securities or assets are issued or distributed by the
Company or another person) with respect to or in exchange for Common Stock,
then, upon exercise of this Warrant the Warrantholder shall have the right to
receive the kind and amount of stock, other securities or assets receivable upon
such reorganization, reclassification, consolidation, merger or sale, lease or
other transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.
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(d) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of this
Warrant. Instead of any fractional shares of Common Stock that would otherwise
be issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then current fair market value per share of
Common Stock, determined in accordance with Section 1.1(e) hereof.
(e) CARRYOVER. Notwithstanding any other provision of this Section 6, no
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) EXERCISE PRICE ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) NO DUPLICATE ADJUSTMENTS. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of the
Warrant or upon the exercise of this Warrant.
6.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
etting forth a brief statement of the
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facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
7. REGISTRATION RIGHTS.
7.1 CERTAIN ADDITIONAL DEFINITIONS.
As used in this Warrant, the following capitalized terms shall have the
following meanings:
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing with the SEC a registration statement or
similar document in compliance with the Securities Act, and such registration
statement or document becoming effective under the Securities Act.
"REGISTRABLE SECURITIES" shall mean (i) the Warrant Shares and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Warrant Shares.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Warrant, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
7.2 REGISTRATION. Upon the written request of Warrantholder (a "Demand
Request"), but in no event later than four (4) years from the date hereof, the
Company shall:
(a) within ten (10) days of the Company's receipt of a Demand Request,
give written notice of such request to all holders of Registerable Securities
("Holders");
(b) prepare and file with the SEC within sixty (60) days of the Company's
receipt of a Demand Request, and use its reasonable best efforts to have
declared effective by the SEC, a Registration Statement on any appropriate form
under the Securities Act as may then be available to the Company relating to
resale of all of the Registrable Securities which the Holders
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request to be registered within twenty (20) days of the mailing of the notice
required under Section 7.2(a) and use its reasonable best efforts to cause such
Registration Statement to remain continuously effective for a period of one (1)
year or such shorter period which will terminate when all Registrable Securities
covered by such Registration Statement have been sold; PROVIDED that a
registration will not count as the permitted demand registration until the
Registration Statement becomes effective and remains effective for the period
specified herein, so long as such registration is not withdrawn at the request
of the holder;
(c) prepare and file with the SEC such amendments, supplements and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep such Registration Statement effective for the period
specified in Section 7.2(a) and to comply with the provisions of the Securities
Act and the Exchange Act with respect to the distribution of all Registrable
Securities during such period;
(d) notify the Warrantholder promptly, and confirm such notice in writing,
(i) when the Prospectus or any supplement or post-effective amendment has been
filed and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or Prospectus or for
additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) when a Prospectus or a
Prospectus supplement is required to be delivered under the Securities Act upon
discovery that the Prospectus, as then in effect, includes an untrue statement
of material fact or omits to state a material fact necessary to make the
statements therein not misleading in light of the circumstances then existing,
which requires amendment or supplementation of the Registration Statement or
Prospectus;
(e) use its reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(f) deliver to the Warrantholder without charge as many copies of the
Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as Warrantholder may reasonably request in order to
facilitate the disposition of the Registrable Securities in compliance with the
Securities Act;
(g) cause all Registrable Securities covered by the Registration Statement
to be listed on each securities exchange or market on which shares of the Common
Stock are then listed,
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and if the shares of the Common Stock are not so listed, use its reasonable best
efforts promptly to cause all such Registerable Securities to be listed on
either the New York Stock Exchange, the American Stock Exchange or the Nasdaq
Stock Market;
(h) use its reasonable best efforts to qualify or register the Registrable
Securities for sale under (or obtain exemptions from the application of) the
Blue Sky laws of such jurisdictions as are reasonably requested by Investor.
The Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to general service of process
or taxation as a foreign corporation in any jurisdiction where it is not now so
subject;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC under the Securities Act and the
Exchange Act and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder.
Warrantholder shall furnish to the Company such information regarding the
distribution of such securities as the Company may from time to time reasonably
request in writing.
If the Company delivers a certificate in writing to Warrantholder to the
effect that a delay in the sale of Registrable Securities by Warrantholder under
the Registration Statement is necessary because a sale pursuant to such
Registration Statement in its then current form would reasonably be expected to
constitute a violation of the federal securities laws, then Warrantholder shall
agree not to sell or otherwise transfer such Registrable Securities for the
period of time specified by the Company in its certificate. In no event shall
such delay exceed ten (10) business days; PROVIDED, HOWEVER, that if, prior to
the expiration of such ten (10) business day period, the Company delivers a
certificate in writing to Warrantholder to the effect that a further delay in
such sale beyond such ten (10) business day period is necessary because a sale
pursuant to such Registration Statement in its then current form would
reasonably be expected to constitute a violation of the federal securities laws,
the Company may refuse to permit Warrantholder to resell any Registrable
Securities pursuant to such Registration Statement for one additional period not
to exceed five (5) business days.
7.3 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees with respect to the filings required to
be made with the National Association of Securities Dealers, Inc., fees and
expenses of compliance with the securities or Blue Sky laws, printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, fees and
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disbursements of all independent certified public accountants of the Company,
fees and expenses incurred in connection with the listing of the securities,
rating agency fees and the fees and expenses of any person, including special
experts, retained by the Company, will be borne by the Company, regardless of
whether the Registration Statement becomes effective; PROVIDED, HOWEVER, that
the Company will not be required to pay discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or fees
or disbursements of any counsel to Warrantholder.
7.4 UNDERWRITTEN REGISTRATIONS; SELECTION OF UNDERWRITER. If the
Warrantholder so elects, the offering of Registerable Securities shall be in the
form of an underwritten offering and the Company shall have the exclusive right
to designate the managing underwriter or underwriters with respect to the
related offering of the Registerable Securities, which underwriter or
underwriters must be reasonably acceptable to the Warrantholder.
7.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as Warrantholder may reasonably request, all to
the extent required to enable Warrantholder to sell Registrable Securities
without registration under the Securities Act in reliance on the exemption
provided by Rule 144 or Rule 144A or any successor or similar rules or statues.
Upon the request of Warrantholder, the Company will deliver to Warrantholder a
written statement as to whether the Company has complied with such information
and requirements.
7.6 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Securities and all related rights granted to
Warrantholder by the Company under this Section 7 may be transferred or assigned
by Warrantholder only to a transferee or assignee of not less than 100,000
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like), PROVIDED that the Company is given written notice at the time of
or within a reasonable time after such transfer or assignment, stating the name
and address of the transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and, PROVIDED FURTHER, that the transferee or assignee of such rights assumes
the obligations of Warrantholder under this Section 7.
7.7 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, Warrantholder
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Warrantholder (other than those included in
the registration) during the one hundred twenty (120) day period
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following the effective date of a registration statement of the Company filed
under the Securities Act.
The obligations described in this Section 7.7 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the Securities subject to the foregoing restriction until the
end of such one hundred twenty (120) day period.
Each time the Company invokes its Market Stand-off rights under this
Section 7.7 while the Warrantholder is entitled to make a Demand Request, the
period during which the Warrantholder shall be entitled to make a Demand Request
under Section 7.2 hereof shall be extended by an additional one hundred twenty
(120) days; PROVIDED, HOWEVER, that the Warrantholder's Demand Request period
will not be extended following the first Market Stand-Off unless such Market
Stand-Off occurs within one hundred twenty (120) days of the expiration of the
Warrantholder's Demand Request period.
7.8 INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Warrantholder, any person or entity to or through whom the
Warrantholder sells Registerable Securities that may be deemed to be an
underwriter (as defined in the Securities Act), any officer, director, partner
or agent thereof, and each person, if any, who controls the Warrantholder or
underwriter within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
United States federal or state securities 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, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in any related registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto or offering circular or in any application
or other document or communication executed by or on behalf of the Company
relating to such registration (together, "Selling Documents"), (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, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or other United States federal or state securities law, or any rule
or
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regulation promulgated under the Securities Act, the Exchange Act or other
United States federal or state securities law; and the Company will pay to the
Warrantholder, underwriter or controlling person any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action as incurred; PROVIDED, HOWEVER,
that the indemnity agreement contained in this subsection 7.8(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 for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Warrantholder, underwriter or
controlling person.
(b) To the extent permitted by law, the Warrantholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the Selling Document, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any officer,
director, partner or agent thereof and any controlling person of any such
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other United States federal or state
securities law insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Warrantholder expressly for use in connection with such registration; and the
Warrantholder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 7.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subsection 7.8(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 Warrantholder, which consent shall not be
unreasonably withheld; PROVIDED FURTHER, that in no event shall any indemnity
under this subsection 7.8(b) exceed the proceeds (net of underwriting discounts
and commissions) from the related offering of the Registerable Securities
received by the Warrantholder.
(c) After receipt by an indemnified party under this Section 7.8 of notice
of the commencement of any action (including any governmental action) involving
a claim referred to in Sections 7.8(a) or 7.8(b) hereof, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 7.8, deliver to the
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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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses 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 differing
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 7.8, 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 7.8.
(d) If the indemnification provided for in this Section 7.8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations;
PROVIDED, HOWEVER, that in any such case, (A) the Warrantholder will not be
required to contribute any amount in excess of the proceeds (net of underwriting
discounts and commissions) received by the Warrantholder from all Registrable
Securities offered and sold by the Warrantholder pursuant to the applicable
Selling Document; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the Violation relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into by the Company in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control, PROVIDED that the Warrantholder is a signatory to the
underwriting agreement.
(f) The obligations of the Company and the Warrantholder under this
Section 7.8 shall survive the completion of any offering of Registrable
Securities in a Registration Statement under this Section 7 and otherwise.
8. NOTICES OF CORPORATE ACTION.
In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivision (i), and at least 20 days prior to the date therein
specified, in the case of the date referred to in the foregoing subdivision
(ii).
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9. DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
BUSINESS DAY: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of New York, State of
New York.
CHANGE OF CONTROL: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corporation, (ii) the sale of all or substantially all of the
assets of the Company to any other person or (iii) any sale or transfer of any
capital stock of the Company after the date of this agreement, following which
more than fifty percent (50%) of the combined voting power of the Company
becomes beneficially owned by one person or group acting together. For purposes
of this definition, "group" shall have the meaning as such term is used in
Section 13(d)(1) under the Exchange Act.
COMPANY: The Immune Response Corporation, a Delaware corporation.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
EXERCISE FORM: an Exercise Form in the form annexed hereto as Exhibit A.
EXERCISE PRICE: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 6 hereof.
NASDAQ: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
SECURITIES ACT: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
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<PAGE>
WARRANTHOLDER: the meaning specified on the cover of this Warrant.
WARRANT SHARES: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 6.
10. MISCELLANEOUS.
10.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant and
supersede all prior agreements and understandings, both written and oral, with
regard to the subject matter hereof.
10.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
10.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
10.4 SECTION AND OTHER HEADINGS. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
10.5 FURTHER ASSURANCES. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this agreement.
10.6 NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
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<PAGE>
(a) if to the Company, addressed to:
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Attention: President
Telecopier: (619) 431-8636
(b) if to the Warrantholder, addressed to:
Dennis J. Carlo, Ph.D.
The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Telecopier: (619) 431-8636
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10.7 SEVERABILITY. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.8 GOVERNING LAW. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this Warrant,
the Warrantholder and the Company hereby consent to the jurisdiction of any
federal or state court having proper venue within the State of California and
also consent to the service of process by any means authorized by California or
federal law.
4
10.9 TERMINATION. This Warrant shall expire at 5:00 P.M., Pacific standard
time, on the fourth anniversary hereof; PROVIDED, HOWEVER, that the rights and
obligations of the Company and the Warrantholder under Section 7.8 hereof shall
survive such termination.
10.10 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company until the Warrantholder exercises this Warrant in
whole or in part, or as imposing any liabilities on the Warrantholder to
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<PAGE>
purchase any securities whether such liabilities are asserted by the Company or
by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: April 17, 1997.
THE IMMUNE RESPONSE CORPORATION
By /s/ Charles J. Cashion
------------------------------------------
Title Vice President
----------------------------------------
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<PAGE>
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
/ / herewith tenders payment for _______ of the Warrant Shares to the
order of The Immune Response Corporation in the amount of $_________
in accordance with the terms of this Warrant; or
/ / herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of the Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired for investment solely
for the account of the undersigned and not as a nominee for any other party, and
that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: .
-------------------
Signature
------------------------------
------------------------------
(Print Name)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
<PAGE>
PROMISSORY NOTE
Loan Amount: $1,484,232.75 Carlsbad, California
Interest Rate: 5.73% April 17, 1997
FOR VALUE RECEIVED, the undersigned, DENNIS J. CARLO, Ph.D.
("Borrower"), hereby promises to pay to the order of THE IMMUNE RESPONSE
CORPORATION, a Delaware corporation ("Lender"), at 5935 Darwin Court, Carlsbad,
California, 92008 or such other place as Lender may designate by written notice
to Borrower, by wire transfer of immediately available funds, the principal sum
of ONE MILLION FOUR HUNDRED EIGHTY-FOUR THOUSAND TWO HUNDRED THIRTY-TWO AND
75/100 DOLLARS ($1,484,232.75), with interest, to be paid as set forth below.
1. PAYMENTS. The entire principal balance of this Promissory Note (this
"Note"), together with all accrued and unpaid interest thereon, shall be due and
payable on September 30, 1997 (the "Maturity Date"). Interest on the
outstanding principal balance hereunder shall accrue at the rate of 5.73% per
annum, calculated on the basis of a three hundred and sixty-five day year.
2. PURPOSE OF NOTE. Borrower acknowledges that the purpose of the loan
evidenced by this Note is to provide partial financing for the purchase of
253,715 shares of Lender's common stock and warrants to purchase 253,715 shares
of such common stock.
3. PREPAYMENT. Borrower may prepay all or any portion of this Note at
any time without penalty, fee or acceleration prior to the Maturity Date of this
Note.
4. SECURITY. This Note is a full-recourse note. Payment of this Note is
secured by a certain Stock Pledge Agreement (the "Pledge Agreement") of even
date herewith among Borrower, Lender, and Kevin B. Kimberlin, as Pledgor,
encumbering Pledgor's interest in certain shares of capital stock at such time
as permitted under that certain lock-up agreement to which Pledgor is a party
(described in EXHIBIT A hereto), and as more particularly described in the
Pledge Agreement.
5. ACCELERATION OF DUE DATE. The entire unpaid principal balance of this
Note, together with all accrued and unpaid interest thereon, shall, at the
election of
<PAGE>
Lender, become immediately due and payable upon the occurrence of any of the
following, irrespective of the payment schedule set forth in Paragraph 1 of this
Note:
(a) Any failure on the part of Borrower to make any payment under
this Note when the same is due;
(b) Any failure on the part of Borrower to perform or observe any of
his obligations under the Pledge Agreement or any other security instrument
which secures this Note as and when performance is due;
(c) If at any time Borrower shall admit in writing his inability to
pay his debts as they become due, or shall make any assignment for the
benefit of any creditors, or shall file a petition seeking any
reorganization, arrangement, composition, readjustment or similar release
under any present or future statute, law or regulation, or on the filing or
commencement of any petition, action, case or proceeding, voluntary or
involuntary, under any state or federal law regarding bankruptcy or
insolvency.
6. COLLECTION COSTS BORNE BY BORROWER. Borrower agrees to pay all costs
and expenses, including without limitation reasonable attorneys' fees, incurred
by Lender in any action brought to enforce the terms of this Note and/or to
collect this Note, and any appeal thereof.
7. MISCELLANEOUS.
(a) No delay or omission on the part of Lender in exercising any right
under this Note or under the Pledge Agreement or any other security agreement
given to secure this Note shall operate as a waiver of such right or of any
other right under this Note.
(b) In the event of default under this Note, Lender shall notify Borrower
and Pledgor and both Pledgor and Borrower shall have fifteen (15) days from the
date of notice of default and demand for payment in which to cure such default.
Such notice may be by written notice mailed to both Pledgor and Borrower at the
last address given to Lender by each and shall be deemed received three (3) days
after being mailed by certified, first-class mail, return receipt requested or
the next day mailed by overnight delivery.
(c) Borrower hereby waives presentment for payment, demand, notice of
demand and of dishonor and non-payment of this Note, protest and notice of
protest, diligence in
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<PAGE>
collecting, and the bringing of suit against any other party. The pleading of
any statute of limitations as a defense to any demand against the Borrower, any
endorsers, guarantors and sureties of this Note is expressly waived by each and
all of such parties to the extent permitted by law. Time is of the essence
under this Note, subject to Section 7(b).
(d) Any payment hereunder shall first be applied to any collection costs,
then against accrued and unpaid interest hereunder and then against the
outstanding principal balance of this Note.
8. LATE CHARGE. If payment of principal or interest under this Note
shall not be made within ten (10) days after the date due, Borrower agrees to
pay, in addition to the unpaid principal or interest, a sum equal to two percent
(2%) of the unpaid principal or interest, which sum Borrower agrees represents a
fair and reasonable estimate, considering all of the circumstances existing on
the date of this Note, of the costs and expenses incident to handling and
collecting such delinquent payment that will be sustained by Lender due to the
failure of Borrower to make timely payment. The parties further agree that
proof of actual damages would be costly and impracticable. Such charge shall be
paid without prejudice to the right of Lender to collect any other amounts
provided to be paid or to declare a default under this Note or under the Pledge
Agreement or from exercising any of the other rights and remedies of Lender.
9. GOVERNING LAW. This Note shall be governed by and interpreted in
accordance with the laws of the State of Delaware, except as they may be
preempted by federal law. In any action brought or arising out of this Note,
Borrower and Lender hereby consent to the jurisdiction of any federal or state
court having proper venue within the State of California and also consent to the
service of process by any means authorized by California or federal law.
10. DEFINITIONS.
BUSINESS DAY. As used in this Note the term "Business Day" shall mean
any day other than a Saturday, Sunday or a legal holiday observed by employees
of the State of California.
11. SUCCESSORS. This Note shall be binding upon Borrower and the personal
representatives, heirs, successors and assigns of Borrower.
12. SEVERABILITY. If any part of this Note is determined to be illegal or
unenforceable, all other parts shall remain in full force and effect.
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<PAGE>
13. MAXIMUM INTEREST PAYABLE. All agreements between the undersigned and
the holder hereof, whether now existing or hereafter arising and whether written
or oral, are hereby limited so that in no contingency, whether by reason of
acceleration of the maturity hereof or otherwise, shall the interest contracted
for, charged, received, paid or agreed to be paid to the holder hereof exceed
the maximum amount permissible under applicable law. If, from any circumstance
whatsoever, interest would otherwise be payable to the holder hereof in excess
of the maximum lawful amount, the interest payable to the holder hereof shall be
reduced to the maximum amount permitted under applicable law; and if from any
circumstance the holder hereof shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal hereof and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal hereof, such excess shall be
refunded to the undersigned. All interest paid or agreed to be paid to the
holder hereof shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in full
of the principal (including the period of any renewal or extension hereof) so
that the interest hereon for such full period shall not exceed the maximum
amount permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
/s/ Dennis J. Carlo, Ph.D.
---------------------------------------
Dennis J. Carlo, Ph.D.
-4-
<PAGE>
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT (this "Agreement") is made and entered into as
of April 15, 1997 by and among Dennis J. Carlo, an individual ("Beneficiary"),
Kevin B. Kimberlin, and individual ("Pledgor"), and THE IMMUNE RESPONSE
CORPORATION, a Delaware corporation ("Pledgee") with reference to the facts set
forth in the Recitals below:
RECITALS
WHEREAS, Pledgor is a co-founder of Pledgee and has been a director of
Pledgee since 1986;
WHEREAS, Beneficiary is the President, Chief Executive Officer and a
director of Pledgee;
WHEREAS, Pledgor is an individual of substantial net worth;
WHEREAS, Beneficiary and Pledgee have entered into a Unit Purchase
Agreement, of even date herewith, pursuant to which Beneficiary has purchased
from Pledgee 253,715 Units, each Unit consisting of one share of Pledgee's
Common Stock and a warrant to purchase one share of Pledgee's Common Stock. As
partial consideration for Pledgee's Units, and for other good and valuable
consideration, Beneficiary has delivered to Pledgee that certain Promissory Note
(the "Note"), dated as of April 17, 1997, executed by Beneficiary in favor of
Pledgee in the principal amount of ONE MILLION FOUR HUNDRED EIGHTY-FOUR THOUSAND
TWO HUNDRED THIRTY-TWO AND 75/100 DOLLARS ($1,484,232.75)(the "Loan");
WHEREAS, to induce Pledgee to make the Loan, Pledgor has agreed to pledge
to Pledgee as security for repayment of the Loan certain shares of capital stock
with a fair market value approximately equal to double the principal amount of
the Loan; and
WHEREAS, Beneficiary has agreed not to sell any shares of Pledgee's Common
Stock purchased pursuant to the Unit Purchase Agreement prior to maturity of the
Note and repayment of the Loan:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor, Pledgee and Beneficiary hereby agree as follows:
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<PAGE>
1. PLEDGE. In consideration of Pledgee's making of the Loan to
Beneficiary, receipt of which is hereby acknowledged, Pledgor hereby agrees and
covenants to pledge, grant a security interest in, assign, transfer and deliver
to Pledgee, as collateral security for the payment and performance in full when
due by Beneficiary of the Obligations (defined below), and on the earliest date
permitted under that certain lock-up agreement to which Pledgor is a party
(described in EXHIBIT A hereto, the "Lock-up Agreement"), a number of shares of
capital stock, more particularly described on the attached SCHEDULE 1, having an
aggregate fair market value at the time transferred to Pledgee equal to double
the principal amount of the Loan (collectively, the "Pledged Shares"), together
with the certificates evidencing same, which certificates shall be duly endorsed
in blank or accompanied by stock powers duly executed in blank.
From the date hereof until such time as the Pledged Shares may be
transferred to Pledgee in accordance with this Section 1 and the Lock-up
Agreement, Pledgor shall segregate and hold separate for safekeeping the Pledged
Shares and the certificates evidencing the same.
2. OBLIGATIONS SECURED. Subject only to the time restrictions contained
in the Lock-up Agreement, this Agreement is made, and the security interest
pledged herein will be given, to secure payment and performance in full of all
obligations (collectively the "Obligations") of Beneficiary owing to Pledgee
under the Note, and to secure performance in full of all Obligations of both
Beneficiary and Pledgor owing to Pledgee under this Agreement, together with all
extensions, amendments, restatements, modifications, supplements and renewals
thereof, when the same shall become due, whether at maturity, at a time fixed
for payment or by acceleration or otherwise, in accordance with the terms of the
Note, together with Beneficiary's and Pledgor's performance and compliance with
all other terms and conditions of this Agreement and any other agreement now or
in the future entered into between Beneficiary and Pledgee with respect to the
Loan or any modifications, amendments, restatements, supplements or renewals
thereof.
3. ATTORNEY-IN-FACT. Subject to the rights of Pledgor provided for in
this Agreement and the time restrictions contained in the Lock-up Agreement,
Pledgor hereby irrevocably agrees and covenants to appoint Pledgee as Pledgor's
attorney-in-fact, coupled with an interest, with full authority in the place and
stead of Pledgor and in the name of Pledgor, Pledgee or otherwise, from time to
time to take any action, execute any document, instrument or other agreement
which Pledgee reasonably may deem necessary or advisable, in its sole
discretion, to accomplish the purposes of this Agreement, including without
limitation, to
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<PAGE>
arrange for the transfer of the Pledged Shares on the books of the issuer to the
name of Pledgee.
4. DIVIDENDS. After the Pledged Shares have been transferred to Pledgee
in accordance with Section 1 hereof and for the remaining term of this
Agreement, all dividends and other amounts received in cash by Pledgee as a
result of Pledgee's record ownership of the Pledged Shares shall be applied to
the payment of the principal and interest on the Loan.
5. VOTING RIGHTS. During the term of this Agreement, and as long as
Beneficiary is not in default in the performance of any of the terms of this
Agreement, or in the payment of the principal or interest of the Loan, or with
respect to any of the other Obligations, Pledgor shall have the right to vote
the Pledged Shares on all corporate questions. Pledgee shall execute due and
timely proxies in favor of Pledgor to this end.
6. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents and
warrants: that Pledgor is the legal and beneficial owner of the Pledged Shares;
that Pledgor has owned the Pledged Shares for two (2) or more years; that there
are no restrictions on the transfer of any of the Pledged Shares, other than as
may appear on the face of the certificates thereof and those contained in the
Lock-up Agreement; that Pledgor has the right and power to transfer the Pledged
Shares free of any encumbrances or liens, without obtaining the consents of any
other party or parties; that Pledgor is not now and has never been an officer or
director of the issuer of the Pledged Shares; and that Pledgor is not now an
affiliate (as such term is defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended) of the issuer
of the Pledged Shares.
7. ADJUSTMENTS. In the event that during the term of this Agreement, any
share dividend, reclassification, readjustment or other change is declared or
made in the capital structure of the company that has issued the Pledged Shares,
all new, substituted and additional shares, or other securities issued by reason
of any such change with respect to the Pledged Shares, shall be transferred to
and held by Pledgee in the same manner as the Pledged Shares originally pledged
to Pledgee under this Agreement.
8. WARRANTS AND RIGHTS. In the event that during the term of this
Agreement, subscription warrants or any other rights or options shall be issued
in connection with the Pledged Shares, such warrants, rights and options shall
be immediately assigned by Pledgee to Pledgor, and if exercised by Pledgor, all
new shares or other securities so acquired by Pledgor as a result thereof shall
be immediately assigned
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<PAGE>
to Pledgee to be held in the same manner as the Pledged Shares originally
pledged under this Agreement and shall in all respects be subject to the terms
of this Agreement.
9. PAYMENT OF LOAN. Upon payment in full, at maturity, of all principal
and interest due to Pledgee under the Note, together with any other amounts due
to Pledgee under the terms of the Note or this Agreement, less amounts received
and applied by Pledgee in reduction of the Loan, and upon full satisfaction of
all of the other Obligations provided for under this Agreement and the Note,
Pledgee shall transfer to Pledgor all of the Pledged Shares and all rights
received by Pledgee as a result of Pledgee's record ownership of the Pledged
Shares and this Agreement shall terminate. Notwithstanding the above
requirement that the Obligations be satisfied in full prior to Pledgee's release
of its interest in the Pledged Shares under this Agreement, Pledgee shall extend
all reasonable cooperation to Pledgor in connection with any proposed sale by
Pledgor of the Pledged Shares, provided the proceeds of such sale shall be
applied by Pledgor to repay the Loan in full, together with all other amounts
owed to Pledgee with respect to the Obligations.
10. DEFAULT. In the event that Beneficiary defaults in the performance of
any of the material terms of this Agreement, or on the payment at maturity of
the principal or interest of the Loan, or defaults with respect to any of the
Obligations, Pledgee shall have all of the rights and remedies provided to it
and be subject to the obligations under the Delaware Uniform Commercial Code
with respect to such default or nonperformance. In this connection, after the
Pledged Shares have been transferred to Pledgee in accordance with Section 1
hereof, Pledgee may, as permitted by the Delaware Uniform Commercial Code, and
without liability for any diminution in price that may have occurred, sell all
of the Pledged Shares in the manner and for the price that Pledgee may determine
upon fifteen (15) days written notice to both Beneficiary and Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made. At any bona fide public sale, Pledgee shall be free to purchase all or
any part of the Pledged Shares. Out of the proceeds of any sale of the Pledged
Shares, Pledgee may retain an amount equal to the principal and interest then
due with respect to the Loan under the Note, plus any other amounts due with
respect to the Obligations or otherwise under the Note, plus the amount of the
expenses of the sale, and shall pay any balance of the proceeds of any sale to
Pledgor after satisfaction of all of the Obligations. If Beneficiary defaults
in the performance of any of the Obligations before the Pledged Shares have been
transferred to Pledgee in accordance with Section 1 hereof, or if the proceeds
of the sale of such Pledged Shares are insufficient to cover the principal and
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<PAGE>
interest of the Loan and other amounts due with respect to the Obligations,
including expenses of the sale, Beneficiary shall remain liable to Pledgee for
any deficiency in accordance with applicable provisions of the Delaware Uniform
Commercial Code.
11. MISCELLANEOUS. This Agreement and the Note shall be governed by and
interpreted in accordance with the laws of the State of Delaware, except as they
may be preempted by federal law. In any action brought or arising out of this
Agreement or the Note, Pledgor, Pledgee and Beneficiary hereby consent to the
jurisdiction of any federal or state court having proper venue within the State
of California and also consent to the service of process by any means authorized
by California or federal law. The headings used in this Agreement are for
convenience only and shall be disregarded in interpreting the substantive
provisions of this Agreement. Time is of the essence in each term of this
Agreement and the Note. If any provision of this Agreement or the Note shall be
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable, that portion shall be deemed severed therefrom and the remaining
parts shall remain in full force as though the invalid, illegal or unenforceable
portion had never been a part thereof. This Agreement may be executed in one or
more counterparts, all of which, taken together, shall constitute one and the
same Agreement. The Recitals and any Schedules attached to this Agreement are
hereby incorporated into this Agreement by this reference.
12. INTEGRATION; INTERPRETATION. The Agreement and the Note contain or
expressly incorporate by reference the entire agreement of the parties with
respect to the matters contemplated herein and supersede all prior negotiations.
The Agreement and the Note shall not be modified except by written instrument
executed by all parties.
13. FURTHER ASSURANCES; SUBSTITUTION OF COLLATERAL. Beneficiary and
Pledgor shall execute, acknowledge and deliver, upon written request of Pledgee,
any and all further documents, agreements or other instruments, and take such
further actions, as Pledgee may reasonably require for carrying out the purpose
and intent of the covenants set forth in this Agreement. If at any time, the
value of the Pledged Shares declines to such an extent that in the reasonable
opinion of Pledgee such collateral is inadequate either to secure satisfaction
of Beneficiary's Obligations or to satisfy the requirements of Federal Reserve
Board Regulation G, Pledgee may require Pledgor to substitute reasonably
equivalent collateral for some or all of the Pledged Shares as security for
Beneficiary's satisfaction of the Obligations, which substituted collateral
shall be acceptable to Pledgee in its sole discretion and shall be subject, in
all respects, to the terms and conditions of
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<PAGE>
this Agreement upon such substitution. Pledgor shall execute, acknowledge and
deliver such additional documents, agreements and instruments with respect to
such substituted collateral as Pledgee may require, including without
limitation, mortgages, deeds of trust or financing statements, in form and
content sufficient to perfect Pledgee's security interest in such substituted
collateral.
IN WITNESS WHEREOF, Pledgor, Pledgee and Beneficiary have caused this
Agreement to be duly executed as of the date first written above.
PLEDGOR PLEDGEE
THE IMMUNE RESPONSE CORPORATION
/s/ Kevin B. Kimberlin
- ------------------------------
Kevin B. Kimberlin
By /s/ Charles J. Cashion
-------------------------------------
Title Vice President
-----------------------------------
BENEFICIARY
/s/ Dennis J. Carlo, Ph.D.
- ------------------------------
Dennis J. Carlo, Ph.D.
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<PAGE>
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment"), dated as of April 17, 1997, to the
Rights Agreement, dated as of February 26, 1992 (the "Rights Agreement"),
between The Immune Response Corporation, a Delaware corporation (the "Company"),
and Harris Trust Company of California, as assignee of ChaseMellon Shareholder
Services, L.L.C., as Rights Agent (the "Rights Agent"), is made with reference
to the following facts:
A. The Company and the Rights Agent have heretofore entered into the
Rights Agreement. Pursuant to Section 27 of the Rights Agreement, the Company
and the Rights Agent may, from time to time, supplement or amend the Rights
Agreement in accordance with the provisions of such Section.
B. The Board of Directors of the Company has determined that it is in the
best interests of the Company to enter into those two certain Unit Purchase
Agreements, dated as of April 15, 1997 (the "Unit Purchase Agreements"), one
between the Company and Dennis J. Carlo, and the other between the Company and
Kevin B. Kimberlin, both individuals (the "Investors").
C. As a condition to entering into the Unit Purchase Agreements, the
Company is obligated to amend the Rights Agreement such that, with respect to
the execution of and the consummation of the transactions contemplated by the
Unit Purchase Agreements, Kevin B. Kimberlin is not or will not become an
"Acquiring Person" and that no "Stock Acquisition Date" or "Distribution Date"
(as such terms are defined in the Rights Agreement) will occur.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties hereto agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is hereby amended in its sub-section (ii) to read as follows:
(ii) the term Acquiring Person shall not mean (A) the Company, (B) any
subsidiary of the Company (as such term is hereinafter defined), (C) any
<PAGE>
employee benefit plan of the Company or any of its subsidiaries, (D) any
entity holding securities of the Company organized, appointed or
established by the Company or any of its subsidiaries for or pursuant to
the terms of any such plan or (E) Kevin B. Kimberlin, an individual, as a
result of the execution of the Unit Purchase Agreement, dated as of April
15, 1997, between Kevin B. Kimberlin and the Company (the "Unit Purchase
Agreement"), or as a result of the consummation of any of the transactions
contemplated by the Unit Purchase Agreement; and
2. The first sentence of Section 3(a) of the Rights Agreement is hereby
amended by adding the following to the end of such sentence:
; PROVIDED, HOWEVER, that in no event shall a Distribution Date be
deemed to occur as a result of the execution of the Unit Purchase
Agreement or as a result of the consummation of any of the
transactions contemplated by the Unit Purchase Agreement.
3. No "Stock Acquisition Date" shall be deemed to occur under the Rights
Agreement as a result of the execution of the Unit Purchase Agreements or as a
result of the consummation of any of the transactions contemplated by the Unit
Purchase Agreements.
4. All amendments made to the Rights Agreement in this Amendment shall be
deemed to apply retroactively as well as prospectively.
5. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with all laws of such State applicable to contracts to
be made and performed entirely within such State.
6. This Amendment may be executed in counterparts, each of which shall be
an original, but such counterparts shall together constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.
Attest: THE IMMUNE RESPONSE CORPORATION
By: /s/ David J. Vandertie By: /s/ Charles J. Cashion
------------------------ ---------------------------
Title: Controller Title: Vice President
--------------------- ------------------------
Attest: HARRIS TRUST COMPANY OF CALIFORNIA
By: /s/ Michael Goedecke By: /s/ John Castellanos
------------------------ ---------------------------
Title: Asst. Vice President Title: Asst. Vice President
--------------------- ------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM ITEM 1 OF
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,760,041
<SECURITIES> 35,661,446
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,055,576
<PP&E> 10,184,506
<DEPRECIATION> 4,175,143
<TOTAL-ASSETS> 46,182,447
<CURRENT-LIABILITIES> 2,800,695
<BONDS> 0
0
0
<COMMON> 50,722
<OTHER-SE> 43,331,030
<TOTAL-LIABILITY-AND-EQUITY> 43,381,752
<SALES> 0
<TOTAL-REVENUES> 1,608,837
<CGS> 0
<TOTAL-COSTS> 9,592,161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,983,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,983,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,983,324)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
