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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 28, 1997
(Date of earliest event reported)
LIDAK PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
0-18734 33-0314804
(Commission File Number) (IRS Employer
Identification No.)
11077 North Torrey Pines Road, La Jolla, California 92037
(Address of principal executive offices) (Zip code)
(619) 558-0364
(Registrants telephone number, including area code)
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Item 5. OTHER EVENTS
On February 28, 1997, LIDAK Pharmaceuticals (the "Company")
announced that it completed a $6.0 million private financing of
a three year Convertible Note (the "Note"), in equivalent
principal amount, with RGC International Investors, LDC, an
institutional investor, (the "Holder"), pursuant to Regulation D
of the Securities Act of 1933, as amended. The share price of
the Class A Common Stock to be issued upon conversion of the
Note will be equal to 85% of the average daily closing bid price
of the Company's Class A Common Stock during the seven (7) to
ten (10) -day period immediately prior to the conversion date(s)
when such conversion occurs 90 daysor more after the closing date.
The Holder is also entitled to receive warrants exercisable into
one share of the Company's Class A Common Stock for each two
shares of Class A Common Stock issued upon conversion(s) of
the Note. Each warrant is exercisable for a five (5) year
period from issuance into one share of Class A Common Stock
at an exercise price of $2.97 per share.
Item 7.FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
4.1 Convertible Note, dated February 26, 1997, issued
by the Company to the Holder.
4.2 Form of Class G Stock Purchase Warrant
10.1 Note Purchase Agreement, dated February 26, 1997,
between the Company and the Holder.
10.2 Registration Rights Agreement, dated February 26,
1997, between the Company and the Holder.
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 hereunto duly
authorized.
LIDAK PHARMACEUTICALS
Date: March 10, 1997 By:/s/David H. Katz
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David H. Katz, M.D.
President and Chief Executive
Officer
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INDEX TO EXHIBITS
Exhibit
4.1 Convertible Note, dated February 26, 1997, issued by
the Company to RGC International Investors, LDC (the
"Holder").
4.2 Form of Class G Stock Purchase Warrant
10.1 Note Purchase Agreement, dated February 26, 1997,
between the Company and the Holder.
10.2 Registration Rights Agreement, dated February 26,
1997, between the Company and the Holder.
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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.
THE TRANSFER OF THIS NOTE IS RESTRICTED IN ACCORDANCE WITH
SECTION 5.4 HEREOF.
CONVERTIBLE NOTE
La Jolla, California $6,000,000.00
February 26, 1997
FOR VALUE RECEIVED, LIDAK PHARMACEUTICALS, a California
corporation (hereinafter called the "BORROWER"), hereby promises
to pay to RGC INTERNATIONAL INVESTORS, LDC, a Cayman Islands
corporation, or registered assigns (the "HOLDER"), or order, the
sum of Six Million Dollars ($6,000,000.00), on February 26, 2000,
and to pay interest on the unpaid principal balance hereof at the
rate of seven percent (7%) per annum from August 26, 1997 until
the same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. Interest shall
commence accruing on August 26, 1997, shall be paid quarterly
commencing on November 26, 1997 and shall be computed on the
basis of a 365-day year. 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 ("Default Interest'").
Unless sooner converted in accordance with Article II
below, all payments of principal of and premium, if any, and
interest on this Note shall be made in lawful money of the United
States of America. All payments shall be made by wire transfer
of immediately available funds to such account as the Holder may
from time to time designate by written notice in accordance with
the provisions of this Note. Whenever any amount expressed to be
due by the terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any
Interest Payment Date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of
interest due on such date. As used in this Note, the term
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which
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commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
This Note is issued pursuant to a Note Purchase
Agreement, dated as of February 26, 1997, by and between the
Borrower and the original Holder of this Note, as amended from
time to time in accordance with its terms (the "Note Purchase
Agreement"), and the Holder of this Note and this Note are
subject to the terms of the Note Purchase Agreement. The Holder
of this Note may be entitled to the benefits of the Registration
Rights Agreement, dated as of February 26, 1997, between the
Borrower and the original Holder (the "Registration Rights
Agreement").
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 August 26,
1997 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
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) accrued and unpaid interest on the principal
amount being prepaid and any accrued and unpaid Default Interest
at the rates provided herein to the prepayment date plus (3) an
amount equal to 17.64 percent (the "Default Percent") of the sum
of the amounts referred to in the immediately preceding clauses
(1) and (2) (such sum being referred to as the "Prepayment
Amount"). The Prepayment Amount shall be accompanied by a number
of Warrants ("Prepayment Warrants") equal to 50% of the
Prepayment Amount divided by the Conversion Price on the date of
Prepayment. The Prepayment Warrants shall contain identical
terms and conditions as the Warrants issuable by Borrower to the
original Holder of this Note upon conversion of this Note in
accordance with Section 2.1 below. 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.
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Notwithstanding anything above to the contrary, in
the event that the Board of Directors of the Borrower does not
authorize the issuance of the shares underlying the Prepayment
Warrants, the Borrower shall have no obligation to issue same,
but in lieu thereof the Default Percent shall be revised upward
to be 21% rather than 17.64%.
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, together with
accrued and unpaid interest on this Note at the rates provided
herein into units consisting of (a) 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 the 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") and (b) Common Stock Purchase Warrants in the
form attached hereto as Exhibit B (the "Warrants") to purchase a
number of shares of Common Stock equal to the product obtained by
multiplying (x) 0.5 TIMES (y) the number of shares of Common
Stock to be issued upon such conversion of this Note (subject to
adjustment as provided in the Warrants). Upon the delivery by
the Holder of 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, or
its transfer agent ("Transfer Agent"), shall issue and, within
two 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 and (2)
Warrants to purchase the number of shares of Common Stock
provided herein. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided
the Company's Transfer Agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and its compliance with the
provisions contained in this Section 2.1 and in Section 2.4, the
Company shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion
to the Holder by crediting the account of Holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing the
Conversion Amount by the Conversion Price in effect on the date
the Conversion Notice is delivered to the Borrower by the Holder;
PROVIDED, HOWEVER, that in no event shall the Holder of the Note
be entitled to convert the Note in excess of that number of
shares upon conversion of which the sum of (x) the number of
shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted
portion of the Note and the unexercised portion of the Warrants
(including any
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Warrants issuable upon conversion of the Note with respect to
which the determination of this proviso is being made)) and (y)
the number of shares of Common Stock issuable upon the conversion
of the Note with respect to which the determination of this
proviso is being made, would result in beneficial ownership by
the Holder and such Holder's affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) of such
proviso. The term Conversion Amount means, with respect to any
conversion of this Note, the sum of (1) the principal amount of
this Note to be converted in such conversion PLUS (2) accrued and
unpaid interest, if any, on such principal amount at the rates
provided in this Note to the date the Holder gives the Conversion
Notice for such conversion PLUS (3) Default Interest, if any, on
the interest referred to in the immediately preceding clause (2).
2.2 CONVERSION PRICE. The Conversion Price shall be
(x) during the period ending on the 90th day following the date
of issuance of this Note, the Market Price on the date a
Conversion Notice is given (the "Conversion Date"), and (y) after
such 90th day, 85% (eighty-five percent) of the Market Price on
the Conversion Date.
For purposes of this Note, the "Market Price" shall mean the
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 Conversion Date; PROVIDED, HOWEVER,
that, in the event that the Holder directly or indirectly effects
any sales transaction with respect to the Common Stock,
including, without limitation, any short sale or hedging
transaction related thereto, within the ten (10) consecutive
Trading Days ending one Trading Day prior to the Conversion Date,
then the "Market Price" shall mean such average for the ten (10)
consecutive Trading Days ending one Trading Day prior to the
Conversion Date.
"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 for such conversion at all times from its authorized and
unissued Common Stock the number of shares of Common Stock set
forth in Section 2.6 of this Note as the Maximum Share Amount,
plus an amount of shares equal to 50% (fifty percent) of such
number in connection with the exercise of Warrants issuable upon
the conversion or prepayment 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.
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2.4 METHOD OF CONVERSION.
(a) The right of the Holder to convert this Note
shall be exercised by delivering to the Borrower or the Transfer
Agent for the Common Stock a Conversion Notice stating the
principal amount of this Note which, together with interest as
provided in this Note, is being converted. The Borrower shall
not be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of shares of
Common Stock or other securities or property on conversion of
this Note in a name other than that of the Holder (or in street
name), and the Borrower shall not be required to issue or deliver
any such shares or other securities or property unless and until
the person or persons (other than the Holder or the custodian in
whose street name such shares are to be held for the Holder's
account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to
the satisfaction of the Borrower that such tax has been paid.
(b) If the Holder elects to convert this Note in
accordance with Section 2.1, the Holder shall not be required to
physically surrender this Note to the Borrower unless the entire
unpaid principal amount of this Note is so converted. The Holder
and the Borrower shall maintain records showing the principal
amount so converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and
the Borrower, so as not to require physical surrender of this
Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall be controlling
and determinative in the absence of manifest error.
Notwithstanding the foregoing, in the event that Borrower
consents to the transfer of this Note, if any portion of this
Note is converted as aforesaid, the Holder may not transfer this
Note unless the Holder first physically surrenders this Note to
the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of the Holder a new note of like tenor,
registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Note.
The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Note, the
unpaid and unconverted principal amount of this Note represented
by this Note may be less than the amount stated on the face
hereof.
(c) In case of any consolidation or merger of the
Borrower with any other corporation (other than a wholly-owned
subsidiary of the Borrower) in which the Borrower is not the
surviving corporation, or in case of any sale or transfer of all
or substantially all of the assets of the Borrower, or in the
case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other
securities or property, the Borrower shall make appropriate
provision or cause appropriate provision to be made so that the
Holder shall have the right thereafter to convert this Note into
the kind of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer or
share exchange by the persons who were holders of Common Stock
immediately prior to the effective date of such consolidation,
merger, sale, transfer or share exchange (any such securities are
referred to herein as the "Exchange Securities") and on a basis
which preserves the economic benefits of the conversion rights of
the
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Holder on a basis as nearly as practical as such rights existed
prior to such consolidation, merger, sale, transfer or share
exchange. If, in connection with any such consolidation, merger,
sale, transfer or share exchange, each holder of shares of Common
Stock is entitled to elect to receive either securities, cash or
other assets upon completion of such transaction, the Borrower
shall provide or cause to be provided to the Holder the right to
elect the securities, cash or other assets into which this Note
shall be convertible after completion of any such transaction on
the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation,
notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to
exercise the election). The Borrower shall not effect any such
transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share
exchanges.
Whenever the Borrower shall propose to take any of the
actions specified in this Section 2.4(c), the Borrower shall
cause a notice to be mailed at least 10 days prior to the date on
which the books of the Borrower will close or on which a record
will be taken for such action, to the Holder. Such notice shall
specify the action proposed to be taken by the Borrower and the
date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their
Common Stock for securities or other property, as the case may
be. Failure by the Borrower to mail the notice or any defect in
such notice shall not affect the validity of the transaction.
(d) Upon receipt by the Borrower or Transfer
Agent from the Holder of a facsimile transmission of a Conversion
Notice meeting the requirements for conversion as provided in
Section 2.1 and this Section 2.4, the Borrower shall issue and
deliver or cause to be issued and delivered to the Holder
certificates for the Common Stock issuable upon such conversion
within two business days after such receipt and otherwise in
accordance with the Note Purchase Agreement (including, without
limitation, in accordance with the requirement that certificates
for shares of Common Stock issued on or after the effective date
of the Registration Statement (pursuant to Section 2(a) of the
Registration Rights Agreement) upon conversion of this Note shall
not bear any restrictive legend, provided that the Holder
provides, together with the Notice of Conversion, a written
representation that such shares have been or will be sold in
accordance with applicable prospectus delivery requirements, if
any), and the Holder shall be deemed to be the holder of record
of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid
interest on this Note shall be reduced to reflect such
conversion, and, unless the Company defaults on its obligations
under this Article II, all rights with respect to the portion of
this Note being so converted shall forthwith terminate except the
right to receive the Common Stock or other securities, cash or
other assets, as herein provided, on such conversion. If the
Holder shall have given a Conversion Notice as provided herein,
the Borrower's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the
holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion.
The date of receipt of such Conversion Notice shall be the
Conversion Date so long as it is received before 12:00 midnight
on such date (New York City time).
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(e) No fractional shares of Common Stock shall be
issued upon conversion of this Note but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in
respect of the aggregate number of such shares converted at one
time by the Holder, the Borrower shall round the number of shares
of Common Stock issued on such conversion up to the next highest
whole share.
2.5 CONCERNING THE SHARES. The shares of Common Stock
and Warrants issuable upon conversion of this Note may not be
sold or transferred unless either (i) they first shall have been
registered for resale under the Act and applicable state
securities laws, (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 or (iii) the sale is
effected in accordance with Rule 144. Each certificate for
shares of Common Stock issuable upon conversion of this Note that
have not been included in an effective registration statement or,
if not so included, that have not been sold pursuant to an
exemption that permits removal of the legend (and, in either
case, that are not then eligible for immediate resale pursuant to
Rule 144(k)), 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 OR UNLESS SOLD
PURSUANT TO RULE 144.
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, (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
or (iii) evidence of inclusion in an effective registration
statement.
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 herein)
upon conversion of this Note (exclusive of shares issuable upon
exercise of Warrants), unless the Borrower shall have obtained
(in its discretion) Stockholder Approval or a
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waiver of such requirement by the National Association of
Securities Dealers, Inc. ("NASD"). As used herein, Stockholder
Approval means approval by the stockholders of the Borrower in
accordance with Rule 4460(i) of the rules of the NASD. Once the
Maximum Share Amount has been issued, the remaining outstanding
principal amount of this Note shall be immediately due and
payable and the Borrower shall pay to the Holder in immediately
available funds an amount equal to the Prepayment Amount that
would be payable pursuant to Section 1.1 on such date plus the
applicable number of Prepayment Warrants. The Maximum Share
Amount shall mean 7,257,465 shares of Common Stock (19.9% of the
Company's outstanding shares of Common Stock as of February 17,
1997), subject to equitable adjustment from time to time for
stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock
occurring after the date hereof. In the event that Borrower
obtains Stockholder Approval, the approval of The Nasdaq Stock
Market or otherwise concludes that it is able to increase the
number of shares to be issued above the Maximum Share Amount
(such increased number being the "New Maximum Share Amount"), the
references to Maximum Share Amount, above, in the first three
sentences of this paragraph, shall be deemed to be, instead,
references to the greater New Maximum Share Amount. 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 Stockholder Approval is not obtained or a
registration statement covering the additional shares of Common
Stock which constitute the New Maximum Share Amount is not
effective prior to the date on which the Note may be converted
pursuant to Section 2.1 hereinabove (if such registration
statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged;
provided, however, that the Holder may grant an extension of the
effective date of such registration statement.
ARTICLE III
CERTAIN COVENANTS
3.1 TENDER OFFERS. The Borrower will not itself, and
will not permit any subsidiary of the Borrower to (1) make any
tender offer or exchange offer (a "Tender Offer") for outstanding
shares of Common Stock unless the Borrower contemporaneously
therewith makes an offer, or (2) enter into an agreement
regarding a Tender Offer for outstanding shares of Common Stock
by any person other than the Borrower or any subsidiary of the
Borrower unless such person agrees with the Borrower to make an
offer, in either such case, to the Holder to purchase the same
percentage of the outstanding principal amount of this Note held
by the Holder as the percentage of outstanding shares of Common
Stock offered to be purchased in such Tender Offer, at a price
equal to the product obtained by multiplying (1) the sum of (a)
the principal amount of this Note to be purchased PLUS (b)
accrued and unpaid interest on such principal amount to the date
of purchase PLUS (c) accrued and unpaid Default Interest, if any,
on the amount referred to in the immediately preceding clause (b)
at the rate provided in this Note to the date of purchase TIMES
(2) 121%.
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3.2 DISTRIBUTIONS ON CAPITAL STOCK. So long as the
Borrower shall have any obligation under this Note, the Borrower
shall not (a) pay, declare or set apart for such payment, any
dividend (whether in cash, property or other securities) on
shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any
other payment or distribution in respect of its capital stock.
3.3 RESTRICTION ON STOCK REPURCHASES. So long as this
Note is outstanding, neither the Borrower nor any subsidiary of
the Borrower shall redeem, repurchase (other than pursuant to a
Tender Offer, as defined in Section 3.1, which shall be governed
by Section 3.1) or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of
capital stock of the Borrower or any subsidiary of the Borrower
or any warrants, rights or options to purchase or acquire any
such shares.
3.4 CLASS D WARRANT REDEMPTION. Notwithstanding the
above provisions, nothing contained herein shall restrict the
Company from calling for redemption its Class D Warrants.
ARTICLE IV
EVENTS OF DEFAULT
If of any of the following events of default (each, an
"EVENT OF DEFAULT") shall occur:
4.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The
Borrower fails (a) to pay the principal hereof when due, whether
at maturity, upon redemption, upon acceleration (including,
without limitation, pursuant to Section 2.6) 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 hereof;
4.2 CONVERSION AND THE SHARES. The Borrower fails to
issue shares of Common Stock to the Holder or to cause its
Transfer Agent to issue shares of Common Stock upon exercise by
the Holder of the conversion rights of the Holder in accordance
with the terms of this Note, fails to transfer or to cause its
Transfer Agent 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 or to cause its Transfer
Agent to transfer 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;
4.3 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
9
<PAGE> 10
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 exercise of the
Warrants) 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 Borrower to
obtain effectiveness with the Securities and Exchange Commission
of the Registration Statement within the 90-day period specified
in Section 2(a) of the Registration Rights Agreement for any
reason or to use its best efforts to cause such Registration
Statement to become effective within such period, without more,
shall not constitute an Event of Default;
4.4 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 Borrower or the prospects of the Borrower 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 and exercise of the Warrants;
4.5 CERTAIN VOLUNTARY PROCEEDINGS. The Borrower or
any material subsidiary of the Borrower shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as
they become due or shall admit in writing its inability generally
to pay its debts as they become due;
4.6 CERTAIN INVOLUNTARY PROCEEDINGS. An involuntary
case or other proceeding shall be commenced against the Borrower
or any material subsidiary of the Borrower seeking liquidation,
reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) consecutive days;
4.7 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
10
<PAGE> 11
4.8 DELISTING OF COMMON STOCK. The Common Stock shall
cease to be listed on any of the Nasdaq National Market, the
Nasdaq Small Cap Market, the New York Stock Exchange or the
American Stock Exchange;
then upon the occurrence and during the continuation of any Event
of Default specified in Section 4.1, 4.2, 4.3, 4.4, 4.7 or 4.8,
at the option of the Holder hereof, the Borrower shall, and upon
the occurrence of any event of default specified in Section 4.5
or 4.6, the Borrower shall, pay (or issue, as applicable) to the
Holder an amount equal to the sum of (1) the principal amount of
this Note to be prepaid PLUS (2) accrued and unpaid interest on
the principal amount being prepaid and any accrued and unpaid
Default Interest at the rates provided herein to the prepayment
date PLUS (3) an amount equal to the Default Percent of the sum
of the amounts referred to in the immediately preceding clauses
(1) and (2), PLUS (4) the applicable number of Prepayment
Warrants (based on the product referred to in clause (3)), 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.
If the Borrower fails to pay any amounts due pursuant
to this Article IV 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 of the Common Stock on the
date before the date when the notice is sent by the Holder to the
Borrower. 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 amount which is then registered.
"MARKET PRICE" shall be 100% of the 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 fourteen (14) 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 V
MISCELLANEOUS
5.1 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
11
<PAGE> 12
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.
5.2 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 619-453-5845). Both the Holder and the
Borrower may change the address for service by service of written
notice to the other as herein provided.
5.3 DEFINITION OF NOTE. The term "Note" and all
references 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.
5.4 ASSIGNABILITY. This Note shall be binding upon
the Borrower and its successors and assigns. This Note may not
be transferred or assigned by Holder except to an affiliate
(including any limited partner or shareholder thereof in the
event of liquidation of the Holder). Notwithstanding the
foregoing, this Note may be pledged as collateral in connection
with a bona fide margin account or other lending arrangement.
5.5 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.
5.6 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.
5.7 CERTAIN AMOUNTS. Whenever pursuant to this Note
the Borrower is required to pay an amount in excess of the
outstanding principal amount (or the portion thereof required to
be paid at that time) plus accrued and unpaid interest plus
Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated
damages and not a penalty and is intended to compensate the
Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Note at a price in excess of the
price paid for such shares pursuant to this Note. The Borrower
and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the
opportunity to convert this Note into shares of Common Stock.
5.8 AMENDMENT. No amendment, modification, waiver,
discharge or termination of any provision of this Note nor
consent to any departure by the Borrower or the Holder therefrom
shall be effective unless the same shall be in writing and signed
by the party to be charged with
12
<PAGE> 13
enforcement, and then shall be effective only in the specific
instance and for the purpose for which given. No course of
dealing between the Borrower and the Holder shall operate as an
amendment of this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by its duly authorized officer this 26th day
of February, 1997.
LIDAK PHARMACEUTICALS
By: /s/David H. Katz
--------------------
Name: David H. Katz, M.D.
Its: President and Chief
Executive Officer
14
<PAGE> 1
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN THE
NOTE PURCHASE AGREEMENT DATED AS OF FEBRUARY 26, 1997, OR THE
REGISTRATION RIGHTS AGREEMENT, DATED AS OF FEBRUARY 26, 1997,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT
OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES
LAWS.
Right to Purchase
________Shares of
Common Stock, no par
value
CLASS G
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC
INTERNATIONAL INVESTORS, LDC, a Cayman Islands corporation, or
its registered assigns (the "Holder"), is entitled to purchase
from LIDAK PHARMACEUTICALS, a California corporation (the
"Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, [before issuance fill in number
equal to 50% of number of shares issuable upon related conversion
of note] ( ) fully paid and nonassessable shares of the
Company's Class A Common Stock, no par value (the "Common
Stock"), at an exercise price of $2.97 per share (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to
the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as
provided in Paragraph 4 hereof. The term Warrants means this
Warrant and the other warrants of the Company issued upon
conversion of the Convertible Note, dated February 26, 1997 and
issued by the Company (the "Note").
This Warrant is subject to the following terms,
provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be
exercised by the Holder, in whole or in part, by the surrender of
this Warrant, together with a completed exercise agreement in the
form attached hereto (the "Exercise Agreement"), to the Company
during normal business hours on any business day at the Company's
principal executive offices (or such other office or agency of
the Company as
<PAGE> 2
it may designate by notice to the Holder), and upon (i) payment
to the Company in cash, by certified or official bank check or by
wire transfer for the account of the Company of the Exercise
Price for the Warrant Shares specified in the Exercise Agreement
or (ii) if the resale of the Warrant Shares by the Holder is not
then registered pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "1933 Act"),
delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below)
for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the
Holder or the Holder's designee, as the record owner of such
shares, as of the close of business on the date on which this
Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been
made for such shares as set forth above. Certificates for the
Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to
the Holder within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as
may be requested by the Holder and shall be registered in the
name of the Holder or such other name as shall be designated by
the Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall,
at its expense, at the time of delivery of such certificates,
deliver to the Holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have
been exercised.
Notwithstanding anything in this Warrant to the
contrary, in no event shall the Holder be entitled to exercise a
number of Warrants (or portions thereof) in excess of the number
of Warrants (or portions thereof) upon exercise of which the sum
of (i) the number of shares of Common Stock beneficially owned by
the Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of
the unexercised Warrants and unconverted portion of the Note) and
(ii) the number of shares of Common Stock issuable upon exercise
of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in
beneficial ownership by the Holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder, except as otherwise provided in clause (i)
hereof.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any
time or from time to time on or after the earlier of (1) the
first date after February 26, 1997 on which the trading price of
the Common Stock is $6.00 or more (2) the date that is six months
after February 26, 1997, and in either case before 5:00 p.m., New
York City time, on the fifth (5th) anniversary of the date of
issuance (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
2
<PAGE> 3
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly
issued, fully paid, and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of
this Warrant.
(c) LISTING. The Company shall promptly secure the listing
of the shares of Common Stock issuable upon exercise of the
Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated
quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed
or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may reasonably be
requested by the Holder in order to protect the exercise
privilege of the Holder against dilution or other impairment,
consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise
Price then in effect, and (ii) will take all such actions as may
be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period,
the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this
Paragraph 4.
In the event that any adjustment of the Exercise
Price as required herein results in a fraction of a cent, such
Exercise Price shall be rounded up to the nearest cent.
3
<PAGE> 4
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in
Paragraphs 4(c) and 4(e) hereof, if and whenever on or after
February 26, 1997, the Company issues or sells, or in accordance
with Paragraph 4(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses
or commissions or underwriting discounts or allowances in
connection therewith) less than the Market Price (as hereinafter
defined) on the date of issuance (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to a price determined by multiplying the Exercise
Price in effect immediately prior to the Dilutive Issuance by a
fraction, (i) the numerator of which is an amount equal to the
sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y)
the aggregate consideration, calculated as set forth in Paragraph
4(b) hereof, received by the Company upon such Dilutive Issuance,
divided by the Market Price in effect immediately prior to the
Dilutive Issuance, and (ii) the denominator of which is the total
number of shares of Common Stock Deemed Outstanding immediately
after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under
Paragraph 4(a) hereof, the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities convertible into or exchangeable
for Common Stock ("Convertible Securities") (such warrants,
rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the
price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Market Price on the
date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options will,
as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding
sentence, the "price per share for which Common Stock is issuable
upon the exercise of such Options" is determined by dividing (i)
the total amount, if any, received or receivable by the Company
as consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise
of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of
all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the
Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon
exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether or not
immediately convertible (other
4
<PAGE> 5
than where the same are issuable upon the exercise of Options)
and the price per share for which Common Stock is issuable upon
such conversion or exchange is less than the Market Price on the
date of issuance, then the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of
such Convertible Securities, be deemed to be outstanding and to
have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion
or exchange" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof at
the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of any
Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for
Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued
or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of
shares of Common Stock issuable upon exercise of any Option or
upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have
expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise
or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes
of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of
such consideration, except where such
5
<PAGE> 6
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price
thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with
any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of
Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the
exercise of any warrants, options or convertible securities
issued and outstanding on February 26, 1997; (ii) upon the grant
or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the
Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a
majority of the independent members of the Board of Directors of
the Company or a majority of the members of a committee of
independent directors established for such purpose; (iii) upon
the exercise of the Warrants or the conversion of the Note issued
pursuant to the Note Purchase Agreement, dated as of February 26,
1997, by and between the Company and the original Holder of the
Note (the "Note Purchase Agreement"), or upon the issuance of
Common Stock pursuant to a bona fide firm commitment underwritten
public offering registered under the 1933 Act.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company at any time subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a
greater number of shares, then, after the date of record for
effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by reverse stock
split, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a
smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately
increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this
Paragraph 4, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a
number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into
any other corporation, or in case of any sale or conveyance of
all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company,
then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder
will have the right to
6
<PAGE> 7
acquire and receive upon exercise of this Warrant in lieu of the
shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such
consolidation, merger or sale or conveyance not taken place. In
any such case, the Company will make appropriate provision to
insure that the provisions of this Paragraph 4 hereof will
thereafter be applicable as nearly as may be in relation to any
shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than
the Company) assumes by written instrument the obligations under
this Paragraph 4 and the obligations to deliver to the Holder
such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash)
to holders of Common Stock as a partial liquidating dividend, by
way of return of capital or otherwise, then, after the date of
record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the Holder
shall be entitled upon exercise of this Warrant for the purchase
of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable
to the Holder had the Holder been the holder of such shares of
Common Stock on the record date for the determination of
stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in
each such case, the Company shall give notice thereof to the
Holder, which notice shall state the Exercise Price resulting
from such adjustment and the increase or decrease in the number
of Warrant Shares purchasable at such price upon exercise,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation
shall be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of
the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to not less than
1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional
share which would otherwise be issuable in an amount equal to the
same fraction of the Market Price of a share of Common Stock on
the date of such exercise.
(j) OTHER NOTICES. In case at any time:
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<PAGE> 8
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in
cash out of retained earnings) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or
consolidation or merger of the Company with or into, or sale of
all or substantially all its assets to, another corporation or
entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each such case, the Company shall give to the
Holder (a) notice of the date on which the books of the Company
shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, notice of the date
(or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also
specify the date on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice
shall be given at least 15 days prior to the record date or the
date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but
not expressly provided for by such provisions, the Company will
give notice of such event as provided in Paragraph 4(g) hereof,
and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the
rights of the Holder shall be neither enhanced nor diminished by
such event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number
of shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company), plus
(x) pursuant to Paragraph 4(b)(i) hereof, the maximum total
number of shares of Common Stock issuable upon the exercise of
Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof,
the maximum total number of shares of Common Stock issuable upon
conversion or exchange of
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<PAGE> 9
Convertible Securities, as of the date of issuance of such
Convertible Securities, if any (whether the Options or
Convertible Securities are actually convertible or exercisable at
such time), excluding any shares issuable upon conversion of the
Note.
(ii) "MARKET PRICE," as of any date, (i) means the average
of the last reported sale prices for the shares of Common Stock
as reported by the National Association of Securities Dealers
Automated Quotation National Market ("NASDAQ-NMS") for the ten
(10) trading days immediately preceding such date, or (ii) if the
NASDAQ-NMS is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same
period, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a)
the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants
by (b) an independent investment bank of nationally recognized
standing in the valuation of businesses similar to the business
of the corporation. The manner of determining the Market Price of
the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Paragraph 4,
includes the Class A Common Stock, par value $.001 per share, and
any additional class of stock of the Company having no preference
as to dividends or distributions on liquidation, provided that
the shares purchasable pursuant to this Warrant shall include
only shares of Common Stock, par value $.001 per share, in
respect of which this Warrant is exercisable, or shares resulting
from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation,
merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in
such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other
costs in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate
in a name other than the Holder.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This
Warrant shall not entitle the Holder to any voting rights or
other rights as a shareholder of the Company. No provision of
this Warrant, in the absence of affirmative action by the Holder
to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any
liability of the Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. On or after the first
anniversary date of the conversion of at least $100,000.00 in the
principal balance of the Note, this Warrant and the related
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<PAGE> 10
rights granted to the Holder will be transferable, in whole or in
part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or
agency of the Company referred to in Paragraph 7(e) below;
PROVIDED, HOWEVER, that any transfer or assignment of this
Warrant and the related rights granted to the Holder, in whole or
in part, shall (i) cover not less than 100,000 Warrant Shares and
(ii) be subject to the conditions set forth in Paragraphs 7(f)
and 7(g) hereof and to the applicable provisions of the Note
Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the
registered Holder as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to
the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Paragraph 8 are
assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of February 26, 1997, by
and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the Holder
at the office or agency of the Company referred to in Paragraph
7(e) below, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common
Stock which may be purchased hereunder, each of such new Warrants
to represent the right to purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender
of this Warrant in connection with any transfer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall
be promptly canceled by the Company. The Company shall pay all
taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this
Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company
as it may designate by notice to the Holder), a register for this
Warrant, in which the Company shall record the name and address
of the person in whose name this Warrant has been issued, as well
as the name and address of each transferee and each prior owner
of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the
time of the surrender of this Warrant in connection with any
exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable
hereunder), shall not be registered under the 1933 Act and under
applicable state securities or blue sky laws, the Company
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<PAGE> 11
may require, as a condition of allowing such exercise, transfer,
or exchange, (i) that the Holder or transferee of this Warrant,
as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are reasonably acceptable to
the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and
under applicable state securities or blue sky laws, (ii) that the
Holder or transferee execute and deliver to the Company an
investment letter in form and substance reasonably acceptable to
the Company, (iii) that the transferee be an "ccredited investor"
as defined in Rule 501(a) promulgated under the 1933 Act and (iv)
that, upon such transfer, the transferee beneficially own
Registrable Securities (as defined in the Registration Rights
Agreement) having an aggregate Market Price of at least $500,000;
provided that no such opinion, letter, status as an "accredited
investor" or aggregate Market Price condition shall be required
in connection with a transfer pursuant to Rule 144 under the 1933
Act. The first Holder of this Warrant, by taking and holding the
same, represents to the Company that such Holder is acquiring
this Warrant for investment and not with a view to the
distribution thereof.
(g) RIGHT OF FIRST OFFER. Subject to the
terms and conditions specified in this Section 7, the Holder
hereby grants to the Company a right of first offer with respect
to any future sale, transfer or assignment by the Holder of this
Warrant and the rights granted hereunder, in whole or in part.
Each time the Holder proposes to offer this Warrant and the
rights granted hereunder, in whole or in part, for sale, transfer
or assignment (the "Offered Warrant"), the Holder will first make
an offering of the Offered Warrant to the Company in accordance
with the following provisions:
(i) NOTICE. The Holder will deliver notice (the "Offer No
tice") to the Company stating (i) its bona fide intention to
offer the Offered Warrant, and (ii) the price and terms upon
which it proposes to offer the Offered Warrant; and
(ii) MECHANICS. Within ten (10) business days after its
receipt of the Offer Notice (the "Election Period"), the Company
may elect to purchase or obtain, at the price and on the terms
specified in the Offer Notice, the Offered Warrant. In the event
that the Company does not elect to purchase or obtain the Offered
Warrant as specified in the Offer Notice within the Election
Period, the Company may, during the 45 calendar days following
the expiration of the Election Period, sell the Offered Warrant
to any person or persons at a price not less than that, and upon
terms no more favorable than those, specified in the Offer
Notice. If the Holder does not sell the Offered Warrant within
such 45-calendar day period, then the right of first offer
provided pursuant to this Paragraph 7(g) will be deemed to be
revived and the Offered Warrant will not be offered unless again
reoffered to the Company in accordance with this Paragraph 7(g).
(h) CERTAIN RIGHT TO PLEDGE. The provisions
of Paragraphs 7(a), 7(f) and 7(g) shall not apply with respect
to, and nothing herein shall limit or in any way affect, the
right to pledge this Warrant in connection with a bona fide
margin account or lending arrangement.
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<PAGE> 12
8. REGISTRATION RIGHTS.
The initial Holder (and certain assignees thereof)
is entitled to the benefit of such registration rights in respect
of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other
communications required or permitted to be given or delivered
hereunder to the Holder shall be in writing, and shall be
personally delivered, or shall be sent by certified or registered
mail or by recognized overnight mail courier, postage prepaid and
addressed, to the Holder at the address shown for the Holder on
the books of the Company, or at such other address as shall have
been furnished to the Company by notice from the Holder. All
notices, requests, and other communications required or permitted
to be given or delivered hereunder to the Company shall be in
writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail
courier, postage prepaid and addressed, to the office of the
Company at 11077 N. Torrey Pines Road, La Jolla, California
92037, Attention: Chief Financial Officer or at such other
address as shall have been furnished to the Holder by notice from
the Company. Any such notice, request, or other communication
may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified
or registered mail or by recognized overnight mail courier as
provided above. All notices, requests, and other communications
shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or,
if mailed by registered or certified mail or with a recognized
overnight mail courier upon deposit with the United States Post
Office or such overnight mail courier, if postage is prepaid and
the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA WITHOUT REGARD TO THE BODY OF LAW
CONTROLLING CONFLICTS OF LAW.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company
and the Holder.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction
of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant
Shares by the Holder is not then registered pursuant to an
effective registration statement under the 1933 Act, this Warrant
may be exercised
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<PAGE> 13
by presentation and surrender of this Warrant to the Company at
its principal executive offices with a written notice of the
Holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the Holder shall
surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which
it would otherwise be entitled by a fraction, the numerator of
which shall be the difference between the then current Market
Price per share of the Common Stock and the Exercise Price, and
the denominator of which shall be the then current Market Price
per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused
this Warrant to be signed by its duly authorized officer.
LIDAK PHARMACEUTICALS
Dated: _____________ By:
Name:
Title:
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<PAGE> 1
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of February 26,
1997 (this "AGREEMENT"), by and between LIDAK PHARMACEUTICALS, a
California corporation, with headquarters located at 11077 N.
Torrey Pines Road, La Jolla, California 92037 (the "Company"),
and RGC International Investors, LDC, a Cayman Islands
corporation (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 from the Company,
upon the terms and subject to the conditions of this Agreement, a
convertible promissory note in the principal amount of six
million dollars ($6,000,000.00) in the form attached hereto as
Annex I (the "Note"), which will be convertible into units
consisting of shares of the Company's Class A Common Stock, no
par value (the "Common Stock"), and warrants, in the form
attached hereto as Annex II (the "Warrants"), to purchase shares
of Common Stock upon the terms and subject to the conditions of
the Note;
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 hereto agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
The Buyer hereby agrees to purchase from the
Company on the Closing Date (as defined in Section 6 below) the
Note for the purchase price set forth on the signature page of
this Agreement (the "Purchase Price"). The Purchase Price shall
be payable in United States Dollars in accordance with Section 6
below. The Note shall be delivered by the Company to the Buyer
and the Purchase Price shall be paid by the Buyer to the Company
at the Closing (as defined in Section 6 below).
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and
covenants and agrees with, the Company as follows:
a. PURCHASE FOR INVESTMENT. The Buyer is purchasing the
Note, the Warrants and the shares of Common Stock issuable upon
conversion of the Note, as payment of interest on the Note and
upon exercise of the Warrants (collectively, the "Shares" and,
together with the Note and the Warrants, the "Securities") for
its own account for investment only and not with a present
<PAGE> 2
view towards the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act;
b. ACCREDITED INVESTOR. 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. REOFFERS AND RESALES. All subsequent offers and sales
of any of the Securities by the Buyer shall be made pursuant to
registration of such Securities under the 1933 Act or pursuant to
an exemption from such registration;
d. COMPANY RELIANCE. The Buyer understands that the Note
is being offered and sold, and the Shares and the Warrants 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 Securities;
e. INFORMATION PROVIDED. The Buyer and its advisors, if
any, have been furnished with all material information relating
to the business, finances and operations of the Company 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 regarding such information 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 following filings by the Company with
the SEC (collectively the "SEC Documents"): (1) Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 ("1996
Form 10-K"), (2) Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, (3) Form 8-K filed January 15, 1997, (4)
Form 8-K filed February 11, 1997 and (5) Proxy Statement for its
annual meeting to be held March 15, 1997. The Buyer acknowledges
the risk factors contained in the 1996 Form 10-K and understands
that its investment in the Securities involves a high degree of
risk. The due diligence investigation conducted by the Buyer or
its representatives shall not modify, amend or affect the Buyer's
right to rely on the Company's representations and warranties
contained in Section 3 below;
f. ABSENCE OF APPROVALS. 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;
g. NOTE PURCHASE AGREEMENT. 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.
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<PAGE> 3
h. NO VIOLATION. 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 Restated Articles of
Incorporation or By-laws of the Buyer, the investment policies
and investment restrictions of the Buyer, or any 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;
i. INVESTMENT TRANSACTIONS. 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 on or prior to the
date hereof. The Buyer will not engage in any transactions
directly or indirectly related to the Common Stock in violation
of applicable securities laws, rules and regulations or NASD
regulations; and
j. ORGANIZATION AND AUTHORITY. The Buyer is validly
existing and in good standing under the laws of the Cayman
Islands, and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement, the
Registration Rights Agreement and the other agreements to be
executed and delivered by the Buyer in connection herewith, and
to consummate the transactions contemplated hereby.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to the Buyer
that:
a. ORGANIZATION AND AUTHORITY. Each of the Company and
its subsidiaries, if any, is a corporation validly existing and
in good standing under the laws of the jurisdiction in which it
is incorporated, and has all requisite corporate power and
authority to (i) own, lease and operate its properties and to
carry on its business as now being conducted, and (ii) to
execute, deliver and perform its obligations under this
Agreement, the Registration Rights Agreement, the Note, the
Warrants and the other agreements to be executed and delivered by
the Company in connection herewith, and to consummate the
transactions contemplated hereby and the issuance of the Note and
the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the
Company, its Board of Directors, or its shareholders is required.
The Company and each of its subsidiaries, if any, is duly
qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is
necessary and where failure so to qualify would have a material
adverse effect on the business, properties, operations, condition
(financial or other), results of operations or prospects of the
Company and its subsidiaries taken as a whole (a "Material
Adverse Effect").
b. CAPITALIZATION. The authorized capital stock of the
Company currently consists of (a) 99,490,000 shares of Common
Stock, no par value, of which (i) 36,469,676 shares are
outstanding as of February 17, 1997, (ii) 6,224,451 shares are
reserved for issuance upon the exercise of options granted
pursuant to certain option plans and option grants of the
Company, of
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<PAGE> 4
which options exercisable into 5,407,161 shares are issued and
outstanding, (iii) 1,498,352 shares are reserved for issuance
pursuant to securities (other than the Note and the Warrants)
exercisable for, or convertible into, exchangeable for, or
otherwise entitling any person to acquire, shares of Common
Stock, (iv) 7,257,465 shares are reserved for issuance upon
conversion of the Note and (v) 3,628,733 shares are reserved for
issuance upon exercise of the Warrants (subject to adjustment
pursuant to the Note); (b) 510,000 shares of Class B Common
Stock, no par value, of which 283,000 shares are outstanding and
with respect to which 227,000 shares have been reserved for
issuance upon the exercise of option plans and option grants of
the Company; and (c) 10,000,000 shares of Preferred Stock, no par
value, of which no shares were outstanding as of February 17,
1997; and on the Closing Date (as defined herein) there will be
no material increase from February 17, 1997 in the number of
shares of Common Stock or Preferred Stock outstanding. All of
such outstanding shares of capital stock are, or upon issuance
will be, validly issued, fully paid and nonassessable. No shares
of capital stock of the Company are subject to preemptive rights
or any other similar rights of the stockholders of the Company or
any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in the SEC Documents,
as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for,
calls, rights of first refusal or commitments of any character
whatsoever relating to, or securities or rights convertible into
or exchangeable for any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or
any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated
to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement). The Company
has furnished to the Buyer true and correct copies of the
Company's Restated Articles of Incorporation as in effect on the
date hereof (the "Articles of Incorporation"), the Company's
By-laws as in effect on the date hereof (the "By-laws"). Except
as set forth on Schedule 3(b), (i) no holder of any of the
Company's securities has any rights, "demand," "piggy-back" or
otherwise, to have such securities registered by reason of the
intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement) and
(ii) except for the Company's Class D Warrants, no outstanding
securities of the Company have any anti-dilution protection
rights that would or might be triggered by the issuance of any of
the Securities. The offers and sales of the outstanding shares
of Common Stock and options, warrants and other rights to acquire
Common Stock were at all relevant times either registered under
the 1933 Act and applicable state securities laws or exempt from
such requirements.
c. CONCERNING THE SHARES. The Shares have been duly
authorized and, when issued upon conversion of the Note or
exercise of the Warrants, as the case may be, 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 any of the
Securities. The Common Stock is listed for trading on the Nasdaq
National Market ("Nasdaq"), and the Company and the Common Stock
meet the criteria for continued listing and trading on the
Nasdaq. The Company has not been notified since September 30,
1996 by the Nasdaq of any failure or potential failure to meet
the criteria for continued listing and trading on the Nasdaq, and
no suspension of trading in the Common Stock is in effect. The
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<PAGE> 5
Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Shares.
d. NOTE PURCHASE AGREEMENT, NOTE, WARRANTS, AND
REGISTRATION RIGHTS AGREEMENT. This Agreement, the Note, the
Warrants 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 Note, the Warrants 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.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement, the Note, the Warrants 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 Note, the Warrants and the
Registration Rights Agreement 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 Articles 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. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation,
by-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the
Company or any of its subsidiaries in default) under, and neither
the Company nor any of its subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its subsidiaries is a party or by which any property or assets of
the Company or any of its subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries, if any, are not being conducted,
and shall not be conducted so long as the Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of
any governmental entity, except for involuntary violations which
either singly or in the aggregate do not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Note or the Warrants in
accordance with the terms hereof or thereof. Except as set forth
on Schedule 3(e), all consents, authorizations, orders, filings
and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected
on or prior to the date hereof.
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<PAGE> 6
f. APPROVALS. No authorization, approval or consent of,
or filing with, 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 or made by
the Company for the issuance and sale of the Securities as
contemplated by this Agreement, the Note and the Warrants, other
than (1) listing of the Shares on Nasdaq and (2) the requirements
of any applicable blue sky laws.
g. INFORMATION PROVIDED. The information provided by the
Company to the Buyer, including, without limitation, the SEC
Documents, does not contain any untrue 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 circumstances
under which they are made, not misleading.
h. ABSENCE OF CERTAIN CHANGES. Since September 30, 1996,
there has been no material adverse change and no material adverse
development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of
the Company or any of its subsidiaries, except as disclosed in
the SEC Documents filed subsequent thereto and prior to the date
hereof.
i. 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 otherwise),
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;
and the Company has not been notified of any pending SEC or any
self-regulatory organization suit, proceeding, inquiry or
investigation.
j. SEC DOCUMENTS, FINANCIAL STATEMENT. Since September
30, 1996, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Company
has delivered to the Buyer true and complete copies of the SEC
Documents, except for such exhibits thereto and documents
incorporated therein. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none
of the SEC Documents, at the time that they were filed with the
SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As
of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be
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<PAGE> 7
otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or
summary statements) and present fairly in all material respects
the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 30, 1996 and (ii)
obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company and its subsidiaries. As of the date hereof, there is no
information that is required to be disclosed by the Company
pursuant to the requirements of the 1934 Act or the requirements
of the 1933 Act (assuming for this purpose that the Company has
an effective Registration Statement under the 1933 Act into which
all of its 1934 Act reports are incorporated) that has not been
properly disclosed in the SEC Documents.
k. PATENTS, COPYRIGHTS, ETC. Except as would not have a
Material Adverse Effect: (i) to the best of the Company's
knowledge, it owns or possess the requisite licenses or rights to
use all patents, patent rights, inventions, know-how, trade
secrets, trademarks, service marks, service names, trade names
and copyrights necessary to enable it to conduct its business as
now operated; (ii) to the best of the Company's knowledge, there
is no claim or action by any person pertaining to, or proceeding
pending or threatened which challenges the right of the Company
or any subsidiary of the Company with respect to any patents,
patent rights, licenses, inventions, know-how, trademarks,
service marks, service names, trade names and copyrights
necessary to enable it conduct its business as now operated;
(iii) to the best of the Company's knowledge, the Company's or
its subsidiaries' current and intended products, services and
processes do not infringe on any patents, patent rights,
licenses, inventions, know-how, trademarks, service marks,
service names, tradenames, copyrights or other rights held by any
person; and (iv) the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
l. FDA MATTERS. [RESERVED]
m. TAX STATUS. Except as set forth on Schedule 3(m), each
of the Company and its subsidiaries, if any, has made or filed
all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to
be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books
provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes of the Company
or any of its subsidiaries in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
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<PAGE> 8
n. CERTAIN TRANSACTIONS. Except (1) as set forth on
Schedule 3(n) or in the SEC Documents, (2) for arm's length
transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the
Company could obtain from third parties and (3) for the grant of
stock options pursuant to the Company's stock option plans, none
of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of
its subsidiaries (other than for services as employees, officers
and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
the leasing of property or the licensing of rights to or from or
otherwise requiring payments to or from any officer, director or
such employee or, to the Company's knowledge, any entity in which
such person has a substantial interest or position of
responsibility.
o. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF NOTE. The
Company acknowledges and agrees that the Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company
further acknowledges that the Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated
hereby and any advice given by the Buyer or any of its
representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the
Buyer's purchase of the Note. The Company further represents to
the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of
the Company by its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act
of the issuance of the Securities to the Buyer.
q. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments relating to this
Agreement or the transactions contemplated hereby, except for
dealings with Michael Arnouse, whose commissions and fees will be
paid by the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1)
the Note and the Warrants have not been and are 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 the
Shares may not be transferred unless (A) subsequently registered
thereunder for resale 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
without such registration; (2) any sale of the Shares 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
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<PAGE> 9
Shares 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 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 Shares (other than pursuant to the Registration Rights
Agreement) under the 1933 Act or to comply with the terms and
conditions of any exemption thereunder (other than pursuant to
Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees
that the Note and the Warrants, 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, shall 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 or
unless sold pursuant to Rule 144.
The legend set forth above shall be removed and
the Company shall issue a certificate without such legend to the
holder of the Securities upon which it is stamped, if, unless
otherwise required by applicable state securities laws, (a) the
Securities are included in an effective registration statement
under the 1933 Act covering the resale thereof, or (b) such
holder provides the Company with an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, to the
effect that a public sale or transfer of such Securities may be
made without registration under the 1933 Act and such Securities
are being sold or transferred in accordance with the method
described therein, or (c) such holder provides the Company with
reasonable assurances that the Securities can be sold pursuant to
Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. The Buyer
agrees to sell all of the Securities, including those represented
by a certificate(s) from which the legend has been removed, in
compliance with the prospectus delivery requirements, if any,
under applicable securities laws.
The Note shall also contain a legend reflecting
its non-assignability other than to the Buyer's affiliates
(including the limited partners and shareholders thereof solely
in the case of liquidation of the Buyer). The Warrant shall also
contain a legend setting forth the restrictions on its
assignability. Notwithstanding the foregoing, nothing herein
shall affect or limit the Buyer's ability to pledge the
Securities in connection with a bona fide margin account or
lending arrangement.
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<PAGE> 10
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto
agree to enter into the Registration Rights Agreement on or
before the Closing Date.
d. FORM D; BLUE SKY LAWS. 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. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to
obtain an exemption for, the Securities for sale to the Buyer
pursuant to this Agreement and on conversion of the Note under
such of the securities or "blue sky" laws of jurisdictions in the
United States as shall be applicable to the sale of the
Securities to the Buyer pursuant to this Agreement and on
conversion of the Note. The Company shall furnish copies of all
filings, applications, orders and grants or confirmations of
exemptions relating to such securities or "blue sky" laws on or
before the Closing Date.
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 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.
g. CERTAIN EXPENSES. Whether or not the Closing occurs,
the Company shall pay or reimburse the reasonable fees and
out-of-pocket expenses of the Buyer for travel, legal fees, due
diligence and other costs, up to $20,000. 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. RESERVATION OF SHARES. The Company shall at all times
have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
full conversion of the outstanding amount of the Note and
issuance of the Conversion Shares in connection therewith and the
full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based on the conversion price of
the Note and the exercise price of the Warrants in effect from
time to time and subject to the limitations on total shares to be
issued as set forth in Section 2.6 of the Note). Prior to the
complete conversion of the Note and the full exercise of the
Warrants (within the above-mentioned limitations), the Company
shall not reduce the number of shares of Common Stock reserved
for issuance upon conversion of the Note and exercise of the
Warrants without the consent of the Buyer.
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<PAGE> 11
i. FINANCIAL INFORMATION. The Company agrees to send the
following reports to the Buyer until the Buyer transfers,
assigns, or sells all of the Securities: (i) within ten (10)
days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K; and (ii) within three (3) days after
release, copies of all press releases issued by the Company or
any of its subsidiaries.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially
owns any Note or Warrants, the Company shall maintain its
corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in
such transaction (i) assumes the Company's obligations hereunder
and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the Nasdaq, the
Nasdaq SmallCap Market, the New York Stock Exchange or the
American Stock Exchange.
K. CERTAIN ISSUANCES OF SECURITIES.
(1) Unless the Company obtains Stockholder Approval (as defined in
the Note) or a waiver thereof from Nasdaq, the Company will not
issue any shares of Common Stock or shares of any other
promissory notes or other securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire,
shares of Common Stock which would be subject to Rule 4460(i) of
Nasdaq (or any successor or replacement provision thereof) and
which would be integrated with the sale of the Note and the
Warrants to the Buyer or the issuance of Shares upon conversion
of the Note or exercise of the Warrants for purposes of Rule
4460(i) of Nasdaq (or any successor or replacement provision
thereof).
(2)The Company shall not offer, sell, contract to sell or issue (or
engage any person to assist the Company in taking any such
action) any equity securities or securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire,
any Common Stock during the period from the date of this
Agreement to the later of (x) the date which is 180 days after
the Closing Date and (y) the date on which the Registration
Statement shall have been effective and available for use by the
Buyer for 90 consecutive days; PROVIDED, HOWEVER, that nothing in
this Section 4(i)(2) shall prohibit the Company from issuing
securities (i) pursuant to compensation plans for employees,
directors, officers, advisers or consultants of the Company and
in accordance with the terms of such plans as in effect as of the
date of this Agreement, (ii) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by
the Company and outstanding as of the date of this Agreement,
(iii) as part of a transaction involving a strategic alliance,
collaboration, joint venture, partnership or other similar
arrangement of the Company or (iv) in an underwritten public
offering registered under the 1933 Act.
l. BEST EFFORTS. The parties hereto shall use their best
efforts to timely satisfy each of the conditions to closing
described in Sections 7 and 8 of this Agreement.
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5. TRANSFER AGENT INSTRUCTIONS.
The Company will instruct, and use its best
efforts to put into effect and maintain an arrangement with, its
transfer agent consistent with applicable law in order to (i)
issue certificates promptly for the Shares from time to time upon
conversion of the Note and exercise of the Warrants in such
amounts as are issuable in accordance with the terms thereof,
registered in the name of the Buyer or its permitted nominee and
in such denominations to be specified by the Buyer in connection
with each conversion of the Note or exercise of the Warrants and
(ii) enable the resale of such Shares to the public. The Company
warrants that no instruction or arrangement other than the
arrangement referred to in 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 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 the prospectus delivery requirements, if any, of 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. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to
the Buyer, by thwarting the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Section, that the Buyer shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach
and requiring immediate issuance and transfer, without the
necessity of showing economic loss and without any bond or other
security being required.
6. CLOSING DATE.
a. CLOSING DATE. Subject to satisfaction (or waiver) of
the conditions to closing set forth in Sections 7 and 8 below,
the date and time of the issuance and sale of the Note (the
"Closing") shall be 12:00 noon Eastern Standard Time on February
26, 1997, or such other date and time as mutually agreed by the
parties hereto (the "Closing Date"). The Closing shall occur on
the Closing Date at the offices of Baker & McKenzie, 101 West
Broadway, 12th Floor, San Diego, California 92101.
b. FORM OF PAYMENT. On the Closing Date, (i) the Buyer
shall pay the Purchase Price for the Note by wire transfer of
immediately available funds to the Company, in accordance with
the Company's written wire instructions, against delivery of the
Note duly executed by the Company and (ii) the Company shall
deliver the Note against delivery of the Purchase Price.
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<PAGE> 13
7. 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 Buyer of this
Agreement as evidenced by execution of this Agreement by the
Buyer;
b. Delivery by the Buyer to the Company of good funds as
payment in full of an amount equal to the Purchase Price for the
Note in accordance with Section 1 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. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's
obligation to purchase the Note is conditioned upon:
a. The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement and delivery by
the Company to the Buyer of the Note in accordance with this
Agreement;
b. The accuracy (in all material respects, except where
the representation is qualified by materiality) 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 the Closing Date;
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 V attached hereto;
d. On or before the Closing Date, trading in the Common
Stock on Nasdaq shall not have been suspended by the SEC or
Nasdaq; and
e. The Buyer shall have received an officer's certificate
described in Section 3(b) above and an officer's certificate as
to the matters described in clauses (b), (d) and (e) of this
Section 8 (and other matters as the Buyers shall reasonably
request), dated the Closing Date.
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9. MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California as applied to
contracts entered into between residents of and to be performed
in such state. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in San
Diego, California with respect to any dispute arising under this
Agreement or the transactions contemplated hereby.
b. This Agreement may be executed in counterparts and by
the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A
facsimile transmission of this Agreement bearing a signature on
behalf of a party hereto shall be legal and binding on such
party.
c. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement.
d. 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.
e. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement.
f. 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, or any course of dealings
between the parties, shall not operate as a waiver thereof or an
amendment hereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
g. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by mail or delivered
personally (which shall include facsimile transmission) 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 the case of the Company addressed to the Company
at its address shown in the introductory paragraph of this
Agreement (facsimile number 619-453-5848) or, in the case of the
Buyer, at its address shown 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
Buyer hereby designates as its address for any notice required or
permitted to be given to the Buyer pursuant to the Note the
address shown on the signature page of this Agreement.
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h. The respective representations, warranties, covenants
and agreements of the Buyer and the Company contained in this
Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement shall survive the delivery of payment for the
Note and shall remain in full force and effect regardless of any
investigation made by or on behalf of them or any person
controlling or advising any of them.
i. This Agreement and its Annexes set forth the entire
agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and
understandings, whether written or oral, with respect thereto.
j. The Company shall be entitled, without the prior
approval of the Buyer, to make any press release or SEC, Nasdaq
or NASD filings with respect to such transactions as is required
by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy
thereof). The Buyer shall not make any press release related to
the transactions contemplated hereby or any public statement
related thereto, except statements as might be reasonably
necessary to the conduct of the business of Buyer (any written
statements shall be provided to the Company and the Company shall
be consulted with prior to release).
k. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Note, the
Warrant and the Registration Rights Agreement.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective officers
or their representatives thereunto duly authorized as of the date
first set forth above.
PRINCIPAL AMOUNT OF NOTE: $6,000,000.00
PURCHASE PRICE: $6,000,000.00
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By: /s/ Wayne Bloch
-----------------
Name: Wayne Bloch
Its: Managing Director
Address: c/o Rose Glen Capital Management, L.P.
440 East Swedesford Road, Suite 2025
Wayne, Pennsylvania 19087
Facsimile No. (610) 971-2212
LIDAK PHARMACEUTICALS
By: /s/ David H. Katz
------------------
Name: David H. Katz, M.D.
Its: President and Chief Executive Officer
16
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of February 26, 1997, by and among LIDAK PHARMACEUTICALS, a
California corporation, with headquarters located at 11077 North
Torrey Pines Road, La Jolla, California 92037 (the "Company"),
and the undersigned (together with its affiliates and any
assignee or transferee of all of its respective rights hereunder
as and to the extent permitted, the "Initial Investors").
WHEREAS:
A. In connection with the Note Purchase Agreement by and
among the parties hereto of even date herewith (the "Note
Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to
the Initial Investor a Convertible Note in the original principal
amount of $6,000,000 (the "Note") that is convertible into units
consisting of (i) shares (the "Conversion Shares") of the
Company's Common Stock, no par value (the "Common Stock"), and
(ii) warrants (the "Warrants") to purchase a number of shares of
Common Stock (the "Warrant Shares") equal to one-half the number
of Conversion Shares issuable upon each conversion of the Note,
upon the terms and subject to the limitations and conditions set
forth in the Note; and
B. 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 "1933 Act"), and applicable
state securities laws;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Initial Investor hereby agree
as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investors" means the Initial Investors and any
permitted transferee or assignee who agrees to become bound by
the provisions of this Agreement in accordance with Section 9
hereof.
<PAGE> 2
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 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 and the Warrant Shares issued or issuable and any shares
of capital stock issued or issuable in payment of interest on or
in exchange for or otherwise with respect to any of the
foregoing.
(iv) "Registration Statement" means a registration statement
of the Company under the 1933 Act.
b. 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. The Company shall prepare,
and, on or prior to the date which is thirty (30) business days
after the date of the closing under the Note Purchase Agreement
(the "Closing Date"), file with the SEC a Registration Statement
on Form S-3 (or, if Form S-3 is not then available, on such form
of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the
consent of the Initial Investor, which consent will not be
unreasonably withheld) covering the resale of the Registrable
Securities underlying the Note and the Warrants, which
Registration Statement, to the extent allowable under the 1933
Act and the Rules promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Note and exercise of the
Warrants (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions or (ii) by reason of
changes in the Conversion Price of the Note or the Exercise Price
of the Warrants in accordance with the terms thereof. The number
of shares of Common Stock included in such Registration Statement
shall be no less than 150% (one hundred and fifty percent) of the
Maximum Share Amount set forth in Section 2.6 of the Note. If at
any time (i) the number of shares of Common Stock included in the
Registration Statement required to be filed as provided in the
first sentence of this Section 2(a) shall be insufficient to
cover the number of shares of Common Stock issuable on conversion
in full of the unconverted Note and exercise in full of the
unexercised Warrants and Warrants which may be issued upon
exercise of the unconverted Note (including any Prepayment
Warrants issued pursuant to the Note) and (ii) a New Maximum
Share Amount has been approved or the Company has otherwise
received approval from The Nasdaq Stock Market to issue a number
of shares greater than the Maximum Share Amount, then promptly,
but in no event later than 20 days after such insufficiency shall
occur, the Company shall file with the SEC as promptly as
practicable an additional Registration Statement on Form S-3
(which shall not constitute a post-effective amendment to the
Registration Statement filed pursuant to the first sentence of
this Section 2(a)) covering such additional number of shares of
Common Stock. For all purposes of this Agreement
2
<PAGE> 3
such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and
the Investors shall have the same rights and obligations with
respect to such additional Registration Statement as they shall
have with respect to the initial Registration Statement required
to be filed by the Company pursuant to this Section 2(a).
b. UNDERWRITTEN OFFERING. 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, with the consent of the Initial Investor,
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) 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. The Company shall use its
best efforts to obtain effectiveness of the Registration
Statement as soon as practicable. If (i) the Registration
Statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC within ninety (90) days after the
Closing Date (other than by reason of delay caused by (a) a
change in a relevant policy, procedure, interpretation, position,
practice or rule of the SEC announced after the Closing Date, or
(b) any act or failure to act by the Investors) or if, after the
Registration Statement has been declared effective by the SEC,
sales cannot be made pursuant to the Registration Statement (by
reason of stop order, or the Company's failure to update the
Registration Statement), or (ii) the Common Stock is not listed
or included for quotation on the NASDAQ National Market (the
"NASDAQ-NMS"), the NASDAQ Small Cap System ("NASDAQ Small Cap"),
the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for
quotation, then the Company will make payments to the Investors
in such amounts and at such times as shall be determined pursuant
to this Section 2(c) as partial relief for the damages to the
Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall
not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of Registerable
Securities an amount equal to the aggregate "Purchase Price" (as
defined below) of the Note or portions thereof held by such
Investors (including, without limitation, the Note or portion
thereof that has been converted into Conversion Shares and
Warrants (including Warrant Shares) then held by such Investors)
multiplied by the Applicable Percentage (as defined below) times
the sum of: (i) the number of 30-day periods (prorated for
periods of less than 30 days) after the end of such 90-day period
and prior to the date the Registration Statement is declared
effective by the SEC, provided, however, that there shall be
excluded from such period any delays which are solely
attributable to changes in the Registration Statement required by
the Investors with respect to information relating to the
Investors, including, without limitation, changes
3
<PAGE> 4
to the plan of distribution, or to the failure of the Investors
to conduct their review of the registration statement pursuant to
Section 3(i) below in a reasonably prompt manner; (ii) the number
of 30-day periods (prorated for periods of less than 30 days)
that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective; and
(iii) the number of 30-day periods (prorated for periods of less
than 30 days) that the Common Stock is not listed or included for
quotation on the NASDAQ-NMS, NASDAQ Small Cap, NYSE or AMEX after
the Registration Statement has been declared effective. (For
example, if the Registration Statement becomes effective 30 days
after the end of such 90-day period, the Company would pay
$30,000 for each $1,000,000 of Purchase Price; if thereafter,
sales could not be made pursuant to the Registration Statement
for an additional period of 30 days, the Company would pay an
additional $30,000 for each $1,000,000 of Purchase Price.) Such
amounts shall be paid in cash or, at each Investor's option, may
be convertible into Common Stock and Warrants at the "Conversion
Price" (as defined in the Note). Any shares of Common Stock
(including Common Stock underlying Warrants) issued upon
conversion of such amounts shall be Registrable Securities. If
the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing
within two (2) business days after the date on which such amounts
are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article II
of the Note for conversion of the Note as if such amounts were
part of the Note), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within
five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for
more than thirty (30) days, interim payments shall be made for
each such thirty (30) day period. The term "Purchase Price"
means the purchase price paid by the Initial Investor for the
Note or the portion thereof held by an Investor. The term
"Applicable Percentage" means three one-hundredths (.030).
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined)
the Company shall file with the SEC a Registration Statement
relating to an offering for its own account or the account of
others under the 1933 Act of any of its equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating
to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written
notice of such determination and, if within fifteen (15) days
after the effective date of such notice, such Investor shall so
request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that
if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall
impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such
underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then
the Company shall be obligated to include in such Registration
Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors
seeking to include Registrable Securities in proportion to the
4
<PAGE> 5
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 existing as of the date hereof to inclusion of such
securities in such Registration Statement or are not entitled to
pro rata inclusion with the Registrable Securities; and PROVIDED,
FURTHER, HOWEVER, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall
be made pro rata with holders of other securities having the
right existing as of the date hereof to include such securities
in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration
Statement, based on the number of securities for which
registration is requested except to the extent such pro rata
exclusion of such other securities is prohibited under any
written agreement entered into by the Company with the holder of
such other securities prior to the date of this Agreement, in
which case such other securities shall be excluded, if at all, in
accordance with the terms of such agreement. 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 and the Company shall have maintained the effectiveness of
such Registration Statement as required by this Agreement and if
the Company shall otherwise have complied in all material
respects with its obligations under this Agreement, then the
Company shall not be obligated to register any Registrable
Securities on such Registration Statement referred to in this
Section 2(d) unless the Registration Statement referred to in
this Section 2(d) is an underwritten offering, in which case the
Company shall be obligated to comply with 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
other Investor of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the
SEC not later than thirty (30) business days after the Closing
Date, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter
use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as
possible
5
<PAGE> 6
after such filing, and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable
Securities have been sold by the Investors and (ii) the date on
which the Registrable Securities (in the opinion of counsel to
the Initial Investor) may be immediately sold without
registration (the "Registration Period"), which Registration
Statement (including any 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 not misleading.
b. The Company shall 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 during the
Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable
Securities required to be registered pursuant to this Agreement,
the Company shall file a new Registration Statement (on the short
form available therefor, if applicable), so as to cover all of
the Registrable Securities, in each case, as soon as practicable,
but in any event within thirty (30) business days after the
necessity therefor arises (based on the market price of the
Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best
efforts to cause such new Registration Statement to become
effective as soon as practicable following the filing thereof.
The provisions of Section 2(c) above shall be applicable with
respect to such obligation, with the ninety (90) days running
from the day after the date on which the Company reasonably first
determines (or reasonably should have determined) the need for
the registration of such additional Registrable Securities.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement
and its legal counsel (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the
Company, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the
Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of
the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration
Statement or the documents incorporated therein (other than any
portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number
of copies of a prospectus, including a preliminary prospectus,
and all amendments and supplements thereto and such other
documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by
such Investor.
d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or "blue sky"
laws of such jurisdictions in the United States as the Investors
who hold a majority in interest
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<PAGE> 7
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 during the Registration Period, (iii)
take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during
the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; PROVIDED, HOWEVER,
that the Company shall not be required in connection therewith or
as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation
in any such jurisdiction, (c) file a general consent to service
of process in any such jurisdiction, (d) provide any undertakings
that cause the Company undue expense or burden, or (e) make any
change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event that the Registrable Securities are being
offered in an underwritten offering, the Company shall enter into
and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of
any event, of which the Company has knowledge, as a result of
which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver such number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness
of a Registration Statement, and, if such an order is issued, to
obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such
order and the resolution thereof.
h. The Company shall 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.
i. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration
Statement and all amendments and supplements thereto (as well as
all requests for acceleration or effectiveness thereof) a
reasonable period of time prior to their filing with the SEC, and
not file any document in a form to which such counsel reasonably
objects.
7
<PAGE> 8
j. The Company shall make generally available to its
security holders as soon as practical, but not later than ninety
(90) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule
158 under the 1933 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.
k. At the request of any Investor, the Company shall
furnish, on the date that Registrable Securities are delivered to
an underwriter, if any, for sale in connection with the
Registration Statement or, if such securities are not being sold
by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the
Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten
public offering, addressed to the underwriters, if any, and the
Investors and (ii) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as
is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and the Investors.
l. The Company shall make available for inspection by (i)
any Investor, (ii) any underwriter participating in any
disposition pursuant to the Registration Statement, (iii) one
firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, (iv) one firm of attorneys and
one firm of accountants or other agents retained by all other
Investors, and (v) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the "Records"), as
shall be reasonably deemed necessary by each Inspector to enable
each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request for
purposes of such due diligence; PROVIDED, HOWEVER, that each
Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in any
Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information
in such Records has been made generally available to the public
other than by disclosure in violation of this or any other
agreement. The Company shall not be required to disclose any
confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form
of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a
court or governmental body of competent jurisdiction or through
other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential. Nothing herein (or in the
Confidentiality Agreement between the Company and the Investor
dated January 28, 1997) shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations. The
Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the
Company
8
<PAGE> 9
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 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.
m. The Company shall use its best efforts either to (i)
cause all the Registrable Securities covered by the Registration
Statement to be listed on each national securities exchange on
which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure the designation and quotation, of all
the Registrable Securities covered by the Registration Statement
on the NASDAQ-NMS or, if not eligible for the NASDAQ-NMS on the
NASDAQ Small Cap.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable
Securities not later than the effective date of the Registration
Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may
request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall 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 to facilitate the public offering of such
securities and an opinion of such counsel in the form attached
hereto as Exhibit 2.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors
of Registrable Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:
9
<PAGE> 10
a. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At
least three (3) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall
notify each Investor of the information the Company requires from
each such Investor if such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest
of the Registrable Securities being registered (with the approval
of the Initial Investor) 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.
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 in usual and customary form entered
into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company
pursuant to Section 5 below.
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<PAGE> 11
5. EXPENSES OF REGISTRATION.
All reasonable expenses incurred in connection with
registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees and the
fees and disbursements of counsel for the Company shall be borne
by the Company other than (i) the fees and disbursements of
counsel, accountants and other professional investors, selected
by the Initial Investor pursuant to Section 2(b) hereof and (ii)
underwriting discounts and commissions.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds
such Registrable Securities, (ii) the directors, officers,
partners, employees, agents and each person who controls any
Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, and
(iii) any underwriter (as defined in the 1933 Act) for the
Investors; and the directors, officers, partners, employees and
each person who controls any such underwriter within the meaning
of the 1933 Act or the 1934 Act, if any, (each, an "Indemnified
Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject
insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact
in a Registration Statement or the omission or alleged omission
to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of
the circumstances under which the statements therein were made,
not misleading, or (iii) any violation or alleged violation by
the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any
rule or regulation thereunder relating to the offer or sale of
the Registrable Securities (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). Subject to
the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending
any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company
by any Indemnified Person or underwriter for such Indemnified
Person expressly for use in connection with the preparation of
the
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<PAGE> 12
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) shall not
apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure
to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c)
hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use
giving rise to a Violation and such Indemnified Person,
notwithstanding such advise, used it. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which
an Investor is participating, each such Investor agrees severally
and not jointly to indemnify, hold harmless and defend, to the
same extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 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 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other
expenses (promptly as such expenses are incurred and are due and
payable) reasonably incurred by them in connection with
investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld;
PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable
under this Agreement (including this Section 6(b) and Section 7)
for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
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<PAGE> 13
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be 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 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 indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall
be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to
which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors
are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable.
The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually
prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 6 to
the fullest extent permitted by law; PROVIDED, HOWEVER, that (i)
no contribution shall be made under circumstances where the maker
would not have been liable for indemnification under the fault
standards set forth in Section 6, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii)
contribution (together with any indemnification or other
obligations under this Agreement) by any seller of Registrable
Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such
Registrable Securities.
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<PAGE> 14
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 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;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and
the 1934 Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit
the Company's obligations under Section 4(c) of the Securities
Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144;
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 1933 Act and the 1934 Act, (ii) a
copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically
assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in
writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities
laws, (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein, (v) such
transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, and (vi) such
transferee shall be an "accredited investor" as that term defined
in Rule 501 of Regulation D promulgated under the 1933 Act.
Nothing herein shall affect the assignment of rights to a bona
fide pledgee of the Registrable Securities.
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<PAGE> 15
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively),
only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority
interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon
each Investor and the Company.
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 which receipt is
refused if delivered by hand or by courier or sent by certified
mail, return receipt requested, properly addressed and with
proper postage pre-paid,
if to the Company:
LIDAK Pharmaceuticals
11077 North Torrey Pines
La Jolla, California 92037
Attention: Chief Financial Officer
Facsimile No.: (619) 453-5845
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<PAGE> 16
With copy to:
Baker & McKenzie
The Wells Fargo Plaza
101 West Broadway
12th Floor
San Diego, California 92101
Attention: John J. Hentrich, Esq.
Facsimile No.: (619) 236-0429
if to the Initial Investor:
c/o Rose Glen Capital Management, L.P.
440 E. Swedesford Road
Suite 2025
Wayne, Pennsylvania 19807
Attention: Mr. Wayne Bloch
Facsimile No.: (610) 971-2211
and if to any 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 or
registered mail (return receipt requested), five 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. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts
located in San Diego, California with respect to any dispute
arising under this Agreement or the transactions contemplated
hereby.
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<PAGE> 17
e. This Agreement and the Note Purchase Agreement
(together with all annexes thereto) constitute the entire
agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement and the Note
Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made by Investors
holding a majority of the Registrable Securities, determined as
if the outstanding balance of the Note and Warrants then
outstanding (including Warrants issuable upon conversion of the
outstanding balance of the Note) have been converted into or
exercised for Registrable Securities.
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<PAGE> 18
IN WITNESS WHEREOF, the Company and the undersigned
Initial Investor have caused this Agreement to be duly executed
as of the date first above written
LIDAK PHARMACEUTICALS
By: /s/David H. Katz
--------------------
Name: David H. Katz, M.D.
Its: President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By:./s/Wayne Bloch
----------------------------------------------------
Name: Wayne Bloch
Its: Managing Director
