<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
===============================================================================
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1996 Commission File No. 0-18734
LIDAK PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0314804
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11077 N. TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (619) 558-0364
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 periods 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 class of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 10, 1996
<S> <C>
Class A common stock, no par value 32,605,513
Class B common stock, no par value 283,000
</TABLE>
<PAGE> 2
LIDAK Pharmaceuticals
FORM 10-Q
For the quarter ended March 31, 1996
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets at September 30, 1995 and
March 31, 1996........................................................ 3
Statements of Operations for the three and six month periods
ended March 31, 1995 and 1996 and for the period
from August 31, 1988 (inception) to March 31, 1996.................... 4
Statements of Stockholders' Equity (Deficit) from August
31, 1988 (inception) to March 31, 1996................................ 5
Statements of Cash Flows for the six month periods
ended March 31, 1995 and 1996 and for the period
from August 31, 1988 (inception) to March 31, 1996.................... 9
Notes to Financial Statements......................................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................... 17
Item 6. Exhibits and Reports on Form 8-K...................................... 17
SIGNATURES ...................................................................... 18
</TABLE>
<PAGE> 3
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
September 30, March 31,
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,244,575 $ 21,782,479
Short-term investments 5,791,152 1,925,555
Interest receivable 54,751 164,271
Prepaid and other 182,931 116,037
------------ ------------
Total current assets 10,273,409 23,988,342
PROPERTY - at cost (less accumulated depreciation of $178,729 and $220,450) 241,486 241,171
PATENTS AND PATENTS PENDING (less accumulated amortization
of $18,719 and $29,243) 438,883 464,970
DEFERRED DEBT ISSUE COSTS -- 504,311
OTHER ASSETS 265 265
------------ ------------
TOTAL $ 10,954,043 $ 25,199,059
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,520,231 $ 787,592
Accrued compensation and payroll taxes 168,885 170,324
Due to MBI 16,327 22,768
Deferred revenue -- 500,000
------------ ------------
Total current liabilities 1,705,443 1,480,684
------------ ------------
LONG-TERM DEBT:
Convertible notes payable -- 10,333,332
------------ ------------
Total liabilities 1,705,443 11,814,016
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - no par value:
Class A - 99,490,000 shares authorized;
29,847,064 and 31,307,015 shares issued and outstanding 37,235,484 42,024,670
Class B - 510,000 shares authorized;
343,000 and 283,000 shares issued and outstanding (convertible to
Class A common stock) 179,073 147,748
Deficit accumulated during the development stage (28,165,957) (28,787,375)
------------ ------------
Total stockholders' equity 9,248,600 13,385,043
------------ ------------
TOTAL $ 10,954,043 $ 25,199,059
============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE> 4
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AUGUST 31, 1988
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31, MARCH 31,
---------------------------- -----------------------------
1995 1996 1995 1996 1996
<S> <C> <C> <C> <C> <C>
REVENUES:
License fees/Contract research $ 3,000,000 $ 3,000,000 $ 3,965,825
------------
Federal research grants 11,332 17,832 758,609
Interest and other $ 210,173 279,336 $ 423,131 469,371 2,605,747
------------ ------------ ------------ ------------ ------------
Total revenues 210,173 3,290,668 423,131 3,487,203 7,330,181
------------ ------------ ------------ ------------ ------------
EXPENSES:
Research and development 1,875,163 1,115,346 2,967,451 2,556,769 22,369,152
General and administrative 983,823 901,709 1,855,904 1,551,852 13,083,028
Cost of contract research 533,270
Interest 132,106
------------ ------------ ------------ ------------ ------------
Total expenses 2,858,986 2,017,055 4,823,355 4,108,621 36,117,556
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,648,813) $ 1,273,613 $ (4,400,224) $ (621,418) $(28,787,375)
============ ============ ============ ============ ============
NET EARNINGS (LOSS) PER SHARE $ (0.09) $ 0.04 $ (0.15) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 29,113,794 32,655,301 28,874,880 30,797,315
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------
SERIES A SERIES B
----------------- --------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share
Issuance of preferred stock in October
1988 for license and other rights 2,000,000 $1
Issuance of common stock for cash in
October 1988 at $.05 per share
Issuance of common stock for cash in
January 1989 at $.05 per share
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share)
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share)
Collection on notes receivable
Net loss
--------- -- ------ ------
BALANCE, SEPTEMBER 30, 1989 2,000,000 1
Conversion of advances to common stock in
October 1989 at $.50 per share
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280)
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500)
Exercise of stock options in July and
August 1990 at $.50 per share
Forgiveness of compensation obligation
Collection on notes receivable
Net loss
--------- -- ------ ------
BALANCE, SEPTEMBER 30, 1990 2,000,000 1
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1)
------------------------------------------
CLASS A CLASS B
--------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share 4,235,000 $ 52,937
Issuance of preferred stock in October
1988 for license and other rights
Issuance of common stock for cash in
October 1988 at $.05 per share 80,000 4,000
Issuance of common stock for cash in
January 1989 at $.05 per share 80,000 4,000
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share) 22,500
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share) 400,000 20,000
Collection on notes receivable
Net loss
--------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1989 4,795,000 103,437
Conversion of advances to common stock in
October 1989 at $.50 per share 250,000 125,000
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280) 5,000,000 $3,966,820
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500) 750,000 652,500
Exercise of stock options in July and
August 1990 at $.50 per share 21,500 10,750
Forgiveness of compensation obligation 66,923
Collection on notes receivable
Net loss
--------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1990 5,750,000 4,619,320 5,066,500 306,110
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NOTES
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
----- ------------ -----
<S> <C> <C> <C>
BALANCE, AUGUST 31, 1988 (INCEPTION)
Issuance of common stock for notes
receivable and cash in September 1988
at $.0125 per share $(14,525) $ 38,412
Issuance of preferred stock in October
1988 for license and other rights 1
Issuance of common stock for cash in
October 1988 at $.05 per share 4,000
Issuance of common stock for cash in
January 1989 at $.05 per share 4,000
Issuance of stock options effective in
August 1989 to purchase 600,000 shares
of Class B common stock at $.0125 per
share (with an estimated fair market value
of $.05 per share) 22,500
Issuance of common stock for cash in
September 1989 at $.0125 per share
(with an estimated fair market value
of $.05 per share) 20,000
Collection on notes receivable 1,635 1,635
Net loss $ (409,718) (409,718)
---------- -------- --------
BALANCE, SEPTEMBER 30, 1989 (409,718) (12,890) (319,170)
Conversion of advances to common stock in
October 1989 at $.50 per share 125,000
Issuance of common stock for cash in May
1990 at $1.00 per share (net of stock
issue costs totalling $1,033,280) 3,966,820
Issuance of common stock for cash in June
1990 at $1.00 per share (net of stock
issue costs totalling $97,500) 652,500
Exercise of stock options in July and
August 1990 at $.50 per share 10,750
Forgiveness of compensation obligation 66,923
Collection on notes receivable 12,890 12,890
Net loss (2,319,231) (2,319,231)
---------- -------- --------
BALANCE, SEPTEMBER 30, 1990 (2,728,949) - 2,196,482
</TABLE>
(Continued) - 1.
5
<PAGE> 6
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK (1)
-------------------------------------- -----------------------
SERIES A SERIES B CLASS A
----------------- ------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1990 2,000,000 $1 5,750,000 $ 4,619,320
Exercise of stock options in November
1990 at $.50 per share
Issuance of preferred stock in July 1991
for cash (net of stock issue costs
totalling $130,339) 960,003 $ 769,670
Conversion of common stock 115,000 5,750
Net loss
--------- -- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 30, 1991 2,000,000 1 960,003 769,670 5,865,000 4,625,070
Issuance of preferred stock in February 1992
for cash (net of stock issue costs
totalling $428,605) 4,266,680 3,571,395
Exercise of stock options in March 1992 at
$.50 per share
Exercise of Class A warrants in May 1992 at
$1.50 per share for cash (net of stock issue
costs totalling $317,930) 5,650,200 8,157,370
Conversion of common stock 395,000 6,250
Net loss
--------- -- --------- ---------- ---------- -----------
BALANCE, SEPTEMBER 30, 1992 2,000,000 1 5,226,683 4,341,065 11,910,200 12,788,690
Exercise of Unit Purchase Options between October
1992 and September 1993 for cash 793,645 600,010
Exercise of Class A Warrants between October 1992
and September 1993 at $.9450 per share for cash 793,645 749,995
Exercise of Class B Warrants between October 1992
and September 1993 at $2.25 per share for cash
(net of stock issue costs totalling $8,720) 96,897 209,298
Exercise of Class C Warrants between October 1992
and September 1993 at $1.00 per share for cash
(net of stock issue costs totalling $4,122) 103,050 98,928
Exercise of Class D Warrants between October 1992
and September 1993 at $1.50 per share for cash
(net of stock issue costs totalling $42,125) 836,335 1,212,376
Exercise of Class E Warrants between October 1992
and September 1993 at $.20 per share for cash 315,000 63,000
Exercise of Class F Warrants between October 1992
and September 1993 at $100,000 per warrant for
cash 320,000 300,000
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1) DEFICIT
-------------------- ACCUMULATED NOTES
CLASS B DURING THE RECEIVABLE
------------------ DEVELOPMENT FROM
SHARES AMOUNT STAGE STOCKHOLDERS TOTAL
------ ------ ----- ------------ -----
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1990 5,066,500 $306,110 $(2,728,949) - $ 2,196,482
Exercise of stock options in November
1990 at $.50 per share 2,000 1,000 1,000
Issuance of preferred stock in July 1991
for cash (net of stock issue costs
totalling $130,339) 769,670
Conversion of common stock (115,000) (5,750)
Net loss (1,949,588) (1,949,588)
--------- -------- ----------- --- ----------
BALANCE, SEPTEMBER 30, 1991 4,953,500 301,360 (4,678,537) - 1,017,564
Issuance of preferred stock in February 1992
for cash (net of stock issue costs
totalling $428,605) 3,571,395
Exercise of stock options in March 1992 at
$.50 per share 119,000 59,500 59,500
Exercise of Class A warrants in May 1992 at
$1.50 per share for cash (net of stock issue
costs totalling $317,930) 8,157,370
Conversion of common stock (395,000) (6,250)
Net loss (2,361,855) (2,361,855)
--------- -------- ----------- --- ----------
BALANCE, SEPTEMBER 30, 1992 4,677,500 354,610 (7,040,392) - 10,443,974
Exercise of Unit Purchase Options between October
1992 and September 1993 for cash 600,010
Exercise of Class A Warrants between October 1992
and September 1993 at $.9450 per share for cash 749,995
Exercise of Class B Warrants between October 1992
and September 1993 at $2.25 per share for cash
(net of stock issue costs totalling $8,720) 209,298
Exercise of Class C Warrants between October 1992
and September 1993 at $1.00 per share for cash
(net of stock issue costs totalling $4,122) 98,928
Exercise of Class D Warrants between October 1992
and September 1993 at $1.50 per share for cash
(net of stock issue costs totalling $42,125) 1,212,376
Exercise of Class E Warrants between October 1992
and September 1993 at $.20 per share for cash 63,000
Exercise of Class F Warrants between October 1992
and September 1993 at $100,000 per warrant for
cash 300,000
</TABLE>
(Continued) - 2.
6
<PAGE> 7
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------
SERIES A SERIES B
--------------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash 96,000 $ 90,000
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share
Compensation expense related to stock options
granted at an exercise price below fair market
value
Cancellation of Series A Preferred and Class B
Common Stock in July 1993 (1,500,000)
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement
Conversion of preferred and common stock (100,000) (5,642,653) (4,731,065)
Cancellation of partial shares (30)
Net loss
--------- --- --------- ----------
BALANCE, SEPTEMBER 30, 1993 400,000 $ 1 - -
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340)
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414)
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875)
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash 106,666 100,000
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share
Compensation expense related to stock options granted
at an exercise price below fair market value
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215)
Conversion of preferred and common stock (400,000) (1) (106,666) (100,000)
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994
Cancellation of partial shares
Net loss
--------- --- --------- ----------
BALANCE, SEPTEMBER 30, 1994 - - - -
--------- --- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (1)
----------------------------------------------
CLASS A CLASS B
------------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share 27,480 $ 37,480
Compensation expense related to stock options
granted at an exercise price below fair market
value 163,333
Cancellation of Series A Preferred and Class B
Common Stock in July 1993 28,003 (2,240,250) $(28,003)
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement 1,500,000 2,670,000
Conversion of preferred and common stock 6,040,653 4,790,121 (298,000) (59,056)
Cancellation of partial shares
Net loss
---------- ----------- --------- -------
BALANCE, SEPTEMBER 30, 1993 22,416,905 23,411,234 2,139,250 267,551
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash 17,202 24,384
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340) 4,312,060 9,160,795
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414) 106,340 101,926
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875) 78,335 114,627
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share 113,267 156,048
Compensation expense related to stock options granted
at an exercise price below fair market value 245,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215) 522,449 1,807,785
Conversion of preferred and common stock 653,416 113,911 (146,750) (13,910)
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994 (70,000) 20,794 (1,546,500) (20,794)
Cancellation of partial shares (3)
Net loss
---------- ----------- --------- -------
BALANCE, SEPTEMBER 30, 1994 28,149,971 35,156,504 446,000 232,847
---------- ----------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NOTES
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
----- ------------ -----
<S> <C> <C> <C>
Exercise of Preferred Stock Units between October 1992
and September 1993 for cash $ 90,000
Exercise of stock options in August 1993 and
September 1993 at exercise prices ranging from
$0.81 to $1.53 per share 37,480
Compensation expense related to stock options
granted at an exercise price below fair market
value 163,333
Cancellation of Series A Preferred and Class B
Common Stock in July 1993
Issuance of Class A Common Stock in July 1993 in
connection with amendment to a license agreement 2,670,000
Conversion of preferred and common stock
Cancellation of partial shares
Net loss $(6,139,223) (6,139,223)
----------- -- -----------
BALANCE, SEPTEMBER 30, 1993 (13,179,615) - 10,499,171
Exercise of non-redeemable Class B Warrants in
April 1994 at $1.4175 per share for cash 24,384
Exercise of redeemable Class B Warrants between
October 1993 and June 1994 at $2.25 per share for
cash (net of stock issue costs totalling $541,340) 9,160,795
Exercise of Class C Warrants between October 1993
and September 1994 at $1.00 per share for cash
(net of commissions totalling $4,414) 101,926
Exercise of Class D Warrants between October 1993
and September 1994 at $1.50 per share for cash
(net of commissions totalling $2,875) 114,627
Exercise of Class F Warrants between October 1993
and November 1993 at $100,000 per warrant for cash 100,000
Exercise of stock options between October 1993 and
September 1994 at exercise prices ranging from
$0.50 to $2.4375 per share 156,048
Compensation expense related to stock options granted
at an exercise price below fair market value 245,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in September 1994 (net
of issue costs of $192,215) 1,807,785
Conversion of preferred and common stock
Cancellation of Class A Common and Class B Common
Stock between January 1994 and May 1994
Cancellation of partial shares
Net loss (4,813,341) (4,813,341)
----------- -- -----------
BALANCE, SEPTEMBER 30, 1994 (17,992,956) - 17,396,395
----------- -- -----------
</TABLE>
See notes to financial statements. (Continued) - 3
7
<PAGE> 8
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 1988 (INCEPTION) TO MARCH 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------
SERIES A SERIES B
-------------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- -------- -------
<S> <C> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743)
Exercise of Class D Warrants in April 1995
and September 1995 at $1.50 per share for cash
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share
Compensation expense related to stock options
granted at an exercise price below fair market
value
Conversion of common stock
Net loss
---------- ----------- -------- -------
BALANCE, SEPTEMBER 30, 1995 - - - -
---------- ----------- -------- -------
OCTOBER 1, 1995 TO MARCH 31, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and March, 1996 at $1.50 per share for cash
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495)
Issuance of Class A Common Stock in February, 1996
from the conversion of Convertible Notes (net of
issue costs of $167,515)
Exercise of stock options between October, 1995
and March, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share
Conversion of common stock
Net loss
---------- ----------- -------- -------
BALANCE, MARCH 31, 1996 - - - -
========== =========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK(1)
---------------------------------------------------
CLASS A CLASS B
-------------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- -------- -------
<S> <C> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash 97,202 137,783
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743) 415,600 388,857
Exercise of Class D Warrants in April 1995
and September 1995 at $1.50 per share for cash 153,335 230,003
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash 85,000 17,000
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 842,956 1,121,771
Compensation expense related to stock options
granted at an exercise price below fair market
value 129,792
Conversion of common stock 103,000 53,774 (103,000) (53,774)
Net loss
---------- ----------- -------- -------
BALANCE, SEPTEMBER 30, 1995 29,847,064 37,235,484 343,000 179,073
---------- ----------- -------- -------
OCTOBER 1, 1995 TO MARCH 31, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and March, 1996 at $1.50 per share for cash 53,334 80,000
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash 25,000 5,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495) 481,651 1,416,505
Issuance of Class A Common Stock in February, 1996
from the conversion of Convertible Notes (net of
issue costs of $167,515) 707,159 2,999,152
Exercise of stock options between October, 1995
and March, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share 132,807 257,204
Conversion of common stock 60,000 31,325 (60,000) (31,325)
Net loss
---------- ----------- -------- -------
BALANCE, MARCH 31, 1996 31,307,015 $42,024,670 283,000 147,748
========== =========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE RECEIVABLE
DEVELOPMENT FROM
STAGE STOCKHOLDERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
OCTOBER 1, 1994 TO SEPTEMBER 30, 1995
Exercise of non-redeemable Class B Warrants in
January and February, 1995 at $1.4175 per
share for cash 137,783
Exercise of Class C Warrants between October,
1994 and June, 1995 at $1.00 per share for
cash (net of commissions totaling $26,743) 388,857
Exercise of Class D Warrants in April 1995
and September 1995 at $1.50 per share for cash 230,003
Exercise of Class E Warrants in April and August,
1995 at $0.20 per share for cash 17,000
Exercise of stock options between October, 1994
and September, 1995 at exercise prices ranging
from $0.50 per share to $3.56 per share 1,121,771
Compensation expense related to stock options
granted at an exercise price below fair market
value 129,792
Conversion of common stock
Net loss (10,173,000) - (10,173,000)
------------ ----- ------------
BALANCE, SEPTEMBER 30, 1995 (28,165,957) - 9,248,600
------------ ----- ------------
OCTOBER 1, 1995 TO MARCH 31, 1996 (Unaudited):
Exercise of Class D Warrants between October, 1995
and March, 1996 at $1.50 per share for cash 80,000
Exercise of Class E Warrants in March, 1996
at $0.20 per share for cash 5,000
Issuance of Class A Common Stock in connection with
Stock Purchase Agreement in November 1995 (net
of issue costs of $83,495) 1,416,505
Issuance of Class A Common Stock in February, 1996
from the conversion of Convertible Notes (net of
issue costs of $167,515) 2,999,152
Exercise of stock options between October, 1995
and March, 1996 at exercise prices ranging
from $0.50 per share to $3.56 per share 257,204
Conversion of common stock
Net loss (621,418) - (621,418)
------------ ----- ------------
BALANCE, MARCH 31, 1996 $(28,787,375) - $ 13,385,043
============ ===== ============
</TABLE>
(Concluded) - 4
8
<PAGE> 9
LIDAK PHARMACEUTICALS
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AUGUST 31, 1988
SIX MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
----------------------------
1995 1996 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,400,224) $ (621,418) $(28,787,375)
Adjustments to reconcile net loss to net cash used for
operating activities:
Technology license fee 3,545,713
Depreciation and amortization of patents 38,378 52,246 356,186
Amortization of deferred debt issue costs 99,524 99,524
Compensation paid with common stock and stock options 129,792 575,625
Compensation forgiven by stockholder 66,923
Imputed interest under technology license fees 82,613
Changes in assets and liabilities:
Interest receivable (35,676) (109,520) (164,271)
Prepaid and other (149,018) 66,894 (116,302)
Patents and patents pending (104,970) (36,611) (494,213)
Organizational costs (20,242)
Accounts payable 142,272 (732,639) 787,592
Accrued compensation and payroll taxes 49,601 1,439 170,324
Due to MBI (9,903) 6,441 22,768
Deferred revenue 500,000 500,000
------------ ------------ ------------
Net cash used for operating activities (4,339,748) (773,644) (23,375,135)
------------ ------------ ------------
INVESTING ACTIVITIES:
Short-term investments 469,832 3,865,597 (1,925,555)
Capital expenditures (58,784) (41,406) (461,621)
Note receivable - employee (12,004)
------------ ------------ ------------
Net cash provided by (used for) investing activities 399,044 3,824,191 (2,387,176)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock 585,051 1,842,203 38,634,895
Stock issue costs (6,850) (83,495) (2,913,703)
Advances for purchase of common stock 125,000
Collection of notes receivable for common stock 14,525
Proceeds from stockholder loans 322,788
Repayment of stockholder loans (322,788)
Proceeds from the issuance of convertible notes payable 13,500,000 13,500,000
Deferred debt issue costs (771,351) (771,351)
Proceeds from issuance of subordinated notes payable-net
of issue costs 538,750
Repayment of subordinated notes payable (625,000)
Payment on technology license fee (958,326)
------------ ------------ ------------
Net cash provided by financing activities 578,201 14,487,357 47,544,790
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,362,503) 17,537,904 21,782,479
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,495,888 4,244,575
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,133,385 $ 21,782,479 $ 21,782,479
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ -- $ -- $ 46,493
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND FINANCING ACTIVITIES:
In October 1989, advances of $125,000 were converted into 250,000 shares of
Class B Common Stock.
In December 1989, accrued compensation due to the Chairman of the Board and
Chief Executive Officer of $66,923 was converted into capital.
In May 1990 and September 1992, the Company recorded an expense and a liability
in the amount of $817,387 and $58,326, respectively, related to the technology
license agreement and the grant-in-aid agreement with MBI.
During 1993, the Company recorded expense and equity in the amount of $2,670,000
related to the amendment of the technology license agreement with MBI.
During 1993, 1994 and 1995, the Company recorded expense and equity in the
amount of $163,333, $245,000 and $81,666, respectively, related to the issuance
of stock options (below fair market value) as compensation for services provided
under a consulting agreement and $48,126 in 1995 related to compensation to an
employee.
In February 1996, $3,166,667 of Convertible Notes were converted into 707,159
shares of Class A Common Stock. In connection with this issuance $167,515 was
reclassified from Deferred Debt Issue Costs to Stock Issue Costs (See Note 4).
See notes to financial statements.
9
<PAGE> 10
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q. These statements should be
read in conjunction with the Company's audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995. In the opinion of management, the financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary to summarize fairly the Company's financial position
and results of operations. The results of operations for the three months
and six months ended March 31, 1996 are not indicative of the results that
may be expected for the year ending September 30, 1996.
Certain amounts in the Statements of Operations for August 31, 1988
(Inception) to March 31, 1996 have been reclassified to conform to the 1996
presentation.
2. CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less, or other investments which
provide for liquidity within three months.
3. CONVERTIBLE NOTES PAYABLE
In November 1995, December 1995 and January 1996 the Company sold a total
of $13.5 million of Convertible Notes (the "Notes") to institutional
investors as part of a private placement. The Notes accrue interest at an
annual rate of 7%, beginning six months from the date of issue, with the
principal due and payable two years from the date of issue if and to the
extent that the Notes are not previously converted. The Notes are
convertible at the option of the holder (subject to the maximum share
limitations set forth below) into Class A Common Stock at a price equal to
80% of the average closing bid price for the Class A Common Stock on the
NASDAQ for the seven trading days prior to the date of conversion.
The $13.5 million original principal amount of the Notes is convertible
into an aggregate maximum of 5,513,018 shares of the Company's Class A
Common Stock at the option of the holders, with each individual Note
limited to a pro-rata amount of such number of shares. As of March 31,
1996, $3,166,667 of the principal amount of Notes had been converted into
707,159 shares of Class A Common Stock (See Notes 5 & 9).
10
<PAGE> 11
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
3. CONVERTIBLE NOTES PAYABLE (CONTINUED)
In the event that shares of Class A Common Stock underlying a particular
Note cannot be issued upon request for conversion due to the above
referenced maximum share limitations, the Company is immediately obligated
to repay the principal of that portion of the Note which is presented for
conversion which cannot be converted plus a premium equal to 25% of such
principal plus any accrued and unpaid interest. At its option, the
holder(s) of the $3 million of the principal amount of the Notes sold in
January, 1996 can require the Company to issue shares of Class A Common
Stock at the then fair market value in exchange for the above-referenced
principal and premium payment.
4. DEFERRED DEBT ISSUE COSTS
Deferred debt issue costs represent costs related to the issuance of Notes
which will be amortized over the life of the Notes, for a maximum of
two-years from the date of issuance. As of March 31, 1996, $99,524 of
deferred debt issue costs have been amortized and $167,515 have been
reclassified to stock issue costs in connection with the conversion of
Notes (See Note 5). In the event the Notes are converted prior to their due
date, any remaining unamortized costs will be charged to the equity
resulting from the conversion of the Notes.
5. STOCKHOLDERS' EQUITY
In November 1995 the Company issued 481,651 shares of Class A Common Stock
for $1.5 million pursuant to a stock purchase agreement.
In February 1996, the Company issued 707,159 shares of Class A Common Stock
in connection with the conversion of $3,166,667 principal amount of
Convertible Notes. (See Note 9)
6. NET EARNINGS (LOSS) PER SHARE
Net earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during each period using
the treasury stock method. Under this method, stock options and warrants to
purchase Company's Class A Common Stock at March 31, 1996, are considered
to be common stock equivalents to the extent that they are not
anti-dilutive. Net loss per share is computed by dividing the net loss by
the weighted average of common stock outstanding during the period. Common
stock equivalents have not been included as they are anti-dilutive.
11
<PAGE> 12
LIDAK PHARMACEUTICALS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
===============================================================================
7. LICENSE AGREEMENT
In February 1996, the Company entered into an exclusive license agreement
with Bristol-Myers Squibb Company for the manufacture, marketing and
distribution of n-docosanol 10% cream (LIDAKOL(R) ) as a topical treatment
for oral herpes in the U.S. and Canada and all remaining major territories
throughout the world which are not currently licensed to other parties,
including Mexico, China, South and Central America, Australia and India,
and portions of the Far East.
8. DEFERRED REVENUE
In February 1996, the Company recorded $500,000 of deferred revenue in
connection with certain license fee payments received. This revenue will be
realized in the event that licensee continues their participation in the
joint development program after a specified period of time has elapsed
following their receipt of final results from the recently completed Phase
3 clinical trials of LIDAKOL.
9. SUBSEQUENT EVENTS
In April and May 6, 1996, the Company issued a total of 1,263,498 shares of
Class A Common Stock in connection with the conversion of $2,420,000
principal amount of Convertible Notes and 7,500 additional shares of Class
A Common Stock related to a conversion in February 1996 (See Notes 3 & 5).
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a development stage company. Since inception in August
1988, the Company has been engaged primarily in research and development
activities. The Company is currently focusing its efforts primarily on the
commercialization of n-docosanol 10% cream (LIDAKOL(R)) and its Large
Multivalent Immunogen (LMI) technology. The Company has not generated any
significant product sales and has been unprofitable since inception. For the
period from inception to March 31, 1996, the Company incurred a cumulative net
loss of $28.8 million. The Company's research and development, clinical trial
and general and administrative expenses will continue to be substantial and the
Company expects to continue to incur operating losses during the next several
years.
In March 1996 and May 1996, the Company reported preliminary results
from three Phase 3 clinical trials of LIDAKOL as a treatment of recurrent oral
herpes. The primary endpoint of these trials was a comparison of healing time of
the herpes episodes using either LIDAKOL cream or a placebo cream. If the
results of these trials had shown that using LIDAKOL resulted in a statistically
and clinically significant reduction in healing times compared to placebo, the
Company had intended to file a New Drug Application (NDA) with the U.S. Food and
Drug Administration for marketing approval of LIDAKOL as a treatment of
recurrent oral herpes. In the trials, LIDAKOL did not show a statistically
significant difference in healing times versus the intended placebo cream used
in the trials. As a result of this outcome, it will be necessary for the Company
to conduct additional clinical trials to prove the efficacy of LIDAKOL before an
NDA can be filed.
The Company's business is subject to significant risks including, but
not limited to, the success of its research and development efforts,
uncertainties associated with obtaining and enforcing patents important to the
Company's business and lengthy and expensive regulatory approval processes and
competition from pharmaceutical and biotechnology companies, increasing pressure
on pharmaceutical pricing from payors, patients, and government agencies and
limitations on the availability of capital. Even if the Company's products
appear promising at an early stage of development, they may not reach the market
for a number of reasons. Such reasons include, but are not limited to, the
possibilities that the potential products will be found ineffective or toxic
during clinical trials, fail to receive the necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical to market, or be
precluded from commercialization by proprietary rights of third parties, or that
the Company may not have sufficient financial resources to complete final
development and/or marketing. Additional expenses, delays and losses of
opportunities that may arise out of these and other risks could have a material
adverse effect on the Company's financial condition and results of operations.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
Total revenues for the three and six months ended March 31, 1996 ("the
1996 three and six months") were $3.3 million and $3.5 million, respectively, as
compared to revenues in the respective three and six months ended March 31, 1995
("the 1995 three and six months") of $211,000 and $423,000, respectively. The
increase in revenues during the 1996 three and six months was attributable
primarily to license fee revenues earned during the 1996 three months in the
amount of $3.0 million in connection with certain licensing agreements, most of
which was derived from the Company's agreement with Bristol-Myers Squibb
Company.
Research and development expenses for the 1996 three and six months
decreased to $1.1 million and $2.6 million, respectively, from $1.9 million and
$3.0 million, respectively, in the 1995 three and six months. The decrease in
expenses during the 1996 three and six months, was attributable primarily to
decreased activities related to toxicology testing and the completion of certain
U.S./Canadian Phase 3 clinical trials of LIDAKOL during these periods.
General and administrative expenses for the 1996 three and six months
decreased to $902,000 and $1.6 million, respectively, from $984,000 and $1.9
million, respectively, during the 1995 three and six months. The decrease in
expenses during the 1996 three and six months is attributable primarily to a
one-time payment included in the 1995 three months of fees related to a
consulting agreement which was no longer in effect in 1996. Also contributing to
the decreased expenses during the 1996 six months were non-recurring investment
banking fees in the 1995 six months in connection with the Company's license
agreement for LIDAKOL in Japan. Partially offsetting the overall decrease in
expenses during the 1996 three and six months are increased non-cash expenses
from the amortization of deferred debt issue costs related to the Notes recorded
during the 1996 three months (See Note 4 to Financial Statements).
As a result of the foregoing revenues and expenses, the Company
recorded net income for the three months ended March 31, 1996 of $1.3 million
compared to a net loss of $2.6 million in the same 1995 three month period, and
a net loss for the 1996 six months of $621,000 compared to a net loss of $4.4
million in the corresponding 1996 six months. The Company believes that the net
income recorded during the 1996 three months and the reduced net loss for the
1996 six months are not indicative of expected results of operations in
subsequent quarters or for the fiscal year ending September 30, 1996 as the
Company does not currently anticipate that license fee revenue during the
balance of the fiscal year will be significant.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through the sale of equity and debt securities and stockholder loans raising an
aggregate $49.4 million (net of issuance costs) through March 31, 1996. After
deducting repayments of stockholder loans and subordinated notes totalling
$323,000 and $625,000, respectively, and technology license fee payments to MBI
totalling $958,000, net cash provided from financing activities through March
31, 1996 was $47.5 million.
At March 31, 1996, the Company had cash, cash equivalents and
short-term investments totalling $23.7 million and working capital of $22.5
million, as compared to $10 million and $8.6 million, respectively, at September
30, 1995. The increases in cash and working capital during the 1996 six months
were attributable primarily to net proceeds of approximately $14.5 million
received by the Company through the sale of $1.5 million of Class A Common Stock
and $13.5 million of Convertible Notes (the "Notes") in a private financing and
$342,000 from the exercise of certain stock options and warrants during this
period.
Net cash used by the Company to fund operating activities during the
1996 six months decreased to $774,000 from $4.3 million during the 1995 six
months. This decrease is attributable primarily to the decreased net loss during
the 1996 period as discussed in "Results of Operations". Also contributing to
the reduction in cash used to fund operating activities during the 1996 six
months was the receipt of $500,000 during the period in connection with a
licensing agreement which has been recorded as deferred revenue. The Company
does not believe that the net cash used to fund operating activities during the
1996 six months is representative of future cash requirements. Net cash
requirements are expected to increase to levels more consistent with net cash
used in the 1995 period as a result of continuing research and development,
clinical and general and administrative expenses.
As discussed above, the results of the clinical studies reported in
March 1996 of the Company's lead drug candidate, LIDAKOL, do not support the
filing of an NDA at this time. The Company is in the process of planning
additional clinical studies to prove the efficacy of LIDAKOL versus a placebo
which, if successful, would enable it to file an NDA.
In connection with the issuance of $13.5 million in principal of Notes,
the Company recorded deferred debt issue costs totalling approximately $771,000.
Such costs are being amortized over the life of the Notes, for a maximum of
two-years from the date of issuance. As of March 31, 1996, $99,524 of deferred
debt issue costs have been amortized and $167,515 have been reclassified to
stock issue costs in connection with the conversion of Notes (See Note 5 to
Financial Statements). In the event the Notes are converted prior to their due
date , any remaining unamortized costs will be charged to the equity resulting
from the conversion of the Notes.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (concluded)
LIQUIDITY AND CAPITAL RESOURCES (concluded)
The $13.5 million original principal amount of Notes were convertible
into an aggregate maximum of 5,513,018 shares of the Company's Class A Common
Stock at the option of the holders, with each individual Note limited to a
pro-rata amount of such number of shares. In February, April and May 1996, a
total of 1,970,657 shares of Class A Common Stock have been issued in connection
with the conversion of $5,586,668 principal amount of Notes leaving an aggregate
principal balance of $7,913,332 outstanding as of May 14, 1996. In the event
that shares of Class A Common Stock underlying a particular Note cannot be
issued upon request for conversion due to the above referenced maximum share
limitation, the Company is obligated to immediately repay the principal of that
portion of the Note which is presented for conversion which cannot be converted
plus a premium equal to 25% of such principal plus any accrued and unpaid
interest. At its option, the holder(s) of $3 million of the principal amount of
the Notes can require the Company to issue shares of Class A Common Stock at the
then fair market value in exchange for the above-referenced principal and
premium payment. Repayment of Notes, in lieu of issuance of stock due to the
above referenced maximum share limitation, could have a material adverse effect
on the Company's liquidity.
The Notes accrue interest at an annual rate of 7% beginning six months
from the date of issue, with the principal due and payable two-years from the
date of issue if and to the extent that the Notes are not previously converted.
The Notes are convertible into Class A Common Stock at a price equal to 80% of
the average closing bid price of the Company's Class A Common Stock on the
NASDAQ for seven trading days prior to the date of conversion.
The Company expects to continue to incur substantial operating losses
for the foreseeable future. The Company's available funds may not be sufficient
to permit the Company to successfully complete development or commercialize any
of its proposed pharmaceutical products. Accordingly, the Company may be
required to raise substantial additional capital or to collaborate with one or
more large pharmaceutical or biotechnology companies which could provide the
necessary financing and expertise to complete clinical development, manufacture
and package finished product and obtain regulatory approvals to market its
products. Furthermore, the Company may not have sufficient funds to repay the
Notes in the event the Notes are not converted or if the Company becomes
obligated to repay the Notes in lieu of conversion. There can be no assurance
that the Company can successfully obtain such additional capital, enter into the
collaborative arrangements necessary to fully develop or commercialize any of
its proposed products on acceptable terms, or to repay the Notes, if not
converted.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held March 16, 1996, the
Company's shareholders re-elected three directors of the Company to hold office
until the 1998 Annual Meeting of Shareholders, and approved the following
proposals:
1) To amend the Company's 1994 Stock Option Plan to provide for an
increase in the number of shares of Common Stock authorized for
issuance under such plan from 1,100,000 to 1,350,000.
There were cast 25,120,493 votes in favor of this proposal, 1,794,885
votes against this proposal, 204,976 abstained and 645,234 unvoted
votes.
2) To ratify the selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending September 30, 1996.
There were cast 27,453,675 votes in favor of this proposal, 88,444
votes against this proposal, 223,469 abstained and 0 unvoted votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Convertible Note issued to Capital Ventures International
10.1 License and Development Agreement with Bristol-Myers Squibb
Company
10.2 Registration Rights Agreement issued to Capital Ventures
International
10.3 Note Purchase Agreement issued to Capital Ventures
International
10.4 Seventh Amendment to the Sublease Agreement with Medical
Biology Institute
27.1 Financial Statement Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
March 31, 1996:
Report on Form 8-K was filed on February 9, 1996 reporting
under Item 5 announcing the Company had entered into a multi-national
collaborative license agreement with Bristol-Myers Squibb Company.
Report on Form 8-K was filed on March 18, 1996 reporting under
Item 5 the results of a preliminary review of two Phase 3 U.S. and
Canadian clinical trials conducted jointly with its European licensing
partner, Yamanouchi B.V., of LIDAKOL(R) in the treatment of oral
herpes.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIDAK Pharmaceuticals
Date: May 15, 1996 By: /s/David H. Katz
-----------------------------------
David H. Katz, M.D., President and
Chief Executive Officer
(Duly Authorized Officer)
(Principal Executive Officer)
Date: May 15, 1996 By: /s/Michael H. Lorber
-----------------------------------
Michael H. Lorber, Vice President
Chief Financial Officer and
Secretary
18
<PAGE> 19
INDEX TO EXHIBITS
4.1 Convertible Note issued to Capital Ventures International
10.1 License and Development Agreement with Bristol-Myers Squibb
Company
10.2 Registration Rights Agreement issued to Capital Ventures
International
10.3 Note Purchase Agreement issued to Capital Ventures
International
10.4 Seventh Amendment to the Sublease Agreement with Medical
Biology Institute
27.1 Financial Statement Data Schedule
<PAGE> 1
EXHIBIT 4.1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
CONVERTIBLE NOTE
La Jolla, California $3,000,000.00
January 11, 1996
FOR VALUE RECEIVED, LIDAK PHARMACEUTICALS, a California
corporation (hereinafter called the "Borrower"), hereby promises to pay to
CAPITAL VENTURES INTERNATIONAL or registered assigns (the "Holder") or order,
the sum of Three Million Dollars ($3,000,000.00), on January 11, 1998, and to
pay interest on the unpaid principal balance hereof at the rate of seven percent
(7%) per annum from July 11, 1996 until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise. Any
amount of principal of or interest on this Note which is not paid when due shall
bear interest at the rate of fourteen percent (14%) per annum from the due date
thereof until the same is paid. Interest shall commence accruing on July 11,
1996 and shall be payable on the 15th day of each February, May, August and
November, commencing August 15, 1996, and at maturity. All payments of principal
and interest shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this Note.
The following terms shall apply to this Note:
ARTICLE I
PREPAYMENT
1.1 PREPAYMENT. So long as no Event of Default (as defined
herein) shall have occurred and be continuing, the Borrower shall have the
right, exercisable on not less than 60 days written notice to the Holder, at any
time after the date hereof to prepay this Note in whole or in any part of not
less than $500,000 principal amount (or such lesser principal amount as shall
remain unpaid at the time of exercise of such right), in
<PAGE> 2
accordance with this Section 1.1. Any notice of prepayment shall be delivered to
the Holder at its registered address appearing on the records of the Borrower
and shall state (1) that the Borrower is exercising its right to prepay all or a
portion of the principal amount of this Note, (2) the principal amount to be
prepaid and (3) the date of prepayment. On the date fixed for prepayment, the
Borrower shall make payment of the Prepayment Amount (as hereinafter defined),
and accrued and unpaid interest on the principal amount to be prepaid, to or
upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one business day prior to the prepayment date. If the Borrower
exercises its right to prepay all or a portion of this Note, the Borrower shall
make payment to the Holder of an amount equal to the sum of (1) the principal
amount of this Note to be prepaid plus (2) an amount equal to 25 percent of the
principal amount to be prepaid (such sum being referred to as the "Prepayment
Amount"), plus in each case accrued and unpaid interest on the principal amount
being prepaid to the prepayment date. Upon the prepayment of less than the
entire unpaid principal amount of this Note, a new Note containing the same date
and provisions as this Note shall be issued by the Borrower to the Holder for
the principal balance of this Note which shall not have been prepaid.
ARTICLE II
CONVERSION AND PURCHASE RIGHTS
2.1 CONVERSION RIGHT. The Holder shall have the right from and
after the date of this Note and then at any time on or prior to the day this
Note is paid in full(whether or not the Borrower has sent a notice of prepayment
to the Holder pursuant to Article I hereof), to convert at any time all or from
time to time any part of the outstanding and unpaid principal amount of this
Note of at least $50,000, or such lesser amount as shall remain unpaid at the
time of the conversion, into fully paid and nonassessable shares of Class A
Common Stock, no par value, of the Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price determined as provided herein (the "Conversion Price");
provided, however, that one-third of the original principal amount of this Note
shall first become convertible on the date which is 30 days after the date on
which the Registration Statement (the "Registration Statement") filed under the
Securities Act of 1933, as amended (the "Act"), contemplated by Section 2(b) of
the Registration Rights Agreement, dated as of January 11, 1996 (the
"Registration Rights Agreement"), by and between the Borrower and Capital
Ventures International, a Cayman Islands corporation, is first ordered effective
by the Securities and Exchange Commission (the "Effective Date"), another
one-third of the principal amount of
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<PAGE> 3
this Note shall first become convertible on the date which is 60 days after the
Effective Date and another one-third of the principal amount of this Note shall
first become convertible on the date which is 90 days after the Effective Date.
Upon the surrender of this Note, accompanied by a Notice of Conversion of
Convertible Note in the form attached hereto as EXHIBIT A, properly completed
and duly executed by the Holder (a "Conversion Notice"), the Borrower shall
issue and, within three business days after such surrender of this Note with the
Conversion Notice, deliver to or upon the order of the Holder (1) that number of
shares of Common Stock for the portion of the Note converted as shall be
determined in accordance herewith, (2) a new Note in the form hereof for the
balance of the principal amount hereof, if any, and (3) payment of the accrued
and unpaid interest on the portion of the principal amount of this Note so
converted. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal amount of the Note to be converted by the Conversion Price in effect
on the date the Conversion Notice is delivered to the Borrower by the Holder.
2.2 CONVERSION PRICE. The Conversion Price shall be 80% of the
daily mean average of the closing bid prices for the Common Stock on the Nasdaq
National Market, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded, for the seven (7)
consecutive Trading Days (as defined below) ending one Trading Day prior to the
date the Conversion Notice is sent by the Holder to the Borrower via facsimile,
confirmed by U.S. Mail. "Trading Day" shall mean any day on which the Common
Stock may be traded for any period on the Nasdaq National Market, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
2.3 AUTHORIZED SHARES. The Borrower covenants that during the
period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Common Stock upon the full conversion of this Note. The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. The Borrower agrees that its issuance of
this Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note.
2.4 METHOD OF CONVERSION. Except as otherwise provided in this
Note or agreed by the Holder, this Note may be converted by the Holder in whole
at any time or in part from time to time by (1) submitting to the Borrower a
Conversion Notice and (ii) surrendering this Note at the principal office of the
Borrower. Upon partial exercise of the conversion rights provided hereby, a new
Note containing the same date and provisions as this
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<PAGE> 4
Note shall be issued by the Borrower to the Holder for the principal balance of
this Note which shall not have been converted. This Note has been issued
pursuant to a Note Purchase Agreement, dated as of January 11, 1996, between the
Borrower and the original Holder of this Note (the "Note Purchase Agreement").
By its acceptance of this Note, each Holder agrees to be bound by the terms of
the Note Purchase Agreement. This Note has been issued by the Borrower pursuant
to the exemption from registration under the Act provided by Regulation D
thereunder.
2.5 CONCERNING THE SHARES. The shares of Common Stock issuable
upon conversion of this Note may not be sold or transferred unless either (i)
they first shall have been registered under the Act and applicable state
securities laws or (ii) the Borrower shall have been furnished with an opinion
of legal counsel to the effect that such sale or transfer is exempt from the
registration requirements of the Act and all applicable state securities laws.
Each certificate for shares of Common Stock issuable upon conversion of this
Note that have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Borrower shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Borrower shall
have received either (i) an opinion of counsel experienced in securities law
matters to the effect that any such legend may be removed from such certificate,
or (ii) if the present paragraph (k) of Rule 144 or a substantially similar
successor rule remains in force and effect, satisfactory representations from
the holder that such holder is not then, and has not been during the preceding
three (3) months, an affiliate of the Borrower, and that a period of at least
three (3) years has elapsed since the later of the date the securities were
acquired (as determined under Rule 144) from the Borrower or an affiliate of the
Borrower. Nothing in this Note shall limit the Borrower's obligation under
Section 3(n) of the Registration Rights Agreement.
2.6 CERTAIN PAYMENTS IN LIEU OF CONVERSION. In no event shall
the Borrower issue more than the Maximum Share Amount (as defined below and
subject to adjustment as provided
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<PAGE> 5
herein) upon conversion of this Note. Once the Maximum Share Amount has been
issued, the remaining outstanding principal amount of this Note shall be
immediately due and payable to the extent then eligible for conversion pursuant
to Section 2.1 of this Note and the Borrower shall pay to the Holder in
immediately available funds an amount equal to the sum of (1) all or such
portion of the outstanding principal amount of this Note plus (2) an amount
equal to 25 percent of all or such portion of the outstanding principal amount
of this Note, together with accrued and unpaid interest on all or such portion
of such principal amount to the payment date, it being understood that such
amount with respect to any portion of the principal amount of this Note not so
eligible for conversion shall become payable at the time such portion of the
principal amount of this Note first becomes so eligible for conversion. The
Maximum Share Amount shall mean that number of shares of Common Stock as equals
the product obtained by multiplying (1) 5,513,018 times (2) a fraction (i) the
numerator of which is the original principal amount of this Note and (ii) the
denominator of which is the sum of (A) the original principal amount of this
Note plus (B) $10,500,000. The Maximum Share Amount shall be subject to
adjustment for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date hereof. Borrower covenants to seek approval from its Board of Directors
at its January 13, 1996 meeting and, assuming approval by its Board, from its
shareholders at its Annual Meeting of Shareholders on or before March 31, 1996
for the issuance of shares of Common Stock in an amount greater that 5,513,018
shares (the "Higher Authorized Share Number"). Notwithstanding anything
aforesaid to the contrary in this Section 2.6, in the event that Borrower
obtains such shareholder approval on or before such date, the references to
Maximum Share Amount, above, in the first two sentences of this paragraph, shall
be deemed to be, instead, references to Holder's ratable portion (the "New
Maximum Share Amount") of the Higher Authorized Share Number, with such portion
calculated by substituting the Higher Authorized Share Number for 5,513,018 in
the calculation of the Maximum Share Amount set forth above. The amount of any
payment to the Holder will be calculated with reference to the outstanding
principal amount of this Note to the extent then eligible for conversion
pursuant to Section 2.1 of this Note at the date of the issuance of the New
Maximum Share Amount, it being understood that such amount with respect to any
portion of the principal amount of this Note not so eligible for conversion
shall become payable at the time such portion of the principal amount of this
Note first becomes so eligible for conversion. In the event that either Board or
shareholder approval is not obtained or a registration statement covering the
Higher Authorized Share Number is not effective prior to the date on which the
Note may be converted pursuant to Section 2.1 hereinabove, the Maximum Share
Amount shall remain unchanged.
If at any time the Holder requests the Company to issue in
substitution for this Note two or more Notes having an aggregate principal
amount equal to the unpaid principal amount
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<PAGE> 6
of this Note immediately prior to such substitution, then the terms of such
substitute Notes shall be modified from the terms of this Note to make adequate
provision to ensure that the Maximum Share Amount and the New Maximum Share
Amount are made applicable pro rata to the principal amounts of such substitute
Notes outstanding immediately after such substitution.
ARTICLE III
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event
of Default") shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails
(a) to pay the principal hereof when due, whether at maturity, upon redemption,
upon acceleration or otherwise or (b) to pay any installment of interest hereon
when due and, in the case of this clause (b) only, such failure continues for a
period of five (5) days after the due date thereof;
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue
shares of Common Stock to the Holder upon exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this Note, fails
to transfer any certificate for shares of Common Stock issued to the Holder upon
conversion of this Note and when required by this Note or the Registration
Rights Agreement, or fails to remove any restrictive legend on any certificate
or any shares of Common Stock issued to the Holder upon conversion of this Note
as and when required by this Note, the Agreement or the Registration Rights
Agreement and any such failure shall continue uncured for two (2) business days;
3.3 BREACH OF COVENANT. The Borrower breaches any material
covenant or other material term or condition of this Note (other than as
specifically provided in Sections 3.1 and 3.2 hereof), the Note Purchase
Agreement or the Registration Rights Agreement (other than breaches of the
Registration Rights Agreement occurring subsequent to the date which is 12
months after the Effective Date so long as the Registration Statement remains
effective and the prospectus forming part thereof remains available for the sale
by the Holder of the shares of Common Stock issuable upon conversion of this
Note) and such breach continues for a period of ten business (10) days after
written notice thereof to the Borrower from the Holder, it being understood that
the failure of the Company to obtain effectiveness with the Securities and
Exchange Commission of the Registration Statement within the 70-day period
specified in Section 2(c) of the Registration Rights Agreement for any reason
other than the failure of the Company to amend such Registration Statement as
specified in Section 2(a) of the Registration Rights Agreement or to use its
best efforts to cause such Registration Statement to
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<PAGE> 7
become effective within such period, without more, shall not constitute an Event
of Default;
3.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Any
representation or warranty of the Borrower made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Note Purchase Agreement and the
Registration Rights Agreement), shall be false or misleading in any material
respect when made and the breach of which would have a material adverse effect
on the Company or the prospects of the Company or a material adverse effect on
the Holder or the rights of the Holder with respect to this Note or the shares
of Common Stock issuable upon conversion of this Note;
3.5 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed;
3.6 JUDGMENTS. Any money judgment, writ or similar process
shall be entered or filed against the Borrower or any subsidiary of the Borrower
or any of its property or other assets for more than $500,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld; or
3.7 BANKRUPTCY. Bankruptcy, insolvency, reorgani-
zation or liquidation proceedings or other proceedings for relief
under any bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Borrower or any subsidiary
of the Borrower;
then upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4 or 3.6, at the option of the Holder
hereof, the Borrower shall, and upon the occurrence of any event of default
specified in Section 3.5 or 3.7, the Borrower shall, pay to the Holder an amount
equal to the sum of (1) the unpaid principal amount of this Note plus (2) an
amount equal to 25 percent of the unpaid principal amount of this Note, plus
accrued and unpaid interest on the unpaid principal amount of this Note to the
date of payment and all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in equity.
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<PAGE> 8
If the Borrower fails to pay any amounts due pursuant to this
Article III within 5 business days of such amounts being due and payable, then
the Holder shall have the right at any time, so long as the Borrower remains in
default, to require the Borrower, upon written notice, to immediately issue, in
lieu of such amounts, the number of Shares of Common Stock of the Borrower equal
to such amounts owed by the Borrower to the Holder, divided by the Market Price
(as defined below) of the Common Stock. In the event the Borrower is required to
so issue shares of Common Stock, the Borrower agrees to use its reasonable best
efforts to prepare, file and cause to become effective in a timely manner a
registration statement with the Securities and Exchange Commission covering that
number of such shares of Common Stock which may be issued to the Holder pursuant
to the preceding sentence which exceed the Maximum Share Amount or New Maximum
Share Amount, as applicable, as set forth in Section 2.6 hereof.
"Market Price" shall be 100% of the daily mean average of the
closing bid prices for the Common Stock on the Nasdaq National Market, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded, for the seven (7) consecutive Trading Days ending
one Trading Day prior to the date the notice described in the preceding sentence
is sent by the Holder to the Borrower.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
4.2 NOTICES. Any notice herein required or permitted to be
given shall be in writing and may be personally served or delivered by courier
or sent by United States mail and shall be deemed to have been given upon
receipt if personally served (which shall include telephone line facsimile
transmission) or sent by courier or three (3) days after being deposited in the
United States mail, certified, with postage pre-paid and properly addressed, if
sent by mail. For the purposes hereof, the address of the Holder shall be as
shown on the records of the Borrower; and the address of the Borrower shall be
11077 N. Torrey Pines Road, La Jolla, California 92037, Attention: President
(facsimile number 619-453-5848). Both the Holder and the Borrower may change the
address for service by service of written notice to the other as herein
provided.
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<PAGE> 9
4.3 AMENDMENT PROVISION. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon
the Borrower and its successors and assigns, and shall inure to
be the benefit of the Holder and its successors and assigns.
4.5 COST OF COLLECTION. If default is made in the
payment of this Note, the Borrower shall pay the Holder hereof
costs of collection, including attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by the
internal laws of the State of California, without regard to the
principles of conflict of laws.
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EXHIBIT 10.1
LICENSE AND DEVELOPMENT AGREEMENT
BETWEEN
BRISTOL-MYERS SQUIBB COMPANY
AND
LIDAK PHARMACEUTICALS
FEBRUARY 9, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE Page
- ------- ----
<S> <C>
2 ....................................................................................Defined Terms 1
3 ..............................................................................Development Program 5
4 ................................................................................Grant of Licenses 13
5 .........................................................Intellectual Property Rights and Options 14
6 .........................................................................................Payments 20
7 .............................................................................Additional Covenants 26
8 ...................................................................Representations and Warranties 27
9 ..................................................................................Indemnification 29
10 ..........................................................................Events of Force Majeure 32
11 .............................................................................Term and Termination 33
12 ..................................................................................Confidentiality 35
13 ..........................................................................................General 36
</TABLE>
SCHEDULES
Schedule 1.1.25 -- Licensed Patents
Schedule 1.1.42 -- Territory
Schedule 2.3 -- Product Specifications
Schedule 4.4.1 -- Previously Concluded and Ongoing Studies
Schedule 5.2 -- Subsequent Licensing Fees Payment Schedule
2
<PAGE> 3
LICENSE AND DEVELOPMENT AGREEMENT
This License and Development Agreement (the "AGREEMENT"), dated as of
February 9, 1996, by and between LIDAK Pharmaceuticals, a corporation organized
under the laws of the State of California and having its principal place of
business at 11077 North Torrey Pines Road, La Jolla, California 92037 ("LIDAK"),
and Bristol-Myers Squibb Company, a corporation organized under the laws of the
State of Delaware having its principal place of business at 345 Park Avenue, New
York, New York 10154 ("BMS").
RECITALS
WHEREAS, LIDAK is the owner of certain technology and proprietary
rights pertaining to a pharmaceutical grade chemical known as "n-docosanol;" and
WHEREAS, LIDAK has developed and has been issued patents relating to
formulations of n-docosanol having use in the treatment of herpes in humans, and
other uses, and owns certain proprietary and confidential information relating
to n-docosanol and to topical formulations thereof; and
WHEREAS, LIDAK has performed certain clinical and other studies and
owns certain proprietary and confidential information, and trade secrets with
respect to such studies which LIDAK desires to license to BMS; and
WHEREAS, BMS is interested in obtaining and marketing products
incorporating n-docosanol and is interested in obtaining from LIDAK a license to
proprietary rights with respect to such products.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows, for themselves and their respective successors and assigns:
ARTICLE I
DEFINED TERMS
1.1 Defined Terms. For purposes of this Agreement, the
following terms shall have the meanings indicated:
1.1.1 "ACTIVE INGREDIENT" shall mean a pharmaceutical grade
chemical known as "n-docosanol" and having the chemical formula CH3(CH2)20-CH2OH
and other aliphatic saturated straight chain monohydric alcohols [ * ].
1.1.2 "ADDITIONAL INDICATION" is defined in Section 2.6.
*Confidential portion omitted and filed separately with the
Commission.
1
<PAGE> 4
1.1.3 "AFFILIATE" means a company or corporation, more than
50% of the voting stock of which is owned or controlled, directly, by any party
hereto; any company or corporation directly or indirectly owning or controlling
more than 50% of the voting stock of either party hereto; or any majority-owned
subsidiary of such company or corporation, other than a party hereto.
1.1.4 "AGREEMENT" is defined in the opening paragraph.
1.1.5 "BMS" is defined in the opening paragraph.
1.1.6 "BMS REFUSAL" is defined in Section 2.6.3.
1.1.7 "BMS REJECTION" is defined in Section 2.6.1.
1.1.8 "CONFIDENTIAL INFORMATION" is defined in Section
11.
1.1.9 "DEVELOPMENT PROGRAM" means the research, development,
clinical and regulatory activities, pilot production and validation
manufacturing activities of the parties pursuant to Article II hereof and
Schedule 5.2 attached hereto.
1.1.10 "DISCLOSER" is defined in Section 11.1.
1.1.11 "EFFECTIVE DATE" shall be February 9, 1996.
1.1.12 "FDA" means the United States Food and Drug
Administration.
1.1.13 "FD&C ACT" means the Food, Drug and Cosmetics Act of
1938, as amended.
1.1.14 "FORCE MAJEURE" is defined in Section 9.1.
1.1.15 "GCP" means the good clinical practices regulations
promulgated from time-to-time by the FDA for clinical studies.
1.1.16 "GLP" means the good laboratory practices regulations
promulgated from time-to-time by the FDA for nonclinical (safety) studies.
1.1.17 "GMP" means the good manufacturing practice regulations
promulgated from time-to-time by the FDA.
1.1.18 "HPB" means the Canadian Health Protection
Branch.
1.1.19 "IMPROVEMENTS" means any enhancement or modification of
the Licensed Product that increases the utility,
2
<PAGE> 5
reliability, stability, functionality or otherwise enhances the performance of
the Licensed Product or improves the competitive position of the Licensed
Product in the Licensed Field.
1.1.20 "INDEMNITEE" is defined in Section 8.1.
1.1.21 "INDEMNITOR" is defined in Section 8.4.
1.1.22 "INTEGRATED PROJECT TEAM" means a group of persons that
collectively report to the Steering Committee; execute the Development Program;
and includes LIDAK personnel responsible for clinical and regulatory activities,
BMS personnel responsible for non-clinical and non-regulatory activities and
LIDAK and BMS personnel from other multiple functional areas.
1.1.23 "INTELLECTUAL PROPERTY" refers collectively to all
proprietary information including, patents, copyrights, trade secrets, trade or
service marks, know-how, test methods, data, studies, reports, process and
manufacturing information, including improvements thereon, marketing strategies
and tactics and all other proprietary rights.
1.1.24 "LICENSED FIELD" means all non-ophthalmic topical
therapeutic applications of the Licensed Product for the treatment of herpes
labialis in humans, [ * ].
1.1.25 "LICENSED PATENTS" means U.S. Patent No. 4,874,794;
U.S. Patent Application Ser. No. 08/299,944 (filed September 2, 1994 and the
parent thereof filed December 13, 1993) and any and all patents issued in
connection therewith, and all divisions, continuations, continuations-in-part,
reexaminations, reissues, additions, substitutions, registrations, confirmations
and renewals thereof, and any foreign counterparts thereof in the Territory
including, without limitation, those listed on Schedule 1.1.25, attached hereto,
and any additional patent applications filed in the United States or elsewhere
in the Territory related to the Active Ingredient and/or the Licensed Product in
the Licensed Field that BMS elects to have become a Licensed Patent pursuant to
Section 4.1 hereof, and any and all patents issued thereon, which are presently
or prospectively will be owned or controlled by LIDAK or an assignee of LIDAK.
1.1.26 "LICENSED PRODUCT" means any product, the manufacture,
use or sale of which would, but for this Agreement, constitute infringement of
Licensed Patents or which employs the Licensed Technology.
1.1.27 "LICENSED TECHNOLOGY" means any and all information,
including know-how, test methods, trade secrets, data, pilot studies to validate
methodologies, pharmacokinetics, process and manufacturing information,
formulations and other such information owned by and/or known to LIDAK and
relating to the Active Ingredient in the Licensed Field.
* Confidential Information omitted and filed separately with the
Commission.
3
<PAGE> 6
1.1.28 "LIDAK" is defined in the opening paragraph.
1.1.29 "LITIGATION" is defined in Section 8.4.
1.1.30 "LOSS" is defined in Section 8.1.
1.1.31 "MILESTONES" means determined significant events during
the course of the Development Program as identified in Article II hereof and
Schedule 5.2 hereto.
1.1.32 "NDA" means a New Drug Application to be filed with the
FDA for approval to manufacture, promote, market, distribute and sell the
Licensed Product in the United States.
1.1.33 "NDS" means a New Drug Submission to be filed with the
HPB for approval to manufacture, promote, market, distribute and sell the
Licensed Product in Canada.
1.1.34 "NET SALES" means the gross proceeds on sales of
Licensed Product to third parties by BMS and its sublicensees expressed in U.S.
dollars and recorded in accordance with U.S. generally accepted accounting
principles, less (i) broker's commissions paid or allowances made, if any, (ii)
trade discounts (including trade promotions) or quantity discounts actually
allowed, as shown on the invoice, if any, (iii) customary cash discounts
actually allowed, (iv) sales and other excise taxes and duties imposed upon and
paid directly with respect to such sales, (v) allowance or credits, if any, to
customers on account of settlement of complaints, rejections, billing errors,
returns, or retroactive price reductions, (vi) rebates and price
reductions/adjustments required by law, regulation or managed care, pharmacy
benefit manager or large chain contracts (provided that such rebates and price
reductions/adjustments are achieved through sales volume of the Licensed
Product) and (vii) freight costs and insurance charges on shipments to customers
expressly included in invoice amounts.
1.1.35 "NEW TECHNOLOGY" is defined in Section 2.6.
1.1.36 "NOTICE" is defined in Section 8.4(b).
1.1.37 "OPERATING PLAN" is defined in Section 2.2.2.
1.1.38 "OTC" shall mean over the counter use without the
obtaining of a prescription for the same from a physician or other professional
(including through mail-order or other non-traditional direct distribution
channels).
1.1.39 "RECIPIENT" is defined in Section 11.1.
1.1.40 "SNDA" means a Supplemental New Drug Application to be
filed with the FDA for approval to manufacture, promote,
4
<PAGE> 7
market, distribute and sell the Licensed Product in the United States.
1.1.41 "STEERING COMMITTEE" shall mean that committee created
to steward and monitor the Development Program pursuant to Section 2.2.1 hereof.
1.1.42 "TERRITORY" shall mean the countries (including
territories and possessions) described on Schedule 1.1.42 attached hereto.
1.1.43 "WITHDRAWAL NOTICE" is defined in Section 2.6.2.
ARTICLE II
DEVELOPMENT PROGRAM
2.1 Summary. BMS and LIDAK agree to conduct and/or have conducted the
Development Program in accordance with the terms and provisions of this Article
II. All such work shall be conducted in compliance with all legal and regulatory
requirements in each relevant jurisdiction in the Territory including, without
limitation, requirements of the FDA (including, without limitation, GMP, GLP and
GCP), BMS's own standard operating procedures, all appropriate ISO 9000 series
quality assurance requirements and applicable industry-wide standards for proper
laboratory procedures and practices. Without limiting the generality of the
foregoing, the principal activities of the Development Program shall consist of:
(a) development and optimization of the Licensed
Product;
(b) at the option of BMS and in accordance with Section
2.2.2 hereof, completion of all clinical studies [*], prodromal
abortion studies and/or
pain relief studies for herpes labialis in humans; and
(c) obtaining approval for the manufacture, promotion,
marketing, distribution and sale of Licensed Product in the Territory.
Within thirty (30) days of the initiation of the Development
Program, LIDAK will provide a budget to cover the anticipated fixed monthly
personnel costs and out-of-pocket expenses associated with the Development
Program for review and approval by the Steering Committee the amount of which
will not unreasonably exceed the amounts specified in the draft budget provided
by LIDAK to BMS on January 29, 1996. All budgeted expenses involved in
conducting this Development Program shall be borne by BMS including, without
limitation, direct salary and wage expenses of LIDAK personnel allocated, in
whole or in part, to the conduct of the Development Program, all costs incurred
in
* Confidential portion omitted and filed separately with the
Commission.
5
<PAGE> 8
contracting consultants or organizations to effectuate required tasks associated
with the Development Program and any and all other budgeted out-of-pocket
expenses such as required travel, consumable supplies and the like. BMS shall
make arrangements to have such budgeted fixed costs allocated for payment to
LIDAK monthly on the first day of each month and will monitor and reconcile
expenditures against the budget for the duration of the Development Program.
Modification of such budgeted costs as they may occur from time-to-time will be
submitted to the Steering Committee for discussion and approval, provided,
however, that if actual costs exceed budgeted amounts, BMS shall pay such costs
up to [*] of budgeted amounts then-in-effect without prior Steering Committee
approval. Amounts paid by BMS pursuant to this Section 2.1 in excess of actual
expenses will be reconciled on a quarterly basis and the amount of such excess
will be credited against subsequent payments.
2.2 Management.
2.2.1 Steering Committee. A Steering Committee shall be
created to steward and monitor the Development Program. The Steering Committee
shall consist of five voting members, with LIDAK having the right to designate
two voting members and BMS having the right to designate the three remaining
voting members. The Chairperson of the Steering Committee shall be designated by
BMS from among those members of the Steering Committee appointed by BMS. The
Steering Committee shall meet no less frequently than once each calendar
quarter. The Chairperson of the Steering Committee may call special meetings of
the Steering Committee from time-to-time. The duties of the Steering Committee
shall consist of overseeing the Integrated Project Team, preliminarily mediating
disputes and confirming attainment of milestones. The decisions of the Steering
Committee shall be based upon the majority vote of the voting members thereof.
2.2.2 Operating Plan. Within thirty days of the Effective
Date, LIDAK and BMS shall jointly prepare and submit to the Steering Committee a
detailed operating plan (the "OPERATING PLAN"), covering anticipated regulatory
submissions and steps up to and including the scale-up and validation of
manufacturing of the Licensed Product, which Operating Plan shall be reviewed
and approved by the Steering Committee (with such changes, if any, as the
Steering Committee may find necessary or desirable). The Development Program
shall be conducted in accordance with the Operating Plan as the same shall be
modified or amended from time to time by the Steering Committee.
2.3 Product Specifications. Successful completion of the Development
Program shall require that the Licensed Product satisfy the product
specifications set forth in Schedule 2.3 attached hereto, as such specifications
may be amended from time to time by mutual agreement of the parties, such
agreement not to be unreasonably withheld.
* Confidential portion omitted and filed separately with the
Commission.
6
<PAGE> 9
2.4 Monitoring. Representatives of BMS, together with such experts and
consultants as shall be retained by BMS, shall meet with appropriate
representatives of LIDAK as deemed necessary by BMS from time-to-time upon not
less than three business day's notice to LIDAK. The purpose of such meetings
shall be to review results, monitor and audit the progress of the Development
Program and confirm the accomplishment of Milestones and any other interim
milestones specified in the Operating Plan. Monthly developmental progress
reports, or at such other intervals as shall be deemed appropriate by the
Steering Committee, will be delivered by each party to the other, consistent
with each party's respective roles, no later than seven (7) business days after
the conclusion of the applicable reporting period.
2.5 Regulatory Matters.
2.5.1 LIDAK shall be responsible for the preparation and
filing of the United States Rx NDA and the Canadian NDS, subject to BMS's prior
written approval of such NDA and NDS, which approval shall not be unreasonably
withheld. LIDAK and BMS shall cooperate in preparation for and in the making of
presentations to regulatory authorities in the U.S. or Canada. LIDAK will be the
sole sponsor of such NDA and NDS and, upon NDA and NDS approval, will assign
ownership thereof to BMS without additional payment.
2.5.2 BMS will have the right to be informed of and
participate in all discussions with the FDA or HPB regarding the NDA or NDS.
LIDAK will keep BMS informed of the status of the NDA and NDS and, upon approval
thereof, LIDAK will promptly furnish BMS copies thereof.
2.5.3 BMS shall have the right to have a representative
present at any time the FDA or other governmental authority shall elect to
conduct an inspection of any site at which the development or clinical or
manufacturing or other investigation of the Licensed Product is being conducted.
LIDAK shall forward to BMS any notice relating to such inspection, immediately
upon receipt by LIDAK thereof.
2.5.4 BMS shall be responsible for the preparation and filing
of all regulatory applications outside of the U.S. and Canada. Upon LIDAK's
request, BMS will make copies of any such applications and related documentation
available to LIDAK.
2.6 New Herpes Labialis Technologies.
2.6.1 Right of First Offer to Develop New Technology.
(a) At any time during the License Term, if LIDAK learns of any
new technology not covered by the Licensed Patents or the Licensed Technology
that, if developed, would have application in the therapeutic treatment of
Herpes Labialis in humans ("New Technology") LIDAK shall promptly disclose such
New Technology in writing to BMS.
7
<PAGE> 10
(b) No later than [ * ] after BMS' receipt of the
disclosure described in the immediately preceding paragraph, BMS shall deliver
to LIDAK a written request (prepared in good faith and in keeping with customary
and reasonable scientific and industry practices) that LIDAK provide (A) such
information (including, without limitation, such additional studies or results
as may be appropriate under the circumstances) which BMS deems necessary and
appropriate to make a proper determination of whether BMS desires to fund
preliminary development of such New Technology; (B) such material license terms
(including, at a minimum, the scope, field, duration, exclusivity and territory)
of the license LIDAK proposes to grant to BMS, and (C) a description of the
scope, nature and duration of such development plan (including, without
limitation, a detailed breakdown of the proposed pre-clinical studies, along
with expected milestones) and commercially reasonable budget for the development
of such New Technology.
(c) No later than [ * ] after LIDAK's receipt of
BMS's request described in the immediately preceding paragraph, LIDAK shall
deliver to BMS a written offer (prepared in good faith and in keeping with
customary and reasonable scientific and industry practices) for BMS to fund the
development plan for such New Technology. Such offer shall include, in
reasonable detail, the information requested by BMS pursuant to the immediately
preceding paragraph.
(d) If BMS is interested in pursuing LIDAK's
proposal, BMS shall notify LIDAK of its interest no later than [*] [ * ] after
BMS's receipt of such proposal. If BMS is not interested in pursuing LIDAK's
proposal, BMS shall notify LIDAK of its lack of interest or shall make an
alternative proposal with respect to such New Technology no later than [ * ]
after BMS's receipt of such LIDAK proposal. Promptly upon LIDAK's receipt of
such response from BMS indicating BMS's interest, BMS and LIDAK shall negotiate
in good faith to enter into a research and development agreement or license and
development agreement with respect to such New Technology, such agreements to
include customary terms and provisions for agreements of such type on terms
mutually acceptable to the parties. If, notwithstanding the parties's good faith
efforts to negotiate a mutually acceptable definitive research and development
agreement or license and development agreement, the parties do not agree to such
definitive research and development or license and development agreement by the
[ * ] after LIDAK's receipt of BMS's response to LIDAK's proposal, BMS will be
deemed to have rejected LIDAK's offer described in the immediately preceding
paragraph. Any rejection of LIDAK's offer by BMS under the provisions of this
paragraph will be referred to herein as a "BMS Rejection." During the period
prior to any BMS Rejection, LIDAK may not disclose to or negotiate with any
third party with respect to any New Technology described in such LIDAK proposal.
*Confidential portion omitted and filed separately with the
Commission.
(e) Upon any BMS Rejection, LIDAK shall be completely free to offer
such New Technology to any third party or to develop such
8
<PAGE> 11
New Technology itself, without any restrictions or obligations to BMS
whatsoever. Any New Technology that is the subject of a BMS Rejection shall not
be included within the scope of the licenses granted pursuant to this Agreement
nor be included in the Licensed Technology as defined in this Agreement for any
purpose whatsoever.
2.6.2 Research and Development Plan Agreement. (a) Any
definitive research and development agreement or license and development
agreement for the development by the parties of any New Technology pursuant to
this Section 2.6 shall include (A) a binding obligation for BMS to reimburse
LIDAK's costs and expenses associated with the development of such New
Technology prior to the date of such definitive research and development
agreement or license and development agreement (as previously disclosed in
LIDAK's proposal) and (B) a binding obligation of BMS to fund the development of
such New Technology through the completion of the first milestone following the
date of such definitive research and development agreement or license and
development agreement.
(b) Pursuant to any such research and development
agreement, BMS shall have the right to terminate the research and development
agreement (and no longer be obligated in any way to fund any subsequent
development) by either providing (A) [ * ] notice to LIDAK in advance of, or (B)
provided that BMS pays the ongoing development costs during such time as it
takes BMS to notify LIDAK, up to ten [ * ] notice following receipt of written
notification of the completion of, any milestone previously agreed to be funded
(including, without limitation the first milestone following the date of the
definitive research and development agreement). Any such termination notice will
be referred to herein as a "Withdrawal Notice." Any failure of BMS to provide
notice under either clause (A) or clause (B) above will be deemed to be a
reaffirmation of BMS's commitment and obligation to fund such development
through the completion of the single next milestone, subject to BMS's continued
right to withdraw funding of and other rights as set forth in this subsection
with respect to each subsequent milestone. Upon receipt of any Withdrawal Notice
under clause (A) above, LIDAK shall be completely free to offer such New
Technology previously offered to BMS to any third party or to develop such New
Technology itself, subject to BMS having a right of first refusal with respect
thereto, as set forth below (such right of first refusal being referred to
herein as the "Right of First Refusal"). Upon receipt of any Withdrawal Notice
under clause (B) above, LIDAK shall be completely free to offer such New
Technology previously offered to BMS to any third party or to develop such new
technology itself, without any Right of First Refusal or any other restrictions
or obligations to BMS whatsoever with respect to such New Technology and any
such New Technology shall not be included within the scope of the license
granted pursuant to this Agreement nor be included in the Licensed Technology as
defined in this Agreement for any purpose whatsoever, nor be subject to any
further BMS rights of any kind or nature.
* Confidential portion omitted and filed separately with the
Commission.
9
<PAGE> 12
2.6.3 Right of First Refusal. (a) For any [ * ] period
following LIDAK's receipt of a Withdrawal Notice under clause (A) of Section
2.6.2(b), LIDAK may not enter into any definitive or binding agreements with
respect to any country in the Territory that relate to the New Technology that
was the subject of the Withdrawal Notice with any third person without first
disclosing in writing to BMS a description of the material terms of the proposed
transaction and offering BMS the opportunity to enter into a definitive
agreement with LIDAK with respect to such New Technology on terms no less
advantageous to BMS than contained in such offer as set forth in Section
2.6.3(b) hereof. Such written disclosure to BMS shall include, without
limitation, (A) an update to any information previously provided pursuant to
LIDAK's response to BMS's request pursuant to Section 2.6.1(b)(C); (B) the
proposed material license terms (including, at a minimum, the scope, field,
duration, exclusivity and territory of the license to be granted); and (C) the
proposed budget for any associated research and development plan.
(b) No later than [ * ] after BMS's receipt of the
written disclosure described in Section 2.6.3(a), (A) if the disclosed terms are
unacceptable to BMS, BMS shall so notify LIDAK of its refusal of such terms and
(B) if such disclosed terms are acceptable to BMS, BMS shall notify LIDAK of its
acceptance of such terms, conditioned upon the parties reaching a definitive
license and development agreement with respect thereto. Promptly upon LIDAK's
receipt of such acceptance, BMS and LIDAK shall each use all reasonable efforts
to negotiate, in good faith, a definitive license and development agreement with
respect to such New Technology, such agreement to include customary terms and
provisions for agreements of such type on terms mutually acceptable to the
parties. If, notwithstanding the parties' good faith efforts to negotiate a
mutually acceptable definitive license and development agreement, the parties do
not agree to such definitive license and development agreement by the [ * ]
after LIDAK's receipt of BMS's acceptance of such terms, BMS will be deemed to
have rejected LIDAK's offer described in the immediately preceding paragraph.
Any rejection of such terms by BMS under clause (a) or (b) above will be
referred to herein as a "BMS Refusal."
(c) Upon any BMS Refusal, LIDAK shall be completely
free to offer such New Technology previously offered to BMS to any third party
or to develop such new technology itself, without any restrictions or
obligations to BMS whatsoever. Any such new technology that is the subject of a
BMS Refusal shall not be included within the scope of the licenses granted
pursuant to this Agreement nor be included in the Licensed Technology as defined
in this Agreement for any purpose whatsoever nor be subject to any further BMS
rights of any kind or nature.
* Confidential portion omitted and filed separately with the
Commission.
10
<PAGE> 13
2.6.4 Extension of Time. The time periods referenced in this
Section 2.6 may be extended by mutual agreement of the parties, which agreement
will not be unreasonably withheld.
2.7 Additional Indications for Active Ingredient. BMS may have
interests in acquiring rights to one or more additional human therapeutic
indications outside the Licensed Field in the Territory. Therefore, LIDAK and
BMS shall openly discuss the potential development of such additional
indications and identify any, or several, such indications outside the Licensed
Field that BMS is interested in pursuing. LIDAK and BMS shall negotiate
milestone timelines of a research and development program pertaining to any one
or more selected indications. BMS shall fund all research and development costs
associated with achieving the progressive milestones for such additional
indications, in consideration for which LIDAK will refrain from working or
negotiating with any third parties during such funding by BMS and prior to
offering any license to any such additional indications to any third party and
prior to commencing any marketing of any products utilizing such additional
indications, will first offer to BMS a license to any such additional
indications in the Territory and on such other terms and conditions acceptable
to LIDAK. Upon receipt of such offer to license such additional indications, BMS
shall have [ * ] to notify LIDAK of BMS's acceptance or rejection of such
license offer and an additional [ * ] thereafter to negotiate and execute
definitive documents with respect thereto. If BMS (a) fails to notify LIDAK of
its acceptance by such [ * ], (b) notifies LIDAK of its rejection by such [ * ]
or (c) does not execute and deliver definitive documents for such license by the
[ * ], then LIDAK shall be free to license such additional indication to any
third party or to market products utilizing such additional indications without
any restrictions whatsoever. The time limit of [ * ] referenced above may be
extended by mutual agreement of the parties which will not be unreasonably
withheld. The provisions of this Section 2.6.4 will not, in any way, limit
LIDAK's right to develop any additional indications, at its own expense, that
BMS is not, by its expressed intentions, interested in pursuing or in any way
affect or impair the rights granted in Section 2.6.1 through 2.6.3.
2.8 Adverse Events. Each party shall, within 48 hours, inform the other
in writing of any adverse events encountered by or reported to them in
connection with the Licensed Product.
2.9 Additional Clinical Studies and Licensing Fees.
2.9.1 BMS may, within [ * ] following completion of Phase III
Clinical Studies, at its sole option and expense, elect to conduct such
additional clinical studies [
*
*
] as BMS shall deem
desirable. If BMS shall elect to conduct such studies and such
studies produce results enabling marketing claims acceptable
*Confidential portion omitted and filed separately with the
Commission.
11
<PAGE> 14
to BMS, the amount of the Subsequent Licensing Fee Payments to be made to LIDAK
by BMS in respect of such claim pursuant to that portion of Schedule 5.2 hereto
entitled "Successful Completion of Phase III Clinicals" shall be reduced by the
aggregate cost of all such studies conducted by BMS.
2.9.2 If the Phase III Clinical studies specified in Schedule
5.2 produce results showing that the Licensed Product achieves healing time
improvements of [ *
] and within [ * ] of completion of Phase III Clinical Studies BMS
does not elect in its sole discretion to conduct any additional studies as
contemplated in Section 2.9.1 hereof, but, however, BMS elects to proceed with
the Development Program, BMS shall pay LIDAK [ *
* ] Such additional
licensing fee shall be paid within five (5) working days of approval by FDA of [
* ]for Licensed Product as described in Schedule 5.2, attached hereto.
2.9.3 BMS may, within [ * ] following completion of Phase III
Clinical Studies, at its sole option, and upon 30 days written notice to LIDAK,
elect to terminate this Agreement. If the Phase III Clinical Studies specified
in Schedule 5.2 produce clinically and statistically significant evidence of
achievement of the primary endpoints specified in the protocol for each such
Study, within 30 days of the date of such termination notice, BMS shall pay
LIDAK a termination fee in the amount of [ *
* ] in lieu of any amount payable pursuant to Section 5.2 hereof.
Notwithstanding anything contained herein to the contrary, such termination fee
payment may be offset by the amount of any refund of licensing fees payable to
BMS by LIDAK pursuant to Section 5.1 hereof. If the Phase III Clinical Studies
specified in Schedule 5.2 fail to produce clinically and statistically
significant evidence of achievement of the primary endpoints specified in the
protocol for each such study, [ *
* ].
2.9.4 For purposes of this Agreement (including, without
limitation, this Section 2.9 and Schedule 5.2 hereof) "completion of Phase III
Clinical Studies" shall mean receipt by BMS of final study reports and complete
data supporting such final studies in computer-readable form. For purposes of
this Agreement, "Phase III Clinical Studies" shall refer to the following
studies: 94-LID-04, 94-LID-05, and 95-LID-010.
2.10 Regulatory Communications. Each party will notify the other
immediately by telephone (with prompt written follow-up) of any inquiry, contact
or communication received from any governmental regulatory agency or other
official body (within or outside of the Territory) which relates to the Licensed
Product or any component or ingredient thereof, and will promptly furnish the
* Confidential portion omitted and filed separately with the
Commission.
12
<PAGE> 15
other party with copies of all written communications relating thereto sent to
or received from such regulatory agency.
ARTICLE III
GRANT OF LICENSES
3.1 BMS Licenses. LIDAK hereby grants to BMS under the Licensed
Patents, the Licensed Technology and any inventions, discoveries, designs,
Improvements, and property jointly owned pursuant to Section 4.6 hereof, the
exclusive (except as to LIDAK) license and right to make, have made and use and
the exclusive (even as to LIDAK) license and right to sell Licensed Product in
the Licensed Field, in the Territory. Such license to BMS shall also include the
right to: (i) grant sublicenses of any of its license rights to Affiliates
without LIDAK's approval and to third parties, subject to LIDAK's approval,
which shall not be unreasonably withheld; (ii) subject to the confidentiality
provisions of Article XI, allow access to the Licensed Patents and the Licensed
Technology by third party consultants who have been engaged by BMS and who shall
be reasonably acceptable to LIDAK, in connection with the rights granted to BMS
hereunder and (iii) subcontract the manufacture, marketing, distribution and/or
sale of Licensed Product. LIDAK shall promptly notify BMS in writing of any such
Improvements.
3.1.1 Supply Agreement. During the License Term, BMS will sell
or make available for sale, under a supply agreement negotiated between the
parties and on mutually agreeable terms, such quantities of Licensed Product,
either in bulk or finished form as may be reasonably requested by LIDAK. In
addition, LIDAK shall be entitled to make or have made Licensed Product for its
own use for any purpose outside of the Territory and for purposes outside of the
Licensed Field within the Territory.
3.2 License Term. The term of the licenses granted hereunder (the
"LICENSE TERM") with respect to Licensed Patents shall begin upon the date
hereof and shall extend in each country in the Territory until [ * ] following
expiration of the last-to-expire of the Licensed Patents in each such country.
In a non-patent country the License Term shall be the longer of [ * * ]from
initial commercial sale of Licensed Product in each such country or [ * ] from
the Effective Date. In a country in which a Licensed Patent has been determined
to be invalid, the License Term shall extend for a period from the date of
Invalidation through the date that is the later of [ * ]from the Effective Date
or [*] years from the date of first commercial sale of Licensed Product in such
country. Upon expiration of the License Term in each country in the Territory,
BMS shall have a perpetual royalty free license with respect to each such
country under the Licensed Patents and Licensed Technology and any inventions,
discoveries, designs and Improvements jointly owned pursuant to Section 4.6
which license shall be an exclusive (except as to LIDAK) license and right to
* Confidential portion omitted and filed separately with the Commission.
13
<PAGE> 16
make, have made and use and an exclusive (even as to LIDAK) license and right to
sell Licensed Product in the Licensed Field in the Territory.
ARTICLE IV
INTELLECTUAL PROPERTY RIGHTS AND OPTIONS
4.1 Patent Prosecution and Maintenance.
4.1.1 Reexamination. [
*
*
*
*
*
*
*
*
* ]
4.1.2 Applications Initiated by BMS. If requested by BMS,
LIDAK, in its sole discretion, shall file a patent application with respect to
an invention disclosed in the Licensed Patents or any Improvements in any
country in the Territory in which patent protection has not previously been
obtained. BMS shall have the right to review and approve such application before
it is submitted by LIDAK to the relevant governmental authority, such approval
not to be unreasonably withheld. In the event LIDAK elects not to file such
patent application, BMS shall have the right to file such patent application.
LIDAK shall execute such documents and take such actions as BMS may reasonably
request, to permit BMS to file any patent application pursuant to this Section
4.1.2. BMS shall pay all costs related to obtaining patent protection pursuant
to this Section 4.1.2. Any patents allowed pursuant to an application filed
pursuant to this Section 4.1.2 shall be Licensed Patents for purposes of this
Agreement. BMS shall have the right to review and approve any materials which
LIDAK may be required to submit in connection with the prosecution of such
applications before it is submitted by LIDAK to the relevant governmental
authority, which approval shall not be unreasonably withheld. LIDAK shall also
provide BMS with copies of all substantive correspondence with the relevant
governmental authority which relates to the prosecution of any such application.
LIDAK agrees to execute, or have executed, any and all documents or papers
necessary to vest title as their interests appear to such inventions,
discoveries, designs and improvements, or to enable BMS to apply for, obtain or
maintain patents for such inventions, discoveries, designs and improvements.
4.1.3 Applications Initiated by LIDAK. (a) LIDAK shall
promptly notify BMS in writing of its desire to obtain or have obtained patent
protection with respect to the invention
*Confidential portion omitted and filed separately with the
Commission.
14
<PAGE> 17
disclosed in the Licensed Patents or any Improvements in any
country in the Territory in which patent protection has not previously been
obtained. BMS shall have a period of [ * ] during which to elect to assume all
costs associated with the filing of such patent application.
(b) If BMS elects to assume all costs associated with
the filing of such patent application(s) with respect to any inventions
disclosed pursuant to this Section, it will nevertheless have the opportunity to
elect to not assume the costs of the issuance and subsequent maintenance fees
for such patent(s) by notifying LIDAK within [ * ] of its receipt from LIDAK of
notice of allowance from the U.S. Patent and Trademark Office or its foreign
counterpart that such patent has been allowed and will issue. In the case of
BMS's election to withdraw further financial support for any such patent(s)
pursuant to this Section, or any provision of this Agreement, and if LIDAK
elects to assume all further costs pertaining to the issuance and maintenance of
said patent(s), then any such patent(s), if issued, and the invention to which
it pertains, shall be the sole property of LIDAK, and shall be completely free
of any and all obligations of this License Agreement, and shall not be a
Licensed Patent or Improvement for purposes of this Agreement.
(c) If BMS fails to elect within such [ * ] day
period to assume all of the costs of filing such patent application, LIDAK shall
be free to file a patent application with respect to the invention disclosed
pursuant to this Section at its sole cost and expense. Any such patent, if
issued, and the invention to which it pertains, irrespective of whether a patent
issues to protect it, shall be the sole property of LIDAK, and shall be
completely free of any and all obligations of this License Agreement, and shall
not be a Licensed Patent or Improvement for purposes of this Agreement.
4.1.4 Pending Applications. LIDAK shall diligently pursue the
prosecution of all patent applications specified in Schedule 1.1.25. LIDAK shall
submit to BMS on a monthly basis all bills for legal fees related to such
prosecution after the Effective Date and BMS shall promptly reimburse LIDAK for
the payment of such fees. BMS shall have the right to review and approve any
materials which LIDAK may be required to submit in connection with the
prosecution of such applications before it is submitted by LIDAK to the relevant
governmental authority, which approval shall not be unreasonably withheld. LIDAK
shall also provide BMS with copies of all substantive correspondence with the
relevant governmental authority which relate to the prosecution of any such
application. Upon allowance of any patent pursuant to any such application, such
patent shall be a Licensed Patent for purposes of this Agreement.
4.1.5 Maintenance. LIDAK, at the expense of BMS, shall be
responsible for the maintenance of all registrations,
*Confidential portion omitted and filed separately with the
Commission.
15
<PAGE> 18
domestic and foreign, with respect to the Licensed Patents. LIDAK shall not
allow any patent registration with respect to the Licensed Patents to terminate
prior to the end of its term without the prior written approval of BMS. LIDAK
shall monthly submit to BMS all bills for legal and maintenance fees associated
with Licensed Patents and BMS shall promptly reimburse LIDAK for payment of such
fees. In the event that LIDAK fails to continue the maintenance of any
registration with respect to the Licensed Patents, BMS may cure such failure.
LIDAK shall execute such documents and take such actions as BMS may reasonably
request to permit BMS to cure such failure.
4.1.6 Waxman-Hatch Extension. BMS shall be responsible for the
filing of any application for the extension of rights with respect to the
Licensed Product pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act"). LIDAK shall execute such
documents and take such actions as BMS may reasonably request to permit BMS to
make any filing pursuant to the terms of this Section 4.1.6.
4.1.7 Apportionment. Whenever possible, the costs of procuring
and maintaining Licensed Patents having applicability outside the Licensed Field
or Licensed Territory shall be fairly apportioned among LIDAK's licensees in the
relevant fields and\or territories. In this regard LIDAK shall use good faith
efforts to incorporate a counterpart obligation in its agreements with other
licensees outside the Licensed Field.
4.2 Third Party Infringers. (a) If either party becomes aware
of a third party that appears to be infringing one or more Licensed Patents in
the Licensed Field in the Territory it shall so notify the other party. LIDAK
and BMS shall thereupon discuss bringing a joint action against the infringer.
In the event such a joint action is brought, the out-of-pocket expenses thereof
shall be allocated as follows: [* ] payable by BMS and [*] payable by LIDAK and
BMS shall control such action. Any recovery obtained in such joint action shall
first be allocated to each party in an amount equal to all out-of-pocket
expenses incurred by it in connection therewith. The remaining recovery (the
"Excess Recovery") shall be allocated as follows: [*] payable to BMS and [*]
payable to LIDAK.
(b) In the event a party declines participation in a
joint action described in paragraph (a) of this Section 4.2, the other party may
bring the infringement suit in its name and at its sole expense, with such party
retaining one hundred percent (100%) of any recovery in respect of such
infringement. Any recovery obtained shall belong solely to the party pursuing
such claim.
4.2.1 Validity of Licensed Patents. If LIDAK becomes aware of
any suit or proceeding in a court or before a governmental authority by any
third party challenging the validity of any Licensed Patent outside the Licensed
Field, LIDAK shall
*Confidential portion omitted and filed separately with the Commission.
16
<PAGE> 19
inform BMS with respect thereto and offer BMS the right, at its sole discretion
and expense, to participate in defending such suit or proceeding in a court or
before a governmental authority. In addition, BMS agrees, upon reasonable
notice, to cooperate with and, to the extent necessary or desirable by LIDAK and
at LIDAK's expense, participate in any suit or proceeding with respect thereto.
4.3 [RESERVED]
4.4 Ownership of Data; Publishing and Presentation Rights.
4.4.1 LIDAK shall have sole ownership of all
clinical/preclinical/developmental data and information from studies related to
the Licensed Product conducted prior to the Effective Date or studies ongoing as
of the Effective Date. Each such previously-concluded or ongoing study will be
listed on Schedule 4.4.1 which will be delivered by LIDAK to BMS within five (5)
business days after the Effective Date and attached hereto. BMS shall have the
right to access and use all such data in accordance with Sections 3 and 10
hereof.
4.4.2 BMS shall have sole ownership of (a) all
clinical/preclinical/developmental data and information from studies conducted
in connection with the Development Program after the Effective Date, (b) all
information generated from marketing of the Licensed Product, including, but not
limited to, consumer feedback, post-approval product changes and other similar
information, and (c) all NDA and SNDA filings made in connection with the
Development Program and all similar filings or registrations made in
jurisdictions in the Territory outside the United States and Canada. LIDAK shall
provide BMS full and complete access to any such data, results or information in
its possession. BMS hereby grants to LIDAK the right to access and use all such
data (a) in any field at anytime outside the Territory; (b) within the Territory
and outside the Licensed Field at anytime; and (c) after termination or
expiration of the License Term outside the Territory and outside the Licensed
Field (such right to survive any termination of this Agreement or the licenses
granted pursuant hereto, except termination upon breach by LIDAK); provided,
however, that BMS shall have the right to preapprove the use of any marketing
information as described in clause (b) of the first sentence of this Section
4.4.2, and to withhold approval of any such use that is reasonably likely to
interfere with the competitive position of BMS in the marketplace.
4.4.3 (a) BMS shall retain all publishing/ presentation rights
for work, inventions, developments or improvements that it solely owns
(regardless of medium, including, without limitation, paper, graphic,
electronic, optical and multimedia) with respect to development of the Licensed
Product in the Development Program, including all
clinical/preclinical/developmental data, provided proper and reasonable
attributions to the other party are made. BMS shall
17
<PAGE> 20
obtain LIDAK's prior approval if LIDAK personnel co-author any such publication,
which approval shall not be unreasonably be withheld.
(b) LIDAK shall retain all publishing/ presentation
rights for work, inventions, developments or improvements that it solely owns
(regardless of medium, including, without limitation, paper, graphic,
electronic, optical and multimedia) with respect to development of the Licensed
Product in the Development Program, including all
clinical/preclinical/developmental data, provided proper and reasonable
attributions to the other party are made. In addition, BMS hereby grants to
LIDAK publishing/presentation rights with regard to such data referred to in
paragraph (a) of Section 4.4.3 hereof, provided, however, that LIDAK shall have
obtained BMS's prior approval with respect to such publication, which approval
shall not be unreasonably withheld.
(c) The parties shall jointly have
publication/presentation rights for work, inventions, developments or
improvements that are jointly owned pursuant to Section 4.6 hereof.
4.5 Ownership of Trademark Rights. LIDAK agrees that BMS shall be the
exclusive owner of all trademarks, trademark registrations, servicemarks and
servicemark registrations, as applicable, developed or acquired by BMS and
associated with the Licensed Product (collectively, the "Trademark Rights").
Nothing in this Agreement limits or impairs LIDAK's trademark rights with
respect to any product inside or outside the Territory, nor does this Agreement
grant to BMS any license to any of LIDAK's trademarks.
4.6 BMS Developments. The parties will have the following rights with
respect to inventions, discoveries, designs and improvements, whether patentable
or not, conceived and/or made by BMS:
(a) Any and all inventions, discoveries, designs and
improvements, whether patentable or not, conceived and/or made by BMS outside of
the Development Program and other than for the purpose of seeking improvements
to use of the Active Ingredient in the Licensed Field or [ * ] uses of the
Active Ingredient outside the Licensed Field, even though such invention,
discovery, design or improvement may have application to the Active Ingredient
or could be used in combination with the Active Ingredient, will be the sole
property of BMS. BMS shall have the sole right to make, have made, use and sell
such inventions, discoveries, designs and improvements.
(b) Any and all inventions, discoveries, designs and
improvements whether patentable or not, conceived and/or made by
BMS, before the execution of the definitive Confidential
*Confidential portion omitted and filed separately with the
Commission.
18
<PAGE> 21
Disclosure Agreement between BMS and LIDAK on July 18, 1995, outside of the
Development Program and for the purpose of seeking improvements to use of the
Active Ingredient in the Licensed Field or [ * ] of the Active Ingredient
outside the Licensed Field, will be the sole property of BMS; provided, however,
that BMS is able to demonstrate that such inventions, discoveries, designs or
improvements were made without the use of LIDAK Confidential Information. BMS
shall have the sole right to make, have made, use and sell such inventions,
discoveries, designs and improvements.
(c) After the Effective Date and before the date which is five
(5) years following the Rx NDA filing date (the "Restricted Period"), BMS will
refrain from engaging in any activities outside of the Development Program that
are for the purpose of seeking improvements to uses of the Active Ingredient in
the Licensed Field or [ * ] of the Active Ingredient outside the Licensed Field.
(d) Any and all inventions, discoveries, designs and
improvements whether patentable or not, conceived and/or made by BMS outside of
the Development Program and for the purpose of seeking improvements to use of
the Active Ingredient in the Licensed Field or new/additional uses of the Active
Ingredient outside the Licensed Field after the date which is five (5) years
following the Rx NDA filing date, will be the sole property of BMS. BMS shall
have the sole right to make, have made, use and sell such inventions,
discoveries, designs and improvements; provided, however, that for a period of
five (5) years following expiration of the Restricted Period, LIDAK shall have a
right of first offer to make, have made and use such inventions, discoveries,
designs and improvements on the following terms. BMS shall provide LIDAK written
notice of the terms upon which BMS would license to LIDAK the right to
commercialize such inventions, discoveries designs and improvements. LIDAK shall
thereupon have [ * ] to notify BMS of its interest therein. Failure to so notify
BMS during such [ * ] period shall be deemed to constitute a waiver by LIDAK of
its right of first offer. If LIDAK notifies BMS that it desires to exercise its
right of first offer, LIDAK shall have an additional [ * ] days to negotiate
with BMS the terms of a definitive agreement with respect thereto. In the event
that BMS and LIDAK do not agree on the terms of such an agreement within [ * ],
BMS may, at its option, negotiate an agreement with another party or develop
such invention, discovery, design or improvement itself.
(e) Any and all inventions, discoveries, designs and
improvements whether patentable or not, conceived and/or made by BMS within the
Development Program and related to the Active Ingredient and/or the Licensed
Technology in the Licensed Field, will be the joint property of BMS and LIDAK.
BMS shall have the sole right to make, have made, use and sell such inventions,
discoveries, designs and improvements in the Licensed Field and in
* Confidential portion omitted and filed separately with the
Commission.
19
<PAGE> 22
the Territory. LIDAK shall have the sole right to make, have made, use and sell
such inventions, discoveries, designs and improvements outside the Licensed
Field or outside the Territory.
ARTICLE V
PAYMENTS
5.1 Initial Licensing Fee. Upon execution and delivery of this
Agreement, BMS shall pay LIDAK an initial licensing fee in an amount equal to [
* ], provided, however, that [ * ] of such amount shall be refunded by LIDAK to
BMS if BMS shall elect to terminate this Agreement pursuant to Section 2.9.3
hereof.
5.2 Subsequent Licensing Fee Payments. BMS shall pay LIDAK the
subsequent licensing fees set forth on Schedule 5.2 attached hereto provided
that LIDAK has completed all required work for the successful accomplishment of
a given Milestone, as verified in writing by the Steering Committee. BMS shall
pay LIDAK the amount specified to be paid in Schedule 5.2 within [ * ] business
days after (i) such written verification or (ii) such other date as is specified
in Schedule 5.2.; PROVIDED, HOWEVER, that any payment in respect of Milestone 1
specified in Schedule 5.2 will be paid within [ * ] after such written
verification or such shorter period (not less than [ * ] business days) within
which BMS shall determine not to exercise its rights under Section 2.9.3 hereof.
If a Milestone described in clauses (i) or (ii) below is not attained by the
date set forth below, the subsequent licensing fee payable in respect thereof
shall be reduced as follows:
(i) For a delay in the filing of the Rx NDA beyond [
* ], other than solely as the result of BMS's failure to perform its assigned
duties in a timely manner or as the result of an event of Force Majeure, the
reduction will be [ * * ] per each full month of delay.
(ii) For a delay in the approval by the FDA of the
OTC NDA, for greater than [ * ] after SNDA submission, solely as a result of
LIDAK's failure to perform its assigned duties in a timely manner, the reduction
will be [ * ] per each full month of delay.
(iii) For each partial month of delay specified in
paragraph (i) or (ii) above, the amount of the reduction shall be the amount
specified in such paragraph (i) or (ii) prorated daily for each day of delay
during such less than full month period.
5.3 Royalty Payments.
*Confidential portion omitted and filed separately with the
Commission.
20
<PAGE> 23
5.3.1 Royalties. BMS shall pay LIDAK a royalty in the amount
set forth in this Section 5.3 with respect to all "Net Sales" of Licensed
Product sold in each country in the Territory.
For purposes of this Agreement, Licensed Product shall be considered "sold"
upon the issuance by BMS of an invoice to a non-affiliated third party with
respect to such Licensed Product. Notwithstanding anything contained herein to
the contrary, samples of Licensed Product distributed for promotional purposes
shall not be considered "sold" for purposes of this Agreement and no royalty
shall be payable in respect thereof.
5.3.2 Applicable Patent Based Royalty Rates In The
U.S. And Canada.
(i) With respect to Net Sales of Licensed Product
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent in the U.S. and Canada in the prescription market,
the applicable royalty rate shall be [*] in each respective country.
(ii) With respect to Net Sales of Licensed Product
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent in the U.S. and Canada in the OTC market, the
applicable royalty rate in each respective country shall be:
(a) [*]for the first [ * ] of Net Sales
in each respective country, and
thereafter,
(b) [*] on the first [ *
* ] of aggregate Net Sales
annually, and
(c) [*] on all aggregate Net Sales in excess
of [ * ]
and less than [ *
* ] annually, and
(d) [*] on all aggregate Net Sales in excess
of [ *
] annually.
(iii) Notwithstanding anything contained herein to the
contrary, during the first [ * ] of Net Sales of Licensed Product in either the
US or Canada, such sales shall not be aggregated for purposes of computing the
royalty rate payable pursuant to Section 5.3.2 (ii) hereof.
5.3.3 Applicable Non-Patent Based Royalty Rates in the
U.S. and Canada.
*Confidential portion omitted and filed separately with the
Commission.
21
<PAGE> 24
(i) With respect to Net Sales of Licensed Product in
the U.S. or Canada not covered by (A) an issued or (B) a previously filed and to
be issued patent included in a Licensed Patent (other than as the result of
expiration of a patent included in a Licensed Patent) in the prescription
market, the applicable royalty rate shall be [*] for such country.
(ii) With respect to Net Sales of Licensed Product in
the U.S. or Canada not covered by (A) an issued or (B) a previously filed and to
be issued patent included in Licensed Patent (other than as the result of
expiration of a patent included in a Licensed Patent) in the OTC market, the
applicable royalty shall be [*] for such country.
(iii) The royalty rates payable pursuant to clauses
(i) and (ii) of this Section 5.3.5 shall be payable:
(a) through the date that is the later
of [ * ]from the Effective Date or [
* ]from the date of the first
commercial sale of Licensed Product
in each respective county if payable
other than as the result of
Invalidation of a patent included in
a Licensed Patent, and
(b) for a period from the date of
Invalidation through the date that
is the later of [ * ]from the
Effective Date or [ * ] from the
date of first commercial sale of
Licensed Product in each respective
country if payable as the result of
Invalidation of a patent included in
a Licensed Patent.
(c) Invalidation shall mean a decision
of a court or other governmental
agency of competent jurisdiction,
unappealable or not appealed within
the time allowed for appeal, that
all claims covering the Licensed
Product in an unexpired patent
included in a Licensed Patent are
invalid or unenforceable.
(iv) With respect to Net Sales of Licensed Product in
the U.S. and Canada not covered by (A) an issued or (B) a previously filed and
to be issued patent included in a Licensed Patent by reason of expiration of the
last to expire patent included in a Licensed Patent in each respective country,
the applicable royalty rate in each respective country shall be:
(a) [*] which royalty rate shall be
payable for [ * ], if a patent based
royalty had been paid in such
country
*Confidential portion omitted and filed separately with the
Commission
22
<PAGE> 25
for greater than [ * ]at the time
such patent included in a Licensed
Patent expired; or
(b) [*] for Net Sales of Licensed
Product in the prescription market
or [*] for Net Sales of Licensed
Product in the OTC market, for a
period from the date of expiration
through the date that is the later
of [ * ] from the Effective
Date or [ * ] form the date of first
commercial sale of Licensed Product
in each respective country, if a
patent based royalty had been paid
in such country for less than or
equal to [ * ] at the time such
patent included in a Licensed Patent
expired.
5.3.4 Applicable Patent Based Royalty Rates Outside Of
The U.S. And Canada.
(i) With respect to Net Sales of Licensed Product
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent in each respective country in the Territory other
than the U.S. and Canada in the prescription market, the applicable royalty rate
shall be [*].
(ii) With respect to Net Sales of Licensed Product
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent in each respective country in the Territory other
than the U.S. and Canada in the OTC market, the applicable royalty rate shall be
[*].
5.3.5 Applicable Non-Patent Based Royalty Rates
Outside Of The U.S. and Canada.
(i) With respect to Net Sales of Licensed Product in
each respective country of the Territory Other than the U.S. and Canada not
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent (other than as the result of expiration of a
patent included in a Licensed Patent) in the prescription market, the applicable
royalty rate shall be [*].
(ii) With respect to Net Sales of Licensed Product in
each respective country of the Territory other than the U.S. and Canada not
covered by (A) an issued or (B) a previously filed and to be issued patent
included in a Licensed Patent (other than as the result of expiration of a
patent included in a Licensed Patent) in the OTC market, the applicable royalty
shall be [*].
(iii) The royalty rates payable pursuant to clauses
(i) and (ii) of this Section 5.3.5 shall be payable:
*Confidential portion omitted and filed separately with the Commission
23
<PAGE> 26
(a) through the date that is [ * ]from
the Effective Date or [ * ] from the
date of the first commercial sale of
Licensed Product in each respective
country if payable other than as the
result of Invalidation of a patent
included in a Licensed Patent, and
(b) for a period from the date of
Invalidation through the date that
is the later of [ * ] from the
Effective Date or [ * ] from the
date of first commercial sale of
Licensed Product in each respective
country if payable as the result of
Invalidation of a patent included in
a Licensed Patent.
(c) "INVALIDATION" shall mean a decision
of a court or other governmental
agency of competent jurisdiction,
unappealable or not appealed within
the time allowed for appeal, that
all claims covering the Licensed
Product in an unexpired patent
included in a Licensed Patent are
invalid or unenforceable.
(iv) With respect to Net Sales of Licensed Product in
each respective country in the Territory other than the U.S. and Canada not
covered by (A) an issued or (B) previously filed and to be issued patent
included in a Licensed Patent by reason of expiration of the last to expire
patent included in a Licensed Patent in each respective country, the applicable
royalty rate in each respective country shall be:
(a) [*],which royalty rate shall be
payable for [ * ], if a patent based
royalty had been paid in such
country for greater than [ * ] at
the time such patent included in a
Licensed Patent expired; or
(b) [*] for Net Sales of Licensed
Product in the prescription market
or [*] for Net Sales of Licensed
Product in the OTC market, for a
period from the date of expiration
through the date that is the later
of [ * ] from the Effective Date or
[ * ] form the date of first
commercial sale of Licensed Product
in each respective country, if a
patent based royalty had been paid
in such country for less than or
equal to [*]
* Confidential portion omitted and filed separately with the Commission
24
<PAGE> 27
years at the time such patent
included in a Licensed Patent
expired.
5.3.6 [RESERVED]
5.3.7 Payment. BMS shall make the applicable royalty payments
required pursuant to this Section 5.3 not later than thirty (30) business days
after the end of each calendar quarter during the term of this Agreement.
5.3.8 Reduction in Royalty Due to Payments to Third- Party.
If, as a result of any rights of any third party in any technology or other
rights licensed to BMS in connection with the manufacture, use or sale of any
Licensed Product, BMS shall be required to pay to such third party any royalties
or other fees (as the result of any infringement described in Section 8.2 for
which BMS is entitled to be indemnified), without limiting any remedy available
under Article VIII hereof, the amount of royalties payable to LIDAK pursuant to
this Section 5.3 shall be reduced by one-half the amount of such third party
payments, provided, however, that the amount of such royalties shall not be
reduced to a rate lower than [*].
5.3.9 Books and Records. BMS shall maintain accurate books and
records with respect to its Net Sales of Licensed Product and all amounts to be
shared between the parties or reimbursable to BMS by LIDAK pursuant to this
Agreement. LIDAK shall keep accurate books and records with respect to its costs
and expenses under the Development Program and all amounts reimbursable to LIDAK
by BMS pursuant to this Agreement and all amounts to be shared between the
parties. Upon request, each party shall permit the other or its independent
certified public accountants access, not more than once each calendar quarter,
during regular business hours and upon reasonable advance prior notice to
inspect and copy such records, to the extent necessary to verify the information
contained therein.
5.3.10 Minimum Royalty Amounts. Prior to the date of the
expiration of the last to expire Licensed Patent in the U.S. and commencing the
first full calendar year following commercialization of the Licensed Product in
the U.S., the minimum royalty amount payable pursuant to Section 5.3 hereof
shall be (i) [ * ] in any calendar year during any portion of which the Licensed
Product is marketed solely in the prescription market, and (ii) [ * ] in any
calendar year during the entirety of which Licensed Product is sold in the OTC
market.
5.3.11 Conversion. All payments of royalties shall be
made in U.S. dollars. Royalties shall based on Net Sales
converted to U.S. dollars in accordance with internal BMS
reporting policies applied on a company-wide basis.
Notwithstanding the foregoing, if applicable governmental
regulations in any country in the Territory prevent remittances
from a foreign country with respect to sales made in that country,
*Confidential portion omitted and filed separately with the Commission
25
<PAGE> 28
the obligation of BMS to pay royalties on sales in that country shall be
suspended until such remittances are possible. LIDAK shall have the right, upon
giving written notice to BMS, to receive payment in such country in the local
currency. Any amounts required under the laws of any governmental authority to
be withheld by BMS will be paid by BMS to such authorities, as appropriate, (for
and on behalf of LIDAK, if applicable) and BMS will furnish LIDAK with copies of
appropriate evidence of payment thereof.
5.3.12 Repayment. In the event that a GMP audit of [ * ]
identifies problem areas and the existence of such problem areas results in the
inability to meet the first to U.S. OTC Market Milestone identified as Milestone
8 in Schedule 5.2 hereof, LIDAK shall rebate to BMS [ *
* ] of the licensing fee paid pursuant to Section 5.1
hereof. Such rebate shall be effected by reducing the amount of
royalties payable pursuant to Section 5.3 hereof by [ *
* ] for such period of time as shall be necessary to obtain [
* ].
ARTICLE VI
ADDITIONAL COVENANTS
6.1 General. In addition to the agreements, covenants and
obligations contained elsewhere in this Agreement, the parties shall have the
additional obligations contained in this Article VI.
6.2 Obligations of BMS. BMS shall have the following
obligations:
6.2.1 Commercialization. BMS will use its reasonable efforts
to commercialize or cause to be commercialized the Licensed Product in the U.S.
within [ * ] after receipt of NDA approval and in the remainder of the Territory
as soon as such commercialization is reasonably practical.
6.2.2 Labeling. BMS agrees that, to the extent permitted by
applicable regulatory authority, labeling for the Licensed Product will contain
the statement: "Licensed from LIDAK Pharmaceuticals, La Jolla, California, USA,
Patent No. [ * ].
6.2.3 Operating Plan. BMS shall use reasonable efforts to
execute its assigned activities under the Operating Plan as mutually agreed upon
in a timely manner.
6.3 Obligations of LIDAK. LIDAK shall have the following obligations:
6.3.1 Operating Plan. LIDAK will use its reasonable efforts to
execute its assigned activities pursuant to the Operating Plan as mutually
agreed upon in a timely manner.
*Confidential portion omitted and filed separately with the Commission
26
<PAGE> 29
6.3.2 Governmental Approvals. LIDAK shall provide BMS with
access to any and all data, know-how or information from sources outside of the
Development Plan it has or will have, and will convey to BMS to the extent
required (and to the extent that LIDAK is entitled) to support any and all
regulatory filings necessary to receive applicable government approval for the
sale of Licensed Product in each country in the Licensed Territory.
6.3.3 Regulatory Correspondence. LIDAK shall provide BMS with
copies of all correspondence with the FDA confirming that carcinogenicity
studies will not be necessary to obtain approval for sales of Licensed Product
in the Rx market.
6.3.4 [ * ] LIDAK will supply BMS with copies of the Drug
Master File of [ * ] for the Active Ingredient and LIDAK's GMP audit of [ * ]
not later than five business days after the Effective Date.
6.3.5 Access. LIDAK shall provide BMS with access to all data,
know-how and improvements relating to the Licensed Product to which LIDAK has or
will have access as the result of its relationship with [
*
*
].
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 LIDAK Representations. For the purposes of this Section 7.1, "to
the best of LIDAK's knowledge" means current or prior actual knowledge of any of
LIDAK's officers and/or senior scientists. LIDAK hereby represents, warrants and
covenants to BMS that:
7.1.1 LIDAK is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California and has
the requisite corporate power and authority to carry on its business as now
being conducted and has the requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
7.1.2 Neither LIDAK nor any of its Affiliates is a party to,
subject to, or bound by any agreement or judgment, award, order writ, injunction
or decree of any court, governmental body or arbitrator which would prevent the
carrying out of this Agreement, and that there is (i) no action, suit, dispute
or governmental, administrative, arbitration or regulatory proceeding pending
or, to LIDAK's best knowledge, threatened nor (ii) to LIDAK's best knowledge,
any investigation pending or threatened against or relating to LIDAK which, in
each case, could prevent LIDAK from carrying out its obligations under this
Agreement.
* Confidential portion omitted and filed separately with the Commission
27
<PAGE> 30
7.1.3 Neither LIDAK nor any of its Affiliates is a party to
any material agreement or understanding which would conflict with or be breached
by the execution, delivery or performance of this Agreement by LIDAK.
7.1.4 LIDAK is the sole and exclusive owner of the Licensed
Patents and has the necessary rights and authority to grant the licenses granted
pursuant to this Agreement.
7.1.5 The Licensed Patents are valid and enforceable and LIDAK
has taken all necessary actions to maintain such registrations.
7.1.6 LIDAK does not have any knowledge of any "prior art"
which would invalidate part or all of the Licensed Patents.
7.1.7 Aside from such filings as may be required to be made in
connection with the Development Program, no consent, approval or authorization
of, or filing, registration or qualification with, any governmental authority or
any other person is required on the part of LIDAK in connection with the
execution, delivery and performance of this Agreement.
7.1.8 The Licensed Product that is the subject of the Phase
III Clinical Studies referred to in the Subsequent Licensing Fees Schedule
(Schedule 5.2) meets all appropriate standards of clinical supply integrity, is
safe for human use, efficacious in the treatment of herpes labialis and has
stability commensurate with the commercial sale of a prescription or
over-the-counter drug.
7.1.9 LIDAK has provided to BMS copies of, or if not in
written form, discussed with BMS, all communications with the FDA or other
relevant governmental regulatory agency pertaining to the Licensed Product.
7.1.10 To the best of LIDAK's knowledge, as of October 31,
1995, the cost of raw materials and labor of one gram of bulk Licensed Product
that is the subject of Phase III Clinical Studies was approximately [ * ].
7.1.11 [ * ] can manufacture n-docosanol in compliance with
all legal and regulatory requirements of the FDA or other agency having
regulatory authority including, without limitation, in compliance with GMP, GLP
and GCP on a timetable consistent with the Development Program Milestones.
7.1.12 The Licensed Product that is the subject of the Phase
III Clinical Studies is covered by the Licensed Patent U.S.
Patent No. 4,874,794.
7.1.13 The patents and patent applications listed on
Schedule 1.1.25 hereto are all of the patents or patent
* Confidential portion omitted and filed separately with the Commission
28
<PAGE> 31
applications relating to the Active Ingredient or Licensed Product
in the Territory.
7.2 BMS Representations. BMS hereby represents, warrants
and covenants to LIDAK that:
7.2.1 BMS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has full power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
7.2.2 Neither BMS nor any of its Affiliates is a party to,
subject to, or bound by any agreement or any judgment, award, order, writ,
injunction or decree of any court, governmental body or arbitrator which could
prevent the carrying out of this Agreement, and that there is (i) no action,
suit, dispute or governmental, administrative, arbitration or regulatory
proceeding pending or, to BMS's best knowledge, threatened nor (ii) to BMS's
best knowledge, any investigation pending or threatened against or relating to
BMS which, in either case, could prevent BMS from carrying out obligations under
this Agreement.
7.2.3 Aside from such filings as may be required to be made in
connection with the Development Program, no consent, approval or authorization
of, or filing, registration or qualification with, any governmental authority or
any other person is required on the part of BMS in connection with the
execution, delivery and performance of this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Losses. For purposes of this Agreement, the terms "LOSS" or
"LOSSES" shall mean each and all of the following items, namely, claims, losses,
liabilities, damages, fines, penalties, costs and expenses (including, without
limitation, interest which may be imposed in connection therewith), expenses of
investigation, reasonable fees and disbursements of counsel and other experts,
and the cost to the person seeking indemnification (the "INDEMNITEE") of any
funds expended by reason of the occurrence of any of the events enumerated in
Section 8.2 hereof or Section 8.3 hereof, as the case may be, or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof or in enforcing the provisions of this Agreement, without giving effect
to any insurance reimbursement or tax savings which may inure to the Indemnitee.
8.2 Indemnification by LIDAK. LIDAK shall indemnify and hold harmless
BMS, its affiliates, their respective officers, directors, employees, agents and
representatives and any person claiming by or through any of them from and
against any and all Losses arising out of or resulting from: (i) any breach of
any of the representations or warranties made by LIDAK in this Agreement;
29
<PAGE> 32
(ii) any failure by LIDAK to perform any of its covenants or agreements
contained in this Agreement; (iii) copyright infringement arising out of any
material published by LIDAK; (iv) misappropriation or infringement by LIDAK of
the trade secrets of any party as the result of information conveyed by LIDAK to
BMS or employed by LIDAK in development of the Licensed Product; (v)
infringement predicated on manufacture, use or sale of Licensed Product of any
patent issued or applied for on or before the Effective Date of which LIDAK is
aware; (vi) infringement predicated on manufacture, use or sale of Licensed
Product of patents issued or applied for after the Effective Date and prior to
NDA approval, whether or not LIDAK is aware of such patent or application; (vii)
manufacture of the Licensed Product by or on behalf of LIDAK; and (viii) design
defects in the Licensed Product, provided that the event giving rise to such
Loss shall have occurred prior to the date of NDA approval. Notwithstanding
anything to the contrary contained herein, LIDAK's liability under this Section
8.2 shall not exceed [
* ].
8.3 Indemnification by BMS. BMS shall indemnify and hold harmless
LIDAK, its affiliates, their respective officers, directors, employees, agents
and representatives and any person claiming by or through any of them from and
against any and all Losses arising out of or resulting from: (i) any breach of
any of the representations or warranties made by BMS in this Agreement; (ii) any
failure by BMS to perform any of its covenants or agreements contained in this
Agreement; (iii) trademark or tradedress infringement arising out of the use of
any trademark or tradedress by BMS in connection with the sale of Licensed
Product; (iv) copyright infringement arising out of any material published by
BMS; (v) misappropriation or infringement by BMS of the trade secrets of any
party as the result of information conveyed by BMS to LIDAK or employed by BMS
in development of the Licensed Product; (vi) infringement predicated on the
manufacture, use or sale of Licensed Product of any patents applied for
subsequent to the date of NDA approval; (vii) infringement predicated on the
manufacture, use or sale of Licensed Product of any patents covering solely use
of the Licensed Product or Licensed Technology in combination with another
product or technology; (viii) manufacture of the Licensed Product by or on
behalf of BMS; (ix) marketing, sale and labeling of Licensed Product by BMS; and
(x) [
*
*
]. Notwithstanding anything to the contrary contained
herein, BMS's liability in this Section 8.3 shall not exceed [
*
].
8.4 Procedure. (a) In the event that an Indemnitee shall
suffer a Loss which is not the subject of a claim, demand, action, suit,
proceeding, arbitration, investigation or inquiry (each and
* Confidential portion omitted and filed separately with the
Commission.
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<PAGE> 33
all of the foregoing items being herein referred to as "LITIGATION"), the
Indemnitee shall give notice thereof to the party from whom such indemnification
is being sought (the "INDEMNITOR").
(b) (i) Promptly after receipt by an Indemnitee of written
notice of the assertion or the commencement of any Litigation with respect to
any matter referred to in Section 8.2 or 8.3 hereof, the Indemnitee shall give
written notice thereof (the "NOTICE") to the Indemnitor and shall thereafter
keep the Indemnitor reasonably informed with respect thereto, provided that
failure of the Indemnitee to give the Indemnitor prompt notice as provided
herein shall not relieve the Indemnitor of any of its obligations hereunder
unless such failure materially prejudices the Indemnitor. In case any such
Litigation is brought against any Indemnitee, the Indemnitor shall be entitled
to assume and control the defense thereof, by written notice to the Indemnitee
within 30 calendar days after receipt of the Notice of its intention to do so,
with counsel reasonably satisfactory to the Indemnitee at the Indemnitor's own
expense. If the Indemnitor shall assume the defense of such Litigation, it shall
not settle such Litigation unless such settlement includes as an unconditional
term thereof the giving by the claimant or the plaintiff of a release of the
Indemnitee, satisfactory to the Indemnitee, from all liability with respect to
such Litigation. Notwithstanding the assumption by the Indemnitor of the defense
of any Litigation as provided in this subsection, the Indemnitee shall be
permitted to join in the defense of such Litigation and to employ counsel at its
own expense.
(ii) If the Indemnitor shall fail to notify the
Indemnitee of its desire to assume the defense of any such Litigation within the
prescribed period of time, or shall notify the Indemnitee that it will not
assume the defense of any such Litigation, then the Indemnitee may assume the
defense of any such Litigation, in which event it may do so in such manner as it
may deem appropriate, and the Indemnitor shall be bound by any determinations
made in such Litigation or any settlement thereof effected by the Indemnitee.
The Indemnitor shall be permitted to join in the defense of such Litigation and
to employ counsel at its own expense.
8.5 Mitigation. Notwithstanding anything contained herein to the
contrary, the indemnification rights granted pursuant to this Article VIII shall
not apply to the extent to which any Loss would not have arisen but for a
voluntary act or omission after the Effective Date on the part of the Indemnitee
or which could reasonably have been avoided without material cost, expense or
business detriment to the Indemnitee.
8.6 Survival. The provisions of this Article VIII shall not survive the
termination of this Agreement (except for
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<PAGE> 34
termination pursuant to Section 10.2 hereof), or expiration of the License Term
in each country in the Territory.
8.7 Escrow; Offset. (a) LIDAK agrees that, should a third party
institute any Litigation against BMS or any of its affiliates or sublicensees,
in any country of the Territory, that gives rise to an Indemnification
obligation of LIDAK pursuant to Section 8.2, BMS shall have the right during the
pendency of such litigation to withhold in escrow in an interest bearing account
such amounts of the royalties in respect of Net Sales in such country then due
LIDAK that equal Losses incurred by BMS through the time such royalties are due.
(b) In the event that such Litigation is successfully
defended, BMS shall, upon final determination thereof, pay to LIDAK all
royalties held in escrow, less the attorneys' fees and costs incurred by BMS in
connection with such Litigation, which fees and costs will not exceed the total
amount of royalties held in escrow.
(c) In the event that such Litigation is not successfully
defended, the escrowed royalties provided for in this Section 8.7 shall be used
first to pay the reasonable attorneys' fees and costs incurred by BMS in
connection with such Litigation, and then to pay damages, settlement fees or
license fees that BMS must pay to a third party as a result of the unsuccessful
defense of Litigation. BMS shall pay the remainder of the escrowed royalties, if
any, to LIDAK.
(d) In the event that an Indemnitee is entitled to any payment
in respect of the indemnification granted pursuant to Section 8.2 or 8.3 hereof,
such amount shall be promptly paid by the Indemnitor. Without limiting the
generality of the foregoing, if the Indemnitor shall fail to properly pay such
amounts, the Indemnitee shall be entitled to offset such amounts against any
amounts payable to the Indemnitee hereunder.
ARTICLE IX
EVENTS OF FORCE MAJEURE
9.1 Meaning. "FORCE MAJEURE" shall mean any cause which is beyond the
reasonable control of the party invoking Force Majeure and which, by the
exercise of reasonable diligence, such party is unable to prevent, including but
not limited to, and whether or not of the same class or kind as, the following:
any law, decree, regulation, order, or request of any governmental authority
(national, state, or regional), nationalization, expropriation, confiscation,
requisition, riot, war, hostilities, public disturbance, act of the public
enemy, act of terrorism, strike, lockout or other labor dispute, fire, flood,
earthquake, storm, tidal wave, explosion, Act of God, accident of navigation,
breakdown or failure of transportation or transportation facilities.
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<PAGE> 35
9.2 Excused Performance. If either party is prevented from or delayed
in carrying out any provision of this Agreement by reason of Force Majeure, the
party whose performance is so prevented, delayed, interfered with or restricted,
upon prompt written notice thereof to the other party, shall be excused from
such performance to the extent and during the period of such prevention, delay,
interference or restriction. In particular, to the extent that LIDAK is unable
to meet any of the Milestones set forth on Schedule 5.2 by reason of Force
Majeure, BMS shall be similarly excused from any obligation to make the
corresponding Milestone payment unless and until such Milestone has been
accomplished.
9.3 Limitations. The provisions of this Article IX shall not
be available to a party if such party fails to use reasonable diligence to
remedy the applicable situation described in Section 9.1 above in an adequate
manner and with all reasonable dispatch or if such applicable situation is
caused by such party, except that this Section 9.3 shall not require the
settlement of strikes or labor controversies by acceding to the demand of the
opposing party or parties.
ARTICLE X
TERM AND TERMINATION
10.1 Termination by BMS. BMS, at its sole discretion, may terminate
this Agreement upon the occurrence of the following events:
10.1.1 At any time after [ * ] following completion of the
Phase III Clinical Studies relating to the Licensed Product upon thirty (30)
business days' advance written notice to LIDAK; provided, however, that prior to
such termination, BMS shall have made any Milestone payment required to have
been made pursuant to Section 5.2 hereof.
10.1.2 In accordance with Section 2.9.3 hereof.
10.1.3 Upon written notice if final Clinical Study
Report data for each of studies [ * ], and [ *
] shall not have been received by [ * ].
10.2 Termination Due to a Material Breach. Either LIDAK or BMS may
terminate this Agreement upon a material breach of the terms of this Agreement
by the other, provided that (i) the non-breaching party provides written notice
to the breaching party detailing the nature of the breach; and (ii) the
breaching party fails to remedy the breach within thirty (30) calendar days of
receipt of notice from the non-breaching party. Upon the termination of this
Agreement neither party shall have continuing obligations to the other, except
for payment obligations accrued
*Confidential portion omitted and filed separately with the Commission
33
<PAGE> 36
prior to the date of such termination and as otherwise expressly provided for
herein.
10.3 Insolvency. This Agreement may be terminated by either BMS or
LIDAK (a) in the event that a case or proceeding shall be commenced and continue
undismissed or unstayed for a period of thirty (30) calendar days against the
other (the "INSOLVENT PARTY") or such Insolvent Party shall commence a voluntary
case, in either case seeking relief under the bankruptcy laws or any other law
relating to bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, in each case as now or hereafter in effect, or (b) the
Insolvent Party shall apply for, consent to, or fail to contest, the appointment
of a receiver, liquidator, custodian, trustee or the like for such party or for
all or any part of its property, or (c) the Insolvent Party shall make a general
assignment for the benefit of its creditors, or (d) either party shall fail to,
or admit in writing its inability to, pay, or generally not be paying, its debts
as they become due.
10.3.1 In the event of the termination of this Agreement
pursuant to the terms of this Section 10.3, the non-Insolvent Party may, in its
sole discretion, decide whether to terminate this Agreement. If the
non-Insolvent Party terminates this Agreement, the license granted herein shall
terminate and neither party shall have any obligations to the other, except for
payment obligations which had accrued prior to the termination or as otherwise
expressly set forth in this Agreement.
10.4 Effect Of Termination or Expiration. The effect of
termination of this Agreement shall be as follows:
10.4.1 Termination By LIDAK For BMS Breach. Upon termination
by LIDAK pursuant to Section 10.2 hereof (i) any BMS obligations, financial or
otherwise, accruing prior to such termination shall survive, (ii) LIDAK shall
have no liability for effecting such termination and shall retain all remedies
for such breach available pursuant to this Agreement or otherwise, (iii) the
License granted pursuant to Section 3.1 shall be of no further force and effect
and (iv) BMS and LIDAK will negotiate in good faith to enter into an agreement
regarding the sale to LIDAK of registrations for Licensed Product in the
Territory, customer lists and marketing information in countries of the
Territory other than the U.S. and Canada. Notwithstanding anything contained
herein to the contrary, any termination by LIDAK for breach by BMS of its
obligations pursuant to this Agreement, which breach is specific to fewer than
all countries of the Territory, shall be effective only as to such countries
affected by such breach, which countries shall be specified in any written
notice delivered to BMS pursuant to Section 10.2.
10.4.2 Termination By BMS For LIDAK Breach. Upon
termination by BMS pursuant to Section 10.2 hereof (i) any LIDAK
obligations, financial or otherwise, accruing prior to such
34
<PAGE> 37
termination shall survive, (ii) BMS shall have no liability for effecting such
termination and shall retain all remedies for such breach available pursuant to
this Agreement or otherwise and (iii) the License granted pursuant to Section
3.1 shall become an exclusive perpetual royalty-free license under the Licensed
Patents and Licensed Technology in the Licensed Field in the Territory.
Notwithstanding anything contained herein to the contrary, any termination by
BMS for breach by LIDAK of its obligations pursuant to this Agreement, which
breach is specific to fewer than all countries of the Territory, shall be
effective only as to such countries affected by such breach, which countries
shall be specified in any written notice delivered to LIDAK pursuant to Section
10.2.
10.4.3 Termination By BMS Pursuant To Section 10.1. Upon
termination by BMS pursuant to Section 10.1 hereof (i) any LIDAK obligations,
financial or otherwise, accruing prior to such termination and, if such
termination is pursuant to Section 10.1.2 hereof, any BMS obligation to pay
LIDAK pursuant to Section 2.9.3 hereof shall survive, (ii) BMS shall have no
liability for effecting such termination, (iii) the License granted pursuant to
Section 3.1 shall be of no further force and effect and (iv) BMS and LIDAK will
negotiate in good faith to enter into an agreement regarding the sale to LIDAK
of registrations for Licensed Product in the Territory, customer lists and
marketing information in countries of the Territory other than the U.S. and
Canada.
10.4.4 Expiration Of The License Term. Upon expiration of the
License Term in each country of the Territory pursuant to Section 3.2 hereof (i)
any obligations, financial or otherwise, accruing prior to such expiration shall
survive and (ii) the License granted pursuant to Section 3.1 with respect to
each such country shall become an exclusive perpetual royalty-free license under
the Licensed Patents and Licensed Technology in the Licensed Field in the
Territory; provided, however, BMS shall have the option, upon written notice to
LIDAK, to extend the License Term in each country of the Territory for
successive three year periods upon continued payment of applicable royalty
rates.
ARTICLE XI
CONFIDENTIALITY
11.1 Confidential Information. Except as provided below, each party to
this Agreement shall keep secret and confidential the information, data and
materials of the others disclosed to it prior to and during the term of this
Agreement (collectively, the "CONFIDENTIAL INFORMATION"). In addition, the
Confidential Information shall include the terms and conditions of this
Agreement. For purposes of this Article XI, a party or parties receiving
Confidential Information shall be termed the "RECIPIENT" and the party providing
the Confidential Information to the Recipient shall be termed the "DISCLOSER."
The obligations of the
35
<PAGE> 38
parties hereunder shall survive for a period of ten (10) years following
termination or expiration of this Agreement.
11.2 Non-Disclosure. Recipient shall safeguard and hold confidential
the Confidential Information with the same degree of care (but not less than a
reasonable standard of care) it customarily employs with its own proprietary
information, and shall not cause or permit the disclosure to, or use by, any
person of such information, except as expressly permitted in writing by the
Discloser or as specifically permitted in this Section 11.2. Recipient shall
limit disclosure of the Discloser's Confidential Information to those of its
officers, employees, agents and representatives who shall have a need to know
such information and have, directly or indirectly, agreed in writing to
safeguard and maintain such Confidential Information of the other and not to
disclose or use such Confidential Information of the other.
11.3 Non-Confidential Information. The obligations of this Article XI
shall not apply to information that: (a) is publicly known prior to or after
disclosure hereunder other than through acts or omissions attributable to the
Recipient or its employees or representatives; (b) as demonstrated by prior
written records, is already known to Recipient at the time of disclosure
hereunder; (c) is disclosed in good faith to Recipient (without obligation as to
confidentiality) by a third party having a lawful right to do so; (d) is
independently developed by Recipient which independent development can be
documented by Recipient; or (e) is required to be disclosed pursuant to a court
order.
11.4 Additional Measures. Recipient shall take such actions
as Discloser may reasonably request from time to time to safeguard
the confidentiality of any information subject to the terms of this Article XI.
ARTICLE XII
GENERAL
12.1 Remedies. Each of the parties hereto acknowledges and agrees that
in the event of a breach or threatened breach of Sections 3.1 and 11 of this
Agreement, the other party has no adequate remedy at law and, accordingly shall
be entitled to injunctive and other equitable remedies against such breach or
threatened breach in addition to any remedy it might have at law or in equity.
12.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns and successors in
interest; provided, however, that no party shall assign or otherwise transfer
its interest or any part thereof under this Agreement to any other person or
entity without the written consent of the other parties, which consent shall not
be unreasonably withheld, except (a) in connection with the transfer
36
<PAGE> 39
of all or substantially all of the assets of the transferring party to any other
person or entity, whether by means of a merger, asset or stock sale or
otherwise, or (b) to a wholly-owned subsidiary or Affiliate, provided that the
transferring party shall guarantee its transferee-subsidiary's or transferee-
Affiliate's performance and compliance hereunder and shall notify the other
party in writing of such transfer.
12.3 Governing Law. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of New York. The
parties agree that the state and federal courts of New York shall be the
appropriate sites of venue for actions initiated by LIDAK arising out of or
relating to this Agreement and that the state and federal courts of California
shall be the appropriate sites of venue for actions initiated by BMS arising out
of or relating to this Agreement. THE PARTIES ALSO HEREBY WAIVE TRIAL BY JURY IN
ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES, INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT. Each of the parties agrees that, prior to initiating litigation
in connection with any dispute arising under this agreement or the subject
matter hereof, such parties shall meet to attempt to negotiate resolution of any
such dispute.
12.4 Notice. All notices required or permitted hereunder shall be in
writing and shall be sufficiently given if: (a) hand delivered (in which case
the notice shall be effective upon delivery); (b) telecopied, provided that in
such case a copy of such notice shall be concurrently sent by registered or
certified mail, return receipt requested, postage prepaid (in which case the
notice shall be effective two calendar days following dispatch); (c) delivered
by Express Mail, Federal Express or other nationally recognized overnight
courier service (in which case the notice shall be effective one business day
following dispatch); or (d) delivered or mailed by registered or certified mail,
return receipt requested, postage prepaid (in which case the notice shall be
effective three calendar days following dispatch), to the parties at the
following addresses and/or telecopier numbers, or to such other address or
number as a party shall specify by written notice to the others in accordance
with this Section.
If to LIDAK:
LIDAK Pharmaceuticals
11077 North Torrey Pines Road
La Jolla, CA 92037
Attention: David H. Katz, M.D.
President/Chief Executive Officer
Telecopier No.: (619) 453-5845
37
<PAGE> 40
with a copy to:
Randall K. Broberg, Esq.
Baker & McKenzie
The Wells Fargo Plaza
12th Floor
101 West Broadway
San Diego, CA 92101-3890
Telecopier No.: (619) 236-0429
If to BMS:
Bristol-Myers Products
345 Park Avenue
New York, NY 10154
Attention: Louis M. DeAmicis
Telecopier No.: (212) 605-9490
with a copy to:
Peter N. Stevens, Esq.
Bristol-Myers Products
345 Park Avenue
New York, NY 10154
Telecopier No.: (212) 605-9494
12.5 Waiver. No failure or delay of any party hereto to exercise any
power or right granted hereunder, and no custom or practice of the parties with
regard to the terms of performance hereof, shall constitute a waiver of the
rights of such party to demand full and exact compliance with the terms of this
Agreement.
12.6 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, and the other agreements referenced herein which are being
executed simultaneously herewith, set forth the entire understanding of the
parties with respect to the transactions contemplated thereby, and supersedes
any prior oral or written agreements or understandings relating to the subject
matter hereof. This Agreement shall not be amended, modified or changed except
by the written agreement of each party whose rights or responsibilities are
being affected thereby.
12.7 Severability. In the event that any provision of this Agreement
shall be found in violation of public policy or illegal or unenforceable in law
or equity, the balance of such provision and this Agreement shall continue in
full force and effect, as if such provision or portion thereof had been deleted
or rendered inapplicable to the situations to which such provision cannot be
legally applied.
12.8 Titles to Sections for Convenience Only. The titles to
Sections of this Agreement are used solely for the convenience of
the parties and do not constitute part of the agreement of the parties
hereunder.
38
<PAGE> 41
12.9 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 the same agreement.
12.10 Publicity. Except as may be otherwise required by applicable law
(in which event the party required by law to disclose shall give the other party
reasonable advance written notice of its intent to disclose), each party agrees
that it will not disclose to the press or any third party or otherwise advertise
to the communications media the terms of this Agreement without the prior
written consent of each other party. Each party shall exercise reasonable
discretion in maintaining the confidentiality of this Agreement, provided that
the parties recognize that certain information is being disclosed and will be
disclosed by the filing and reporting to governmental entities required in order
to consummate the transactions contemplated hereby. Notwithstanding the
foregoing, the parties acknowledge that LIDAK will announce (i) the consummation
of the transaction contemplated hereby, including identification of the parties,
(ii) the results of the current Phase III Clinical Studies in the U.S. and
Canada regarding statistical significance on achievement of primary endpoints of
such studies, and (iii) submission of registration for marketing approval to
appropriate governmental authorities in any country in the Territory and,
provided further, that a copy of any such proposed announcement will be provided
to BMS a reasonable period of time in advance of the contemplated date of
release thereof for review and approval by BMS, which approval shall not be
unreasonably withheld.
12.11 Further Assurances. At any time and from time to time, at the
request of BMS, LIDAK shall promptly execute and deliver, or cause to be
executed and delivered, to BMS all such assignments and other documents, in
addition to those otherwise required by this Agreement, in form and substance
satisfactory to BMS, as BMS may reasonably request in order to carry out or
evidence the terms of this Agreement.
39
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BRISTOL-MYERS LIDAK PHARMACEUTICALS
SQUIBB COMPANY
By:/s/Stephen E. Bear By:/s/David H. Katz
----------------------- ------------------------
Stephen E. Bear David H. Katz, M.D.
President - Worldwide President/Chief
Consumer Medicines Executive Officer
40
<PAGE> 43
SCHEDULE 1.1.25
LICENSED PATENTS
This Schedule has been omitted in its entirety due to confidentiality and has
been filed separately with the Commission.
41
<PAGE> 44
SCHEDULE 1.1.42
TERRITORY
This Schedule has been omitted in its entirety due to confidentiality and has
been filed separately with the Commission.
42
<PAGE> 45
SCHEDULE 2.3
PRODUCT SPECIFICATIONS
1. Physical and chemical stability, incuding but not limited to, [ * ] of
stability from [ * ] relative to humidity. The endpoints should
include, but are not limited to , constant particle droplet size and
viscosity.
2. Ambient storage labeling.
3. Bulk drug product cost of goods of less than or equal to
[ * ].
4. [ * ] of healing time versus placebo.
5. Absence of clinical irritation, sensitization and
photosensitization.
6. Absence of clinically significant viral resistance.
7. Absence of clinically significant adverse events associated
with product use.
* Confidential portion omitted and filed separately with the
Commission.
43
<PAGE> 46
SCHEDULE 4.4.1
SCHEDULE OF PRE-EXISTING AND ONGOING STUDIES
This Schedule entirety has been omitted in its due to confidentiality and has
been filed separately with the Commission.
44
<PAGE> 47
SCHEDULE 5.2
SUBSEQUENT LICENSING FEES PAYMENT SCHEDULE
This Schedule has been omitted in its entirety due to confidentiality and has
been filed separately with the Commission.
3
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 11,
1996 (this "Agreement"), is made by and between LIDAK PHARMACEUTICALS, a
California corporation (the "Company"), and the person named on the signature
page hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Note Purchase Agreement, dated
as of January 11, 1996, between the Initial Investor and the Company (the "Note
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Note Purchase Agreement, to issue and sell to the Initial
Investor a convertible note of the Company (the "Note") which will be
convertible into shares (the "Conversion Shares") of Class A Common Stock, no
par value, upon the terms and subject to the conditions of such note; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Note Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Shares, the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms
shall have the following meanings:
(i) "Investor" means the Initial Investor and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof. "Investor" does not mean (A) any purchaser or
holder of securities of the Company issued under any agreement other than the
Note Purchase Agreement or (B) any person entitled to registration rights under
any agreement other than this Agreement.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration
<PAGE> 2
Statement or Statements in compliance with the Securities Act
and pursuant to Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i)
each Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9 of
this Agreement.
(c) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Note Purchase
Agreement.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. On or prior to the date which is
25 days after the date of the closing under the Note Purchase Agreement (the
"Closing Date"), the Company shall amend its Registration Statement on Form S-3
(Registration No. 33- 64983) (the "Registration Statement") to include the
Registrable Securities and, as and if authorized by its shareholders, the Higher
Authorized Share Number referenced in Section 2.6 of the Note. Such Registration
Statement shall state that, in accordance with Rule 416 under the Securities
Act, such Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Note to prevent dilution resulting from stock splits, stock dividends or similar
transactions or by reason of changes in the conversion price of the Note in
accordance with the terms thereof.
(b) If any offering pursuant to a Registration Statement
pursuant to Section 2(a) hereof involves an underwritten offering, the Investors
who hold a majority in interest of the Registrable Securities subject to such
underwritten offering shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Investors who hold the Registrable Securities
to be included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such investment banker or bankers and
manager or managers so selected in accordance with this Section 2(b) (other than
fees and expenses relating to registration of Registrable Securities under
federal or state securities laws, which are payable by the Company pursuant to
Section 5 hereof)
-2-
<PAGE> 3
with respect to their Registrable Securities and the fees and
expenses of such legal counsel so selected by the Investors.
(C) PAYMENTS BY THE COMPANY. If the Registration Statement
referred to in Section 2(a) hereof is not effective within 70 days after the
Closing Date, then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(c). The amount to be paid by the Company to the Initial Investor shall be
determined as of each Computation Date, and such amount shall be equal to three
percent (3%) of the purchase price paid by the Initial Investor for the Note
pursuant to the Note Purchase Agreement for each Computation Date (the "Periodic
Amount"); provided, however, that if any Computation Date is less than 30 days
subsequent to another Computation Date, then the Periodic Amount payable on the
later Computation Date shall be pro rated; and provided further, however, that,
from and after the date of any repayment of principal of the Note and payment of
premium, if any, and interest on the principal of the Note so repaid, for
purposes of any calculation under this Section, the amount set forth in the
preceding clause (2) shall be reduced by the amount of principal so repaid. The
Periodic Amount shall be paid by the Company in immediately available funds
within three business days after each Computation Date.
"Computation Date" means the date which is 70 days after the
Closing Date and, if the Registration Statement required to be filed by the
Company pursuant to Section 2(a) has not theretofore been declared effective by
the SEC, each date which is 30 days after a Computation Date and, if the
Registration Statement required to be filed by the Company pursuant to Section
2(a) is not declared effective by the SEC within 70 days after the Closing Date,
the date on which such Registration Statement is declared effective.
(D) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be
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included in the Registration Statement because, in such underwriter(s)'
judgment, such limitation is necessary to effect an orderly public distribution,
then the Company shall be obligated to include in such Registration Statement
only such limited portion of the Registrable Securities with respect to which
such Investor has requested inclusion hereunder. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to include
Registrable Securities, in proportion to the number of Registrable Securities
sought to be included by such Investors; provided, however, that the Company
shall not exclude any Registrable Securities unless the Company has first
excluded all outstanding securities the holders of which are not entitled by
right to inclusion of securities in such Registration Statement; and provided
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such
securities in the Registration Statement. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. The obligations of the Company
under this Section 2(d) may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
this Section 2(d) for two registrations; provided, however, that any Investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(d) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded. Notwithstanding any other provision of this Agreement,
if the Registration Statement required to be filed pursuant to Section 2(a) of
this Agreement shall have been ordered effective by the SEC, then the Company
shall not be obligated to register any Registrable Securities on such
Registration Statement referred to in this Section 2(d).
(E) ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for registration
of the sale by the Initial Investor and any Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with
the registration of the Registrable Securities, the Company
shall:
(a) cause each Registration Statement relating to Registrable
Securities to become effective prior to the first Computation Date, and keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is three years after the date such Registration Statement is first
ordered effective by the SEC, which Registration Statement (including any
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amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is three years after the date such Registration Statement is first
ordered effective by the SEC, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the staff of
the SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until three years after the Registration Statement is ordered effective by
the SEC, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times until the such date as
is the earlier of three years after the date such Registration Statement is
first ordered effective by the SEC or the date on which all Investors have
disposed of all Registrable Securities and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such
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jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) in the event Investors who hold a majority in interest of
the Registrable Securities being offered in the offering select underwriters for
the offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold, which firm shall be reasonably acceptable to
the Company, to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and shall not file any document in a form to which such counsel reasonably
objects;
(i) make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in
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form complying with the provisions of Rule 158 under the Securities Act)
covering a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the Registration
Statement;
(j) at the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, furnish on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection upon reasonable prior notice
during regular business hours by any Investor, any underwriter participating in
any disposition pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement; provided,
however, nothing contained herein shall be construed to prevent Investor from
lawfully trading in the Company's securities. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance reasonably satisfactory to the Company) with the Company with
respect thereto. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
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prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on a
national securities exchange and on each additional national securities exchange
on which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (ii) secure designation of all the
Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ")
"national market system security" within the meaning of Rule 11Aa2-1 of the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Securities on the NASDAQ National Market System
or, if, despite the Company's best efforts to satisfy the preceding clause (i)
or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure listing on a national securities exchange or NASDAQ
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(m) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(n) cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may
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reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request; and, within three business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2;
(o) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement;
(p) Notwithstanding any other provision of this Section 3,
wherever in this Section 3 any action is stated to be required to be taken by
the Company or by an Investor prior to the filing of the Registration Statement,
such action shall be required to be taken prior to the filing by the Company
with the SEC of the amendment to the Registration Statement referred to in
Section 2(a) and the period of time for taking or being required to take any
such action shall be determined by reference to the time of filing of such
amendment with the SEC and any such period of time shall, if necessary, be
shortened in order to permit the Company to comply with its obligation in
Section 2(a) with respect to the deadline for filing such amendment with the
SEC; and
(q) The Company expressly acknowledges and agrees that
whenever any action or provision is expressed in this Agreement to be taken,
determined or decided by "Investors who hold a majority in interest of the
Registrable Securities" or words of similar import, such expression shall refer
only to the holder or holders of the Note and the holder or holders of
Conversion Shares issued on conversion of the Note, in each case who are
entitled to the benefits of this Agreement in accordance with Section 9 hereof
and shall not refer to the holders of any other promissory notes or other shares
of Common Stock of the Company.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five
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(5) days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor (the "Requested Information") if such Investor
elects to have any of such Investor's Registrable Securities included in the
Registration Statement. If at least one (1) business day prior to the filing
date the Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of
the Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and (iii) agrees to pay its pro rata share of
all underwriting discounts and
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commissions and other fees and expenses of investment bankers and any manager or
managers of such underwriting and legal expenses of the underwriters applicable
with respect to its Registrable Securities, in each case to the extent not
payable by the Company pursuant to the terms of this Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other
than fees and disbursement of counsel to the Investors and underwriter,
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable
Securities are included in a Registration Statement under this
Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages or liabilities (joint or several) or expenses reasonably incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or 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, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
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rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a)(I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) with respect to any preliminary prospectus shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; and
(III) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses
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reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
as does not exceed the amount, if any, by which (1) the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement exceed (2) the purchase price paid by such Investor for
the Registrable Securities sold by such Investor pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel, which counsel shall be
reasonably acceptable to the indemnifying party, with the fees and expenses to
be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company
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shall pay for only one separate legal counsel for the Investors and all other
persons named as selling stockholders in the Registration Statement covering the
Registrable Securities (the "Other Selling Stockholders"); such legal counsel
shall be selected by the Investors and the Other Selling Stockholders holding a
majority in interest of the Registrable Securities and the securities held by
the Other Selling Stockholders, in each case included in the Registration
Statement to which the Claim relates; provided, however, that the Investors
shall be entitled to one separate legal counsel (separate from the Other Selling
Stockholders whose Registrable Securities are included in the Registration
Statement) in the event that counsel selected by Investors and Other Selling
Stockholders holding a majority in interest of the Registrable Securities and
the securities held by the Other Selling Stockholders included in the
Registration Statement is not reasonably acceptable to the Investors. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
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<PAGE> 15
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to Qualified Transferees or Assignees
(as defined below) after the Registration Statement required to be filed by the
Company pursuant to Section 2(a) hereof has been declared effective by the SEC
of all or any portion of such securities constituting at least 100,000 shares
(or a note convertible into at least 100,000 shares) of Registrable Securities
(such number to be subject to adjustment for stock splits, stock dividends,
combinations, reclassifications, reorganizations and similar events) only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. "Qualified Transferees or Assignees" means
any person who is (i) an affiliate of the Initial Investor and (ii) an
"accredited investor" as that term is defined in Rule 501 of
the General Rules and Regulations under the Securities Act by
reason of Rule 501(a)(3).
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
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<PAGE> 16
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, at Lidak
Pharmaceuticals, 11077 N. Torrey Pines Road, La Jolla, California 92037,
Attention: President, (ii) if to the Initial Investor, at the address set forth
under its name in the Subscription Agreement and (iii) if to any other Investor,
at such address as such Investor shall have provided in writing to the Company,
or at such other address as each such party furnishes by notice given in
accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four days after
deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
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<PAGE> 17
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company
to perform its obligations under this Agreement, including, without limitation,
the Company's obligations under Section 3(n), or any delay in such performance
could result in both direct and consequential damages to the Investors and the
Company agrees that, in addition to any other liability the Company may have by
reason of any such failure or delay, the Company shall be liable for all direct
and consequential damages caused by any such failure or delay.
(j) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
day and year first above written.
LIDAK PHARMACEUTICALS
By /s/ Michael H. Lorber
-----------------------------------
Name: Michael H. Lorber
Title: Vice President & CFO
INITIAL INVESTOR:
NAME: CAPITAL VENTURES
INTERNATIONAL
By /s/ ARTHUR DANTCHIK
-----------------------------------
Name: Arthur Dantchik
Title: President, Arbit, Inc.
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<PAGE> 1
EXHIBIT 10.3
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, by and between LIDAK PHARMACEUTICALS, a California corporation,
with headquarters located at 11077 N. Torrey Pines Road, La Jolla, California
92037 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, a convertible note of the Company which will
be convertible into shares of Class A Common Stock, no par value (the "Common
Stock"), of the Company upon the terms and subject to the conditions of such
note, subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE. The undersigned hereby agrees to purchase from the Company
a convertible promissory note of the Company in the principal amount set forth
on the signature page of this Agreement having the terms and conditions and in
the form attached hereto as ANNEX I (the "Note") at the price set forth on the
signature page of this Agreement. The purchase price for the Note shall be as
set forth on the signature page hereto and shall be payable in United States
Dollars.
b. FORM OF PAYMENT. The Buyer shall pay the purchase price for the Note
by delivering good funds in United States Dollars to the escrow agent (the
"Escrow Agent") identified in the Joint Escrow Instructions attached hereto as
ANNEX II (the "Joint Escrow Instructions"). Such delivery of funds shall be made
against delivery by the Company of the Note duly executed on behalf of the
Company. Promptly following payment by the Buyer to the Escrow Agent of the
purchase price of the Note, the Company shall deliver the Note, duly executed on
behalf of the Company, to the Escrow Agent. By signing this Agreement, the Buyer
and the Company each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions, all of the
<PAGE> 2
provisions of which are incorporated herein by this reference as if set forth in
full.
c. METHOD OF PAYMENT. Payment of the purchase price for the Note shall
be made by certified or official bank check payable to "Brian W. Pusch, as
Escrow Agent." Not later than 4:00 p.m., New York City time, on the date which
is five New York Stock Exchange trading days after the Company shall have
accepted this Agreement and returned a signed counterpart of this Agreement to
the Buyer, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Note.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. The Buyer is purchasing the Note for its own account for investment
only and not with a view towards the public sale or distribution thereof;
b. The Buyer is an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3);
c. All subsequent offers and sales of the Note and the shares of Common
Stock issuable upon conversion of the Note (the "Shares" and, together with the
Note, the "Securities") by the Buyer shall be made pursuant to registration of
the Shares under the 1933 Act or pursuant to an exemption from registration;
d. The Buyer understands that the Note is being offered and sold, and
the Shares are being offered, to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Note and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Note and the offer of the Shares
which have been requested by the Buyer. The Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, (2) the Company's definitive Proxy Statement
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<PAGE> 3
for its 1995 Annual Meeting of Stockholders, (3) the Company's Registration
Statement on Form S-3, dated March 7, 1995, and the prospectus forming part
thereof, dated March 28, 1995 and (4) the Company's Registration Statement on
Form S-3 filed with SEC on December 13, 1995, in each case as filed with the
SEC. The Buyer understands that its investment in the Securities involves a high
degree of risk;
f. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities; and
g. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally;
h. The execution and delivery of this Agreement by the Buyer and the
consummation by the Buyer of the purchase of the Note and the other transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by the Buyer of any of the terms or provisions of, or constitute a
default under, the certificate of incorporation or by-laws of the Buyer, the
investment policies and investment restrictions of the Buyer, or any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Buyer is a party or by which it or any of its properties or assets are bound;
and
i. The Buyer is not purchasing the Note for the purpose of covering any
short sales of the Common Stock made by the Buyer with the Shares, and the Buyer
will not engage in hedging transactions (including, without limitation, short
sales) in the Common Stock, other than hedging transactions entered into prior
to the effectiveness of the Registration Statement required to be filed by the
Company pursuant to Section 2(a) of the Registration Rights Agreement, the form
of which is attached hereto as ANNEX III (the "Registration Rights Agreement"),
which hedging transactions when entered into by the Buyer in the aggregate at
any time will not relate to Common Stock with a value greater than 12% of the
aggregate initial investment of the Buyer pursuant to this Agreement.
j. The Buyer is a company organized under the laws of the Cayman
Islands with its principal place of business located in the Cayman Islands.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
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<PAGE> 4
a. CONCERNING THE SHARES. The Shares have been duly authorized and,
when issued upon conversion of the Note, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Shares. The Common Stock is
listed for trading on the NASDAQ National Market and no suspension of trading in
the Common Stock is in effect.
b. NOTE PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND NOTE.
This Agreement and the Registration Rights Agreement have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the Registration Rights Agreement,
when executed and delivered by the Company, will be, valid and binding
agreements of the Company enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally; and the Note has been duly and validly authorized
and, when executed and delivered on behalf of the Company in accordance with
this Agreement, will be a valid and binding obligation of the Company in
accordance with its terms, subject to general principles of equity and to
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
c. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company and the consummation by the
Company of the issuance of the Securities and the other transactions
contemplated by this Agreement, the Registration Rights Agreement and the Note
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 or any applicable decree, judgment or order
of any court, United States federal or state regulatory body, administrative
agency or other governmental body or self-regulatory body having jurisdiction
over the Company or any of its properties or assets.
d. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities as contemplated by
this Agreement and the Note.
e. INFORMATION PROVIDED. The information provided by or on behalf of
the Company to the Buyer and referred to in Section 2(e) of this Agreement does
not contain any untrue
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<PAGE> 5
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are made, not misleading.
f. ABSENCE OF CERTAIN CHANGES. Since September 30, 1994 through the
date hereof, there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
results of operations or prospects of the Company, except as disclosed in the
documents referred to in Section 2(e) hereof.
g. ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other), results of operations or
prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
h. ABSENCE OF EVENTS OF DEFAULT. No Event of Default, as defined in the
Note, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (as so defined), in any case which Event
of Default would have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or a material adverse effect on the transactions contemplated by this
Agreement or the rights of the Buyer in connection therewith, has occurred and
is continuing.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the Note has
not been and is not being registered under the provisions of the 1933 Act and,
except as provided in the Registration Rights Agreement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other
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<PAGE> 6
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (3) neither the Company nor any other person is under any obligation to
register the Securities (other than pursuant to the Registration Rights
Agreement) under the 1933 Act or to comply with the terms and conditions of any
exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the Note,
and, until such time as the Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates for the
Shares, may bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for the
Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under the Securities Act of 1933, as amended, or an opinion of counsel
that registration is not required under said Act.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in the form attached hereto as ANNEX
III, on or before the Closing Date.
d. FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing.
e. NASDAQ NOTIFICATION; REPORTING STATUS. On or before the Closing
Date, the Company shall file a "NASDAQ National Market Notification Form for
Listing of Shares and Notification Pursuant to SEC Rule 10b-17" with respect to
the Shares with the National Association of Securities Dealers, Inc. and shall
provide evidence of such filing to the Buyer. So long as the Buyer beneficially
owns any of the Securities, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act, even if the
1934 Act or the rules and regulations thereunder would permit such termination,
for a period of three years after the Closing Date.
f. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Note for the Company's internal working capital purposes and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership enterprise or other person.
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<PAGE> 7
g. CERTAIN EXPENSES. Whether or not the closing occurs, the Company
shall pay or reimburse the reasonable fees and expenses of the Escrow Agent for
the preparation and negotiation of this Agreement and the other documents
contemplated hereby and the closing contemplated hereby; provided, however, that
if the Closing Date (as hereinafter defined) occurs on or before January 15,
1996 the maximum amount payable by the Company pursuant to this sentence shall
be $5,000.00. Notwithstanding the joint and several liability of the Company and
the Buyer to the Escrow Agent under Section 11 of the Joint Escrow Instructions,
as between the Company and the Buyer any claims, liabilities, costs or expenses
of the Escrow Agent which are payable as provided in Section 11 of the Joint
Escrow Instructions shall be paid equally and if either the Company or the Buyer
shall have paid more than its share thereof then the other party shall reimburse
the party who has paid any such excess for the amount thereof on demand. The
obligations of the Company under the provisions of this Section 4(g) shall be in
addition to the obligation of the Company for expenses under the Registration
Rights Agreement referred to in Section 4(c) of this Agreement.
h. RECEIPT OF ESCROW FUNDS. If the closing hereunder shall have
occurred and the Company has not received from the Escrow Agent the Escrow Funds
(as defined in the Joint Escrow Instructions) within three business days after
the Closing Date, the Company shall have the right, exercisable by written
notice to the Buyer given at any time prior to receipt of the Escrow Funds by
the Company, to rescind the sale of the Note pursuant to this Agreement and to
cancel the issuance of the Note, whereupon the Buyer shall, as promptly as
practical, return the Note to the Company and the Company shall return to the
Buyer all Escrow Funds, if any, received by the Company after such notice is
given.
i. SUBSTITUTE NOTES. The Company agrees that promptly after the Closing
Date, upon surrender of the Note, the Company shall issue ten substitute notes
of like tenor having principal amounts equal to one another and having an
aggregate principal amount equal to the unpaid principal amount of the Note.
5. TRANSFER AGENT INSTRUCTIONS.
Promptly following the delivery by the Buyer of the aggregate purchase
price for the Note in accordance with Section 1(c) hereof, and prior to the
Closing Date, the Company will irrevocably instruct its transfer agent to issue
certificates for the Shares from time to time upon conversion of the Note in
such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Buyer or its nominee and in such denominations to be specified
by the Buyer in connection with each conversion of the Note. The Company
warrants that no instruction other than such instructions referred to in
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<PAGE> 8
this Section 5 and stop transfer instructions to give effect to Section 4(a)
hereof prior to registration of the Shares under the 1933 Act will be given by
the Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act, the Company
shall permit the transfer of the Securities and, in the case of the Shares,
promptly instruct the Company's transfer agent to issue one or more share
certificates in such name and in such denominations as specified by the Buyer.
6. NOTE DELIVERY INSTRUCTIONS.
The Note shall be delivered by the Company to the Escrow Agent pursuant
to Section 1(b) hereof on a delivery against payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Note (the "Closing
Date") shall be 12:00 noon, New York City time, on the date which is three New
York Stock Exchange trading days after the date on which the Buyer has deposited
the purchase price for the Note with the Escrow Agent in accordance with Section
1(c) hereof, or such other mutually agreed to time. The closing shall occur on
the Closing Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Note to
the Buyer pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Note in accordance with
Section 1(c) hereof; and
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Buyer contained in this Agreement as if
made on the Closing Date and the performance by the Buyer on or before the
Closing Date of all covenants and agreements of the Buyer required to be
performed on or before such Closing Date.
-8-
<PAGE> 9
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Note is conditioned upon:
a. Delivery by the Company to the Escrow Agent of the Note in
accordance with this Agreement;
b. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before such Closing Date; and
c. On the Closing Date, the Buyer having received an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX IV attached hereto.
10. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by both parties hereto. Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by mail or delivered personally or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally or by courier, in each case addressed to a party at such
party's address shown in the introductory paragraph or on the signature page of
this Agreement or such other address as a party shall have provided by notice to
the other party in accordance with this provision. The right to purchase the
Note from the Company pursuant to this Agreement is not assignable.
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<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth below.
PRINCIPAL AMOUNT OF NOTE: $3,000,000.00
PURCHASE PRICE: $3,000,000.00
NAME OF BUYER: CAPITAL VENTURES INTERNATIONAL
SIGNATURE /s/ Arthur Dantchik
---------------------
Title: President, Arbit, Inc.
-----------------------
Date: January 11, 1996
-----------------------
Address: One Capital Place
--------------------------------
P.O. Box 1787 GT
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Grand Cayman, Cayman Is., B.W.I.
--------------------------------
This Agreement has been accepted as of the date set forth below.
LIDAK PHARMACEUTICALS
By: /s/ Michael H. Lorber
------------------------
Title: Vice President & CFO
----------------------
Date: January 11, 1996
-----------------------
-10-
<PAGE> 1
EXHIBIT 10.4
SEVENTH AMENDMENT TO SUBLEASE
THIS SEVENTH AMENDMENT TO SUBLEASE ("this Amendment"), made as of this 15th day
of February 1996, by and between MEDICAL BIOLOGY INSTITUTE, a California
nonprofit public benefit corporation ("Sublessor"), and LIDAK Pharmaceuticals, a
California corporation ("Sublessee"), constitutes an amendment to that certain
Sublease ("the Sublease") dated December 4, 1989 between Sublessor and
Sublessee.
WHEREAS, Sublessor and Sublessee are parties to that certain Sublease dated
December 4, 1989, respecting certain space in Building 4, Torrey Pines Science
Park at 11077 North Torrey Pines Road, La Jolla, California, particularly
described in the Sublease (Section 1 - Lease Premises).
NOW THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Sublessor and Sublessee hereby agree, and amend the Sublease, as
follows:
BASIC SUBLEASE PROVISIONS
2. Rentable Area: Effective February 15, 1996, the subleased
premises shall be a total of 13,549
rentable square feet as described on
Exhibit A and as outlined on the floor
plans attached as Exhibits B, C, and D.
4. Basic Monthly Rent: Effective February 15, 1996, the monthly
rent, exclusive of tax and operating costs,
utility charges and tenant improvement
costs [See section 3.1.1, Additional
Monthly Rental], shall be $32,550.12.
6. Expiration Date: January 31, 1997
SECTION 3. RENTAL AND OTHER PAYMENTS
Section 3.1.1 Additional Monthly Rental shall be amended to read:
During the term of this Sublease and any subsequent option periods exercised,
Subtenant shall pay as additional rent its pro-rata share of additional rent
obligations of Sublandlord under Office Lease relating to (1) tax and operating
costs, (2) leasehold improvements and (3) utility charges. Subtenant's pro-rata
share of such charges will be determined based on the proportion that the total
rentable area of the premises under this Sublease bears to the total rentable
area of the premises under the Office Lease.
<PAGE> 2
SEVENTH AMENDMENT TO SUBLEASE
Page 2
In respect to tax and operating costs, the additional rent payable by subtenant
will be $.04 per square foot per month. Upon receipt of notification of annual
adjustment to this amount from Landlord, Sublandlord will notify Subtenant in
writing providing Subtenant with copies of billing and supporting documentation.
Any increase or reduction in retroactive or current tax and operating costs will
be passed through to Subtenant.
In respect to Sublandlord's additional rental obligations relating to leasehold
improvements, Subtenant's obligation will be $.18 per rentable square foot per
month.
In respect to utility charges, Subtenant's obligation will be based on its
pro-rata share of monthly billings received by Sublandlord. Sublandlord will be
permitted to bill Subtenant on a monthly basis based on estimated charges,
provided that reconciliation and adjustment of such estimates to actual charges
be performed monthly.
Subtenant agrees to pay all additional monthly rental payments in advance,
consistent with the terms of payment of basic monthly rent.
EFFECTIVE DATE.
The effective date of this Seventh Amendment shall be February 15,
1996.
DEFINITIONS.
All terms used in this Seventh Amendment shall have the same meaning as
given to such terms in the Sublease and all other Amendments, unless
expressly provided otherwise in this Amendment.
CONFIRMATION OF EFFECTIVENESS.
Except as amended by this Seventh Amendment, all terms, covenants and
provisions of the Sublease and all other Amendments shall remain in
full force and effect.
LIDAK Pharmaceuticals MEDICAL BIOLOGY INSTITUTE,
a California corporation a California nonprofit public benefit
corporation
By: /s/ Michael H. Lorber By: /s/ David H. Katz
---------------------------- -------------------------------
Its: Vice President / CFO Its: President
--------------------------- ------------------------------
<PAGE> 3
MEDICAL BIOLOGY INSTITUTE @ 08/01/94
SQUARE FOOTAGE
<TABLE>
<S> <C> <C> <C> <C> <C>
1ST FLOOR - WEST WING:
LAB 1 32% 4,459
LAB 2 13% 1,776
LAB 3 6% 882
LAB 4 6% 794
GLASSWARE 3% 483
VIVARIUM 13% 1,832
ADMINISTRATION 8% 1,145
COMMONS 19% 2,694
---------------
1ST FLOOR - WEST WING ..................................... 14,065
1ST FLOOR - EAST WING:
LAB 5 28% 4,168
LAB 5A 3% 413
LAB 6 30% 4,386
BLOOD DRAWING 2% 275
ADMINISTRATION 25% 3,732
COMMONS 13% 1,876
---------------
1ST FLOOR - EAST WING ..................................... 14,850
TOTAL - 1ST FLOOR ........... 28,915
1ST FLOOR COMMONS DIVIDED BY 4,570
TOTAL 1ST FLOOR SQUARE FOOTAGE 28,915
---------------
CORE FACTOR FOR 1ST FLOOR = 15.8%
---------------
2ND FLOOR - WEST WING:
LAB 7 95% 13,447
COMMONS 5% 774
---------------
2ND FLOOR - WEST WING ..................................... 14,221
2ND FL., WEST COMMONS DIVIDED BY 774
TOTAL 2ND FL., WEST SQ.FT. 14,221
---------------
CORE FACTOR FOR 2ND FL., WEST = 5.4%
---------------
2ND FLOOR - EAST WING:
OFFICES 63% 7,558
COMMONS: 37% 4,371
CONF. ROOM 626
LUNCH ROOM 182
RESTROOMS 327
SHOWER 62
LOBBY & ELE. 774
HALLS 2400
---------------
2ND FLOOR - EAST WING ..................................... 11,929
------------
2ND FL., EAST COMMONS DIVIDED BY 4,371
TOTAL 2ND FL., EAST SQ.FT. 11,929
---------------
CORE FACTOR FOR 2ND FL., EAST = 36.6%
---------------
TOTAL - 2ND FLOOR ........... 26,150
-------------
TOTAL BLDG #4 SQ.FT. ........... 55,065
-------------
</TABLE>
<PAGE> 4
EXHIBIT B
1st Floor, West Wing
Description of picture:
Floor plan of 1st floor, west wing, allocating square footage of subleased
space.
<PAGE> 5
EXHIBIT C
2nd Floor, East Wing
Description of picture:
Floor plan of 2nd floor, east wing, allocating square footage of subleased
space.
<PAGE> 6
EXHIBIT D
2nd Floor, West Wing
Description of picture:
Floor plan of 2nd floor, west wing, allocating square footage of subleased
space.
<PAGE> 7
LANDLORD'S CONSENT
Landlord hereby consents to the foregoing Sublease Amendment, subject to the
following:
A. This consent shall not release Sublandlord of its obligation or
alter Sublandlord's primary liability to perform and comply with all obligations
of Sublandlord under the Lease.
B. This consent shall not constitute a consent to any subsequent
subletting or assignment of the premises by Sublandlord or Subtenant under the
Lease.
THE EQUITABLE ASSURANCE SOCIETY
OF THE UNITED STATES,
a New York corporation
By: /s/Susan Hawken
----------------
Its: Investment Officer
-------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,782,479
<SECURITIES> 0
<RECEIVABLES> 164,271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,988,342
<PP&E> 461,621
<DEPRECIATION> 220,451
<TOTAL-ASSETS> 25,199,059
<CURRENT-LIABILITIES> 1,480,684
<BONDS> 0
0
0
<COMMON> 42,024,670
<OTHER-SE> 147,748
<TOTAL-LIABILITY-AND-EQUITY> 25,199,059
<SALES> 0
<TOTAL-REVENUES> 3,487,203
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,108,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (621,418)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
