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UNITED STATES
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: March 25, 1998
(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 March 25, 1998, LIDAK Pharmaceuticals, a California corporation (the
"Company"), announced that it had entered into an Agreement of Compromise and
Settlement (the "Agreement") dated as of March 24, 1998 between the Company and
HealthMed Inc., Mitchell J. Stein, George P. Rutland, Edward L. Hennessy, Jr.
and Wallace O. Raubenheimer. A copy of the Press Release announcing the
Agreement is attached hereto as Exhibit 99.1 and is incorporated herein by
reference. A copy of the Agreement is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits
(i) Exhibit 99.1 -- Press Release dated March 25, 1998.
(ii) Exhibit 99.2 -- Agreement of Compromise and Settlement
dated as of March 24, 1998 between the Company and
HealthMed, Inc., Mitchell J. Stein, George P. Rutland,
Edward L. Hennessy, Jr. and Wallace O. Raubenheimer.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LIDAK PHARMACEUTICALS
Date: March 26, 1998 By:/s/Jeffery B. Weinress
-------------------------
Jeffery B. Weinress
Vice President & Chief Financial Officer
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Exhibit 99.1
LIDAK PHARMACEUTICALS AND SHAREHOLDERS COMMITTEE
REACH SETTLEMENT AGREEMENT,
POSTPONE ANNUAL SHAREHOLDERS' MEETING
La Jolla, and Beverly Hills, CA - March 25, 1998 -- LIDAK Pharmaceuticals
(Nasdaq NM: LDAKA) and a Shareholders Committee today announced that they have
entered into a settlement agreement whereby the Shareholders Committee will
withdraw a previously filed proxy statement in support of an alternative slate
of directors for LIDAK. Parties to the agreement included LIDAK, HealthMed, Inc.
and Wallace O. Raubenheimer on behalf of the Shareholders Committee, as well as
Mitchell J. Stein, George P. Rutland and Edward L. Hennessy, Jr.
The settlement agreement provides for a new LIDAK Board comprised of four
existing LIDAK directors, three additional independent nominees to be mutually
agreed upon, and two of the Committee's nominees, Mr. Rutland and Mr. Hennessy.
Additionally, the LIDAK Board has agreed to two by-law amendments, expanding the
number of directors to a maximum of nine, and creating three classes of
directors with staggered three year terms. The director nominees and by-law
amendments will be voted upon at the 1998 annual shareholders' meeting, which
has been postponed to allow adequate time to conduct an expeditious search for
the additional independent nominees and to amend LIDAK's proxy materials. A date
for the meeting will be set after the additional independent nominees have been
selected. Information with respect to the postponement will be mailed to all
shareholders.
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The agreement also provides that the Committee and its nominees will not
conduct any proxy or other shareholder solicitations through the annual meeting
of shareholders to occur in 2001, limits additional stock purchases or control
of voting shares by the parties, and provides that LIDAK will reimburse
HealthMed for certain third party expenses, not to exceed $150,000. The
agreement does not contemplate any changes to the Company's current executive
management.
Gerald J. Yakatan, president, chief executive officer and a director of
LIDAK, stated, "We are pleased that this potentially contentious situation had
such a positive outcome for the Company. The Company was able to avoid the
disruption and potentially substantial costs associated with a proxy contest by
reaching this settlement agreement. We look forward to working with the new
Board members in determining LIDAK's future, with the mutual ultimate goal of
significantly enhancing shareholder value."
Rex Julian Beaber, General Counsel of HealthMed, commented, "As a large
shareholder of LIDAK, HealthMed believes this agreement will create a Board of
Directors who will work together in the interests of all shareholders and guide
LIDAK through successful exploitation of its products into the next millennium."
LIDAK Pharmaceuticals is developing therapeutic products designed to treat
virally caused diseases, allergies and asthma, inflammatory disorders and
cancer. LIDAK's topical drug for the treatment of recurrent oral facial herpes,
LIDAKOL, was recently submitted to the United States Food and Drug
Administration for marketing approval.
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CONTACT: Jeffery B. Weinress, Vice President & CFO of LIDAK Pharmaceuticals,
619-558-0364, ext. 242, or Rex Julian Beaber, General Counsel of
HealthMed, 310-448-1331.
# # #
The information contained in this press release, including any forward looking
statements contained herein, should be reviewed in conjunction with the
Company's Annual Report on Form 10-K and other publicly available information
regarding the Company, copies of which are available from the Company upon
request. Such publicly available information sets forth many risks and
uncertainties related to the Company's business and such statements, including
risks and uncertainties related to drug development and clinical trials. Final
review decisions made by the FDA and other regulatory agencies concerning
clinical trial results are unpredictable and outside of the influence and/or
control of the company.
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Exhibit 99.2
AGREEMENT OF COMPROMISE AND SETTLEMENT
This AGREEMENT OF COMPROMISE AND SETTLEMENT dated as of March 24, 1998
(this "Settlement Agreement") is entered into by and among LIDAK Pharmaceuticals
("LIDAK"), a California corporation, on the one hand, and HealthMed, Inc., a
Nevada Corporation ("HealthMed"), Mitchell J. Stein ("Stein"), George P. Rutland
("Rutland"), Edward L. Hennessy, Jr. ("Hennessy"), and Wallace O. Raubenheimer
("Raubenheimer") (collectively the "HealthMed Parties") on the other hand. The
foregoing parties are sometimes collectively referred to herein as the
"Parties."
WHEREAS, LIDAK has scheduled its 1998 Annual Meeting of Shareholders for
April 18, 1998;
WHEREAS, LIDAK has issued a Proxy Statement presenting for action at the
1998 Annual Meeting the election of Messrs. William N. Jenkins, Helmer P.K.
Agersborg and Stuart A. Samuels as directors;
WHEREAS, the HealthMed Parties have filed a Schedule 13D and Proxy
Statement announcing their intent to contest the election of the LIDAK slate of
directors and have nominated a slate consisting of Edward L. Hennessy, Jr.,
George P. Rutland and Wallace O. Raubenheimer;
WHEREAS, the Parties desire to avoid the costs and expenses of a protracted
and divisive proxy contest and related litigation; and
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WHEREAS, LIDAK has determined that the agreements set forth herein are in
the best interests of LIDAK and its shareholders.
FOR AND IN CONSIDERATION of the mutual covenants contained herein, the
Parties, intending to be legally bound hereby, agree as follows:
1. Certain Defined Terms. As used in this Settlement agreement, the
following terms (whether or not capitalized) shall have the following meanings:
"1998 Annual Meeting" means the 1998 annual meeting of shareholders of
LIDAK at which the election of directors shall be considered.
"Board" means the Board of Directors of LIDAK.
"Common Stock" means the Class A and Class B common stock, no par
value per share, of LIDAK.
"Effective Date" means March 24, 1998.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"LIDAK Securities" means any securities issued by LIDAK or any of its
direct or indirect subsidiaries, including the Common Stock and any other debt
or equity securities of LIDAK or any of its direct or indirect subsidiaries that
are outstanding as of the date hereof or may hereafter be issued.
"Person" means any individual, corporation, association, general or
limited partnership, limited liability company, limited liability partnership,
joint venture, trust, estate, other entity or organization or group.
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"Schedule 13D" means the Statements on Schedule 13D related to LIDAK
Securities and filed with the SEC on or about January 13, 1998 by any or all of
the HealthMed Parties, and amendments thereto filed prior to the Effective Date.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Solicitation Action" with respect to a shareholders' meeting means
any of the following: (i) giving notice pursuant to LIDAK's Bylaws of an
intention to nominate directors at such meeting; (ii) filing with the SEC any
proxy solicitation materials (whether preliminary, definitive or as described in
Rule 14a-11 or 14a-12 under the Exchange Act) with respect to such meeting;
(iii) mailing or otherwise disseminating to shareholders any such solicitation
materials; (iv) otherwise engaging in a solicitation of proxies with respect to
such meeting; (v) nominating at such meeting candidates for election as
directors except as provided herein; or (vi) casting votes or ballots at such
meeting pursuant to proxies so solicited (but the term "Solicitation Action"
shall not include the casting of votes or ballots by the Parties with respect to
shares of Common Stock beneficially owned by them or which are the subject of
voting trusts over which they have control).
"Transaction" means any business combination involving LIDAK,
including without limitation an acquisition, merger, spin-off, spin-out,
consolidation, tender offer, share exchange or exchange offer.
"Voting Securities" means any securities issued by LIDAK or any of its
direct or indirect subsidiaries, including the Common Stock and any other equity
securities or debt convertible into equity securities of LIDAK or any of its
direct or indirect subsidiaries that are outstanding as of the date hereof or
may hereafter be issued.
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The terms "participant," "proxy" and "solicitation" shall be used as
defined in Regulation 14A under the Exchange Act (whether or not the pertinent
securities are subject to Regulation 14A). The terms "beneficial ownership" and
"group" shall be used as defined in Regulation 13D-G under the Exchange Act. The
terms "affiliate" and "associate" shall be used as defined in Rule 12b-2 under
the Exchange Act.
2. Representations and Warranties of the HealthMed Parties. Each of the
HealthMed Parties severally and not jointly, represents and warrants to LIDAK as
follows:
(a) Such HealthMed Party has the requisite legal power and authority
to execute, deliver and carryout this Settlement Agreement and has taken all
necessary legal action to authorize the execution, delivery and performance of
this Settlement Agreement and the transactions contemplated hereby.
(b) This Settlement Agreement has been duly and validly authorized,
executed and delivered by such HealthMed Party and constitutes a valid and
binding obligation, enforceable against such HealthMed Party in accordance with
its terms.
(c) Neither such HealthMed Party nor any of its affiliates
beneficially owns, or has any direct, indirect or contingent pecuniary interest
in, any LIDAK Securities other than as disclosed in the Schedule 13D, except for
50,000 shares owned by Hennessy which were purchased on or about March 18, 1998.
Except for the aforementioned purchase of 50,000 shares by Hennessy, none of the
HealthMed Parties, individually or in the aggregate, have filed any amendment or
taken any action that requires filing an amendment to the Schedule 13D during
the period from March 6, 1998 (the last amendment date) to and including the
Effective Date.
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(d) Neither such HealthMed Party nor any of its affiliates is a member
of any group with respect to LIDAK Securities and there are no other persons who
are part of such a group with it or any of its affiliates except as disclosed in
the Schedule 13D.
(e) Such HealthMed Party is not committed to or intending to take any
action designed to restore David Katz as an officer, consultant or employee of
LIDAK nor to nominate or elect David Katz as a director of LIDAK.
(f) No action or proceeding has been filed by any of the HealthMed
Parties in any court or with any administrative body relating to any action by
LIDAK or its affiliates.
(g) There are, and have been, no undisclosed agreements or
undertakings regarding compensation or remuneration of any kind to Messrs.
Rutland, Raubenheimer or Hennessy.
(h) There have been no commitments by Messrs. Rutland, Raubenheimer or
Hennessy to any HealthMed financing or investment proposal concerning LIDAK.
(i) There are no undisclosed agreements between the HealthMed Parties
and David H. Katz.
(j) None of the expenses incurred by the HealthMed Parties have been
funded or reimbursed by David H. Katz.
3. Representations and Warranties of LIDAK. LIDAK represents and warrants
to the HealthMed Parties as follows:
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(a) LIDAK is duly organized and validly existing and in good standing
under the laws of the State of California, has the requisite corporate power and
authority to execute, deliver and carry out this Settlement Agreement and has
taken all necessary corporate action to authorize the execution, delivery and
performance of this Settlement Agreement and the transactions contemplated
hereby.
(b) This Settlement Agreement has been duly and validly authorized,
executed and delivered by LIDAK and constitutes a valid and binding obligation,
enforceable against LIDAK in accordance with its terms.
(c) No action or proceeding has been filed by LIDAK or any of its
affiliates in any court or with any administrative body relating to any action
by any of the HealthMed Parties.
(d) During the period from the Effective Date until the conclusion of
the 1998 Annual Meeting, subject to the fiduciary duties of the members of the
LIDAK Board, LIDAK shall not engage in any extraordinary Transaction. During
that period, Rutland shall be given notice of all LIDAK Board meetings and
invited to attend such meetings as an observer and to make his views known on
any matters which come before the Board provided that Rutland signs a
confidentiality agreement limiting the disclosure and use of any information
obtained at such meetings. During that period LIDAK shall not enter into any
employee retention agreements other than in the ordinary course of business and
other than those agreements with certain executive management of LIDAK listed on
Exhibit A, and the election of directors contemplated by paragraph 5(c) of this
Agreement will not constitute a "change of control" as defined under such
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agreements. Nothing contained herein shall preclude LIDAK from adopting a
shareholder rights plan or indemnification agreements for its officers or
directors.
4. Restrictions on Purchase and Sale of LIDAK Securities and Certain Other
Actions. Each of the HealthMed Parties agrees that it and its respective
affiliates shall not, without the prior written consent of LIDAK at any time on
or prior to the LIDAK's annual meeting of shareholders in 2001:
(a) acquire, offer to acquire or agree to acquire, directly or
indirectly, by purchase or otherwise, beneficial ownership of LIDAK Securities
(or any direct or indirect rights, options or warrants for any LIDAK
Securities), other than the LIDAK Securities that such Person beneficially owns
as of the date hereof as referenced in Section 2(c) of this Settlement
Agreement, or encourage any Person to acquire, or advise any Person with respect
to the acquisition or proposed acquisition of LIDAK Securities other than
attempts to dispose of such aforementioned LIDAK Securities that such Person
beneficially owns as of the date hereof; provided however, that this paragraph
4(a) shall not apply to acquisitions resulting from stock splits, reverse stock
splits or other reclassifications affecting outstanding LIDAK Securities or
stock dividends or other pro rata distributions by LIDAK or its direct or
indirect subsidiaries to holders of LIDAK Securities (or a class or classes
thereof) or from exercise of any rights so distributed, nor shall it prohibit
the HealthMed Parties or their affiliates from acquiring LIDAK Securities from
LIDAK on terms generally available to all LIDAK shareholders; and provided
further that this paragraph (a) shall not apply to Rutland, Hennessy and
Raubenheimer; and provided further that in the event the LIDAK Board approves a
financing proposal by HealthMed, HealthMed shall be entitled to purchase
additional LIDAK Securities in an amount to be negotiated in connection with
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the approval of such financing proposal. This paragraph 4(a) shall not preclude
HealthMed from (i) acquiring additional LIDAK Securities subsequent to the
Effective Date, but solely to the extent necessary to maintain the same
percentage ownership interest in the outstanding Class A Common Stock of LIDAK
at the time of such additional acquisition, as the percentage which HealthMed
owns at the Effective Date or (ii) acquiring up to 709,380 shares of LIDAK Class
A Common Stock upon the exercise of certain stock options by Dr. Katz, pursuant
to the Purchase Rights Agreement dated January 12, 1998 between HealthMed and
Katz, as described as of the date hereof in the Schedule 13D.
(b) sell or otherwise convey (either singly or collectively) more than
5% of LIDAK's then current outstanding Securities to a single Person or group
unless such Person or group, and every member thereof, agrees in writing to be
bound by the provisions of this Settlement Agreement;
(c) solicit, or encourage any other Person to solicit, or advise any
Person with respect to the solicitation of proxies or consents with respect to
any LIDAK Securities, or become a participant or otherwise engage in any
solicitation of proxies or consents (A) with respect to any matter submitted or
to be submitted to the vote of the holders of any LIDAK Securities at any annual
or special meeting or by written consent, including, without limitation, with
respect to the election of directors of LIDAK in opposition to the nominees
recommended by the Board or otherwise for the purpose of acquiring control of
the Board or management of LIDAK, or (B) for the purpose of calling a special
meeting of LIDAK's shareholders or the holders of any LIDAK Securities; or
advise or seek to advise any Person with respect to the voting of any LIDAK
Securities; or submit, or encourage any other Person to submit, or advise or
assist any
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Person with respect to the submission of, any nominations or proposals to LIDAK
or to the holders of LIDAK Securities for consideration by its shareholders or
the holders of any LIDAK Securities at any annual or special meeting of such
holders or in any action to be taken by written consent pursuant to LIDAK
charter or bylaws, Rule 14a-8 under the Exchange Act, the provisions of any
document governing the terms of any such LIDAK Securities or governing the
rights of the holders thereof, or otherwise; engage in any Solicitation Action;
or otherwise take any action to request a special meeting of the holders of any
LIDAK Securities;
(d) deposit any LIDAK Securities in a voting trust or subject them to
a voting agreement or other agreement or arrangement of similar effect or
otherwise join or form a partnership, limited partnership, syndicate or other
group for the purpose of acquiring, holding, voting or disposing of any LIDAK
Securities, except as to those LIDAK Securities held in voting trust as
disclosed in the Schedule 13D and Amendment No. 1 thereto dated March 6, 1998;
(e) engage in, or offer, agree or propose to engage in, any
Transaction (other than to participate therein as a shareholder on terms
generally available to all of LIDAK's shareholders); or arrange, or in any way
participate, directly or indirectly, in any financing for any Transaction or for
the purchase by any person of any LIDAK Securities or any assets of LIDAK;
provided, however, that nothing herein shall prevent any of the HealthMed
Parties from making nonpublicly disclosed financing or investment proposals to
the LIDAK Board or tendering LIDAK securities beneficially owned by it to any
person who may make a tender offer for all outstanding LIDAK securities of such
class;
(f) otherwise act alone or in concert with others to seek
representation on the Board or to acquire control of LIDAK or any of its
securities or assets;
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(g) publicly request any amendment of any of the terms of this
Section;
(h) support, encourage, or assist, directly or indirectly, LIDAK's
employment, in any capacity, of David H. Katz or his appointment as an officer
of LIDAK, or, except as otherwise provided herein, the nomination or election of
David H. Katz as a director of LIDAK, subject to the fiduciary duties of any
HealthMed Party who is a member of the LIDAK Board.
(i) assist or advise, or enter into any agreement or arrangement to
assist or advise any other person in taking any action referenced in any of
paragraphs (a) through (h) above.
(j) If the LIDAK Board invites offers from third parties for a
Transaction that would result in a change of control of LIDAK, the HealthMed
Parties shall not be restricted by the provisions of paragraph 4(a) and 4(e)
hereof insofar as is necessary to permit the HealthMed Parties to compete on
equal terms with any such third party.
5. Additional Agreements.
(a) Press Release. Upon the effectiveness of this Agreement, LIDAK
shall issue the press release attached hereto as Exhibit B. No Party to this
Settlement Agreement nor any of their respective affiliates, associates or
representatives shall issue any other press release or other publicly available
document concerning this Settlement Agreement that is inconsistent with, or is
otherwise contrary to, the statements in such press release. None of the Parties
shall publicly make any negative statements regarding any other Party, the
Board, the process by which LIDAK seeks to enhance shareholder value, or any
proposed, pending or consummated Transaction.
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(b) Non-Interference. Each of the Parties hereto agrees that, subject
to his or its absolute right to pursue his or its own legitimate business
objectives independently and in good faith, he or it will not, and will not
permit any related party controlled by him or it, directly or indirectly to,
take any action or encourage any other Person to take any action, the intent or
direct foreseeable result of which is to interfere with or adversely affect the
business activities, contractual relationships or business opportunities of any
other Party or such other Party's affiliates and associates.
(c) Board Composition.
i. Within 5 days after the Effective Date, LIDAK shall take all
necessary action to (1) postpone the 1998 Annual Meeting in accordance with this
Section 5(c), and (2) appoint and direct Ken Olson or his nominee and George P.
Rutland as members of an ad hoc search committee (the "Search Committee") to
identify and recruit within 20 calendar days three independent directors willing
to join the LIDAK Board, at least one of whom has significant experience within
the pharmaceutical industry (each, an "Independent Nominee"), although the
Search Committee shall use its best efforts to identify and recruit Independent
Nominees who have significant experience within the pharmaceutical industry. If
the Search Committee is unable to reach agreement on three nominees to be
reported to the LIDAK Board within the time period specified, within 3 business
days after the expiration of such 20 day period the Parties shall jointly retain
the Honorable Howard B. Wiener, retired, who shall select however many nominees
to the LIDAK Board are necessary in order that three nominees are reported to
the LIDAK Board. Judge Wiener shall select nominees consistent with the Search
Committee criteria set forth above in this Section 5(c)(i) and shall not select
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nominees with familial or material, personal or business relationships with the
parties, other directors or nominees, or their respective counsel. Judge Wiener
shall, as soon as practicable, after his retention, select and report to the
LIDAK Board his nominees. The cost of retaining Judge Wiener shall be borne
equally by LIDAK, on the one hand, and HealthMed, on the other hand. Any of the
Parties may nominate persons to be considered by Judge Wiener for selection but
Judge Wiener may disregard any such nomination and make his selection in any way
he chooses. Judge Wiener's decision shall be final and binding on the Parties.
ii. Within 3 business days after the Search Committee and/or Judge
Wiener reports to the LIDAK Board that it has obtained the consent of three
qualified Independent Nominees to serve on the LIDAK Board and LIDAK has
received all information about these individuals and Rutland and Hennessy which
is required for inclusion in the LIDAK supplemental Proxy Statement, LIDAK shall
file with the SEC and, as promptly as practicable after the SEC has cleared such
materials, distribute to its shareholders a supplemental Proxy Statement and
proxy presenting for action at the 1998 Annual Meeting containing, along with
any other proposals presented by the Board, the following proposals:
(A) The adoption of an amendment to Article III of LIDAK's Bylaws
expanding the authorized number of directors to a minimum of 5 and maximum of 9.
(B) The adoption of an amendment to Article III of LIDAK's Bylaws
creating three classes of directors, with Class I serving an initial term until
the 1999 Annual Meeting, Class II serving an initial term until the 2000 Annual
Meeting and Class III serving an initial term until the 2001 Annual Meeting,
with the initial terms for all classes to be followed by full three year terms
for each such Class.
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(C) The reconstitution of the existing Board of Directors and the
election of the following persons, as necessary, into the following Classes:
Class I: David H. Katz; 1 incumbent director; and 1 Independent
Nominee;
Class II: Edward L. Hennessy, Jr.; 1 incumbent director and 1
Independent Nominee; and
Class III: George P. Rutland; 1 incumbent director and 1
Independent Nominee.
iii. Promptly after the Search Committee and/or Judge Wiener
has delivered its determination of the three Independent Nominees to the LIDAK
Board, LIDAK will set a new record date and meeting date for the 1998 Annual
Meeting, which meeting date shall be not later than 60 days after the date the
Search Committee and/or Judge Wiener reports its determination and provides the
required information as described in clause 5(c)(ii) above to the LIDAK Board.
iv. The Parties hereto agree to vote all shares beneficially
owned by them or as to which they have the right to vote pursuant to the
provisions of any voting trusts or proxies at the 1998 Annual Meeting in favor
of the bylaw amendments and the board nominees referred to in this paragraph
5(c).
(d) Withdrawal of HealthMed Proxy. Immediately upon the filing by
LIDAK of the Supplemental Proxy described above, the HealthMed Parties shall
withdraw their Proxy Statement.
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(e) If Proposals Rejected. In the event that the LIDAK Shareholders do
not approve the proposals set forth in paragraph 5(c)(ii), the Parties are
relieved of all of their obligations hereunder except that the Mutual Releases
set forth in paragraph 6 shall continue to be effective and the amount paid by
LIDAK to Diamond & Ostrow pursuant to paragraph 5(f) shall be returned to LIDAK.
(f) Expense Reimbursement. Within three days of the Effective Date,
the HealthMed Parties shall submit to LIDAK a declaration under oath of Rex
Beaber itemizing the third party out of pocket expenses incurred by the
HealthMed Parties in connection with the filing of the HealthMed Proxy Statement
and preparing to wage a proxy contest. Within three days of receipt of such
declaration, LIDAK shall pay an amount equal to 75 percent of such expenses,
with such payment not to exceed the amount of $150,000 to the law firm of
Diamond & Ostrow who will hold such funds in trust until the conclusion of the
1998 Annual Meeting. If the proposals set forth in paragraph 5(c)(ii) are
adopted by the LIDAK Shareholders, such funds may be disbursed to HealthMed. The
HealthMed Parties represent and warrant that none of such reimbursement will be
paid to Katz or his counsel. If the proposals set forth in paragraph 5(c)(ii)
are not adopted, such funds will be returned to LIDAK.
(g) No Employment of Katz. Each of the HealthMed Parties agrees not to
propose, encourage others to propose, or support in any way, directly or
indirectly, the employment or appointment of David H. Katz by LIDAK, in any
capacity, as an officer, employee or consultant of LIDAK, and agrees to vote
against any such employment or appointment subject to the fiduciary duties of
any such party who may be a member of the LIDAK Board.
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(h) No Nomination of Katz. Except as otherwise set forth herein, each
of the HealthMed Parties agrees not to nominate, encourage others to nominate,
vote for the nomination of, or support in any way the nomination of, directly or
indirectly, David H. Katz as a director of LIDAK, from the Effective Date until
after the completion of the LIDAK annual meeting of shareholders in 2001,
subject to any fiduciary duties of any such party who may be a member of the
LIDAK Board.
6. Mutual Releases. For and in consideration of the agreements contained
herein, the Parties hereto release one another as follows:
(a) HealthMed Parties. Each of the HealthMed Parties, on behalf of
itself and of all its affiliates, successors and assigns other than David H.
Katz ("related parties"), hereby releases, acquits and forever discharges LIDAK,
together with its present and former affiliates, officers, directors, employees,
agents, advisors, attorneys, successors and assigns (the "Released Parties"), of
and from any and all claims, causes of action (whether at law or equity),
demands, expenses and damages which such HealthMed Parties or its related
parties may have had, or may now have, or may hereafter have (whether through
operation of law, assignment or subrogation), from the beginning of time to the
Effective Date, real or suspected, known or unknown, actual or contingent,
direct or derivative, including but not limited to any such claims, cause of
action, demands, expenses and damages relating to or arising out of any actions
or inactions by LIDAK, its Board of Directors, its Executive Committee, its
Special Committee or any of its officers, directors, employees, attorneys
relating to consideration of the HealthMed proposal, the conduct of LIDAK's
business, the submission of matters for consideration at the Annual Meeting, the
filing of proxy materials with the SEC, or any other action or inaction relating
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thereto, excepting only any action, cause of action or suit arising by virtue of
the breach of this Settlement Agreement.
(b) LIDAK. LIDAK, on behalf of itself and all of its affiliates,
successors and assigns ("related parties"), hereby releases, acquit and forever
discharges the HealthMed Parties, together with their respective present and
former affiliates, officers, directors, employees, agents, attorneys, successors
and assigns, excluding David H. Katz, of and from any and all claims, causes of
action (whether at law or equity), demands, expenses and damages which LIDAK may
have had, or may now have, or may hereafter have (whether through operation of
law, assignment or subrogation), from the beginning of time to the Effective
Date, real or suspected, known or unknown, actual or contingent, direct or
derivative, including but not limited to any such claims, causes of action,
demands, expenses and damages relating to or arising out of any matters relating
to the proposed HealthMed financing transaction, the filing of the Schedule 13D,
the filing of the Proxy Statement or any other action or inaction related
thereto excepting only any action, causes of action or suit arising by virtue of
the breach of this Settlement Agreement. With respect to each of the releases
set forth above, each person or entity granting or receiving such a release (i)
agrees that such releases do not preclude any Party hereto from seeking to
enforce any undertaking or promise contained in this Settlement Agreement or
from seeking redress for the breach of any representation or warranty contained
in this Settlement Agreement; (ii) agrees not to challenge, and shall use its
best efforts to cause each of its affiliates, associates and representatives not
to challenge, the validity of any provisions of this Settlement Agreement; and
(iii) expressly waives all rights and benefits each may have under and by virtue
of the terms of Section 1542 of the California Civil Code, which provides as
follows:
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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Except as may be otherwise required by law, the HealthMed Parties will not
encourage or cooperate with plaintiffs in any derivative, class action or
shareholder litigation related to the Released Parties. Except as may be
otherwise required by law, LIDAK will not encourage or cooperate with plaintiffs
in any derivative, class action or shareholder litigation related to LIDAK to
which any of the HealthMed Parties is a party. In the event that any part of
this Settlement Agreement is temporarily, preliminarily or permanently enjoined
or restrained by a court of competent jurisdiction, the Parties hereto shall use
their reasonable best efforts to cause any such injunction or restraining order
to be vacated or dissolved or otherwise declared or determined to be of no
further force or effect.
7. Miscellaneous.
(a) No Admission of Liability or Wrongdoing. This Settlement Agreement
and any proceedings taken hereunder are not and shall not in any way be
construed as or deemed to be evidence of (i) any admission or concession on the
part of any Party of the merits or lack of merits of any claim or counterclaim
that any of the Parties may have or which they have threatened to assert, or
(ii) any admission or concession on the part of any Party of any liability or
17
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wrongdoing whatsoever, which liability and wrongdoing are hereby expressly
denied and disclaimed by each of the Parties.
(b) No Duress, Etc. The Parties agree that this Settlement Agreement
is entered into without duress, in good faith and for sufficient consideration,
and that it is fair, just and reasonable to all Parties.
(c) Full Knowledge, Independent Advice, Etc. This Settlement Agreement
is entered into with full knowledge of any and all rights which the Parties may
have. All Parties have received or have had made available to them all financial
and other information they or their counsel considered necessary to make an
informed judgment concerning the Settlement Agreement. Each Party has received
independent legal advice, has conducted such investigation as he or his counsel
thought appropriate, and has consulted with such other independent advisors as
each of them and their counsel deemed appropriate, regarding this Settlement
Agreement and their rights and asserted rights in connection therewith. None of
the Parties is relying upon any representations or statements made by any other
Party, or such other Party's employees, agents, representatives or attorneys,
regarding this Settlement Agreement or its preparation except to the extent such
representations are expressly set forth herein.
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(d) Reasonable Efforts. All Parties hereto agree to exercise all
reasonable efforts and to take all reasonable steps necessary to effectuate the
settlement set forth in this Settlement Agreement.
(e) Successors. This Settlement Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective heirs,
successors and assigns, and upon any corporation or other entity into or with
which any Party hereto may merge, combine or consolidate (provided that the
Party is the survivor in such merger, combination or consolidation).
(f) Governing Law. This Settlement Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without reference to the conflict of laws principles thereof.
(g) Amendment and Waiver. Any provision of Section 4 of this
Settlement Agreement, may be waived by an instrument in writing signed by LIDAK
and any such waiver shall be binding on all Parties. No waiver or amendment of
any other provision hereof shall be effective as against any Party unless such
Party agrees to such amendment or waiver in writing.
(h) Authority. Each person executing this Settlement Agreement
represents that he or it has read and fully understands this Settlement
Agreement and that he or it has the authority to execute this Settlement
Agreement in his individual capacity or in the capacity identified on the
signature page below.
(i) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties
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at the addresses set forth on Exhibit C (or at such other address for a party as
shall be specified in a notice given in accordance with this paragraph). Each
such notice, request, claim, demand or other communication shall be effective
(i) if given by telecopy transmission, when such transmission to the telecopy
number specified in Exhibit C has been made and the appropriate electronic
confirmation that the entire communication has been received by the recipient
equipment has been received by the sender or (ii) if given by any other. means,
when actually received at the address specified in this paragraph; provided, in
each case, that a notice given other than during normal business hours or on a
day other than on a business day at the place of receipt shall not be effective
until the opening of business on the next business day at the place of receipt.
(j) Specific Performance. Each of the Parties acknowledges and agrees
that irreparable harm would occur if any provision of this Settlement Agreement
were not performed in accordance with the terms thereof, or were otherwise
breached, and that such harm could not be remedied by an award of money damages.
Accordingly, the Parties hereto agree that any non-breaching party shall be
entitled to an injunction to prevent breaches of this Settlement Agreement and
to enforce specifically the terms and provisions hereof. More specifically, each
of the Parties hereto hereby agrees that any action or proceeding brought under
or to enforce any provision of this Settlement Agreement shall be commenced in
the United States District Court for the Southern District of California and
each Party hereto hereby consents to the personal jurisdiction of and venue in
such United States District Court and agrees further that service of process or
notice in any such action or proceeding shall be effective if given in the
manner set forth in Section 9(i) hereof.
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(k) Counterparts. This Settlement Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(l) Effectiveness. This Settlement Agreement shall become effective on
the Effective Date.
(m) Construction. This Settlement Agreement shall be construed as a
whole in accordance with its fair meaning and in accordance with the laws of the
State of California. The language of the Settlement Agreement shall not be
construed for or against any particular Party. The headings used herein are for
reference only and shall not affect the construction of this Settlement
Agreement.
(n) Integration. This Settlement Agreement is the complete and
exclusive agreement of the parties with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings other than those
set forth herein. This Agreement supersedes all prior agreements and
undertakings between or among the parties or any persons related to the parties.
There are not any other agreements, direct or collateral, written or oral,
between the parties hereto. All prior negotiations, agreements, undertakings and
statements made between the parties hereto which have occurred on any subject at
any time prior to the execution of this Agreement with regard to the subject
matter of this Agreement are hereby superseded and merged into this integrated
Agreement. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except by a subsequent amendment in writing signed by
the party against whom such provision operates. No such change, waiver,
discharge or
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termination of this Agreement shall be binding upon any party hereto unless and
until it is signed by that party.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have caused this Settlement
Agreement to be executed as of the date first above written.
LIDAK PHARMACEUTICALS,
a California Corporation
By: /s/ WILLIAM N. JENKINS
--------------------------------
Chairman of the Board
HEALTHMED, INC.,
a Nevada Corporation,
By: /s/ MITCHELL J. STEIN
--------------------------------
President
/s/ MITCHELL J. STEIN
-----------------------------------
Mitchell J. Stein
/s/ GEORGE P. RUTLAND
-----------------------------------
George P. Rutland
/s/ WALLACE O. RAUBENHEIMER
-----------------------------------
Wallace O. Raubenheimer
/s/ EDWARD L. HENNESSY, JR.
-----------------------------------
Edward L. Hennessy, Jr.
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EXHIBIT A
GERALD J. YAKATAN
TIMOTHY R. RUSSELL
JAMES E. BERG
JEFFERY B. WEINRESS
CAROL O. COWING
LAURA E. POPE
CINDI E. MOORE
JAGADISH C. SIRCAR
<PAGE> 25
Exhibit B
LIDAK PHARMACEUTICALS AND SHAREHOLDERS COMMITTEE
REACH SETTLEMENT AGREEMENT,
POSTPONE ANNUAL SHAREHOLDERS' MEETING
La Jolla, and Beverly Hills, CA - March 25, 1998 -- LIDAK Pharmaceuticals
(Nasdaq NM: LDAKA) and a Shareholders Committee today announced that they have
entered into a settlement agreement whereby the Shareholders Committee will
withdraw a previously filed proxy statement in support of an alternative slate
of directors for LIDAK. Parties to the agreement included LIDAK, HealthMed, Inc.
and Wallace O. Raubenheimer on behalf of the Shareholders Committee, as well as
Mitchell J. Stein, George P. Rutland and Edward L. Hennessy, Jr.
The settlement agreement provides for a new LIDAK Board comprised of four
existing LIDAK directors, three additional independent nominees to be mutually
agreed upon, and two of the Committee's nominees, Mr. Rutland and Mr. Hennessy.
Additionally, the LIDAK Board has agreed to two by-law amendments, expanding the
number of directors to a maximum of nine, and creating three classes of
directors with staggered three year terms. The director nominees and by-law
amendments will be voted upon at the 1998 annual shareholders' meeting, which
has been postponed to allow adequate time to conduct an expeditious search for
the additional independent nominees and to amend LIDAK's proxy materials. A date
for the meeting will be set after the additional independent nominees have been
selected. Information with respect to the postponement will be mailed to all
shareholders.
<PAGE> 26
The agreement also provides that the Committee and its nominees will not
conduct any proxy or other shareholder solicitations through the annual meeting
of shareholders to occur in 2001, limits additional stock purchases or control
of voting shares by the parties, and provides that LIDAK will reimburse
HealthMed for certain third party expenses, not to exceed $150,000. The
agreement does not contemplate any changes to the Company's current executive
management.
Gerald J. Yakatan, president, chief executive officer and a director of
LIDAK, stated, "We are pleased that this potentially contentious situation had
such a positive outcome for the Company. The Company was able to avoid the
disruption and potentially substantial costs associated with a proxy contest by
reaching this settlement agreement. We look forward to working with the new
Board members in determining LIDAK's future, with the mutual ultimate goal of
significantly enhancing shareholder value."
Rex Julian Beaber, General Counsel of HealthMed, commented, "As a large
shareholder of LIDAK, HealthMed believes this agreement will create a Board of
Directors who will work together in the interests of all shareholders and guide
LIDAK through successful exploitation of its products into the next millennium."
LIDAK Pharmaceuticals is developing therapeutic products designed to treat
virally caused diseases, allergies and asthma, inflammatory disorders and
cancer. LIDAK's topical drug for the treatment of recurrent oral facial herpes,
LIDAKOL, was recently submitted to the United States Food and Drug
Administration for marketing approval.
<PAGE> 27
CONTACT: Jeffery B. Weinress, Vice President & CFO of LIDAK Pharmaceuticals,
619-558-0364, ext. 242, or Rex Julian Beaber, General Counsel of
HealthMed, 310-448-1331.
# # #
The information contained in this press release, including any forward looking
statements contained herein, should be reviewed in conjunction with the
Company's Annual Report on Form 10-K and other publicly available information
regarding the Company, copies of which are available from the Company upon
request. Such publicly available information sets forth many risks and
uncertainties related to the Company's business and such statements, including
risks and uncertainties related to drug development and clinical trials. Final
review decisions made by the FDA and other regulatory agencies concerning
clinical trial results are unpredictable and outside of the influence and/or
control of the company.
