<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 7, 1998
HOLLIS-EDEN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-24672 13-3697002
(Commission File No.) (IRS Employer Identification No.)
9333 GENESEE AVENUE, SUITE 110
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 587-9333
<PAGE> 2
ITEM 5. OTHER EVENTS.
On May 8, 1998, the Registrant completed a private placement of
1,032,535 shares of Common Stock, 4,000 shares of 5% Series A Convertible
Preferred Stock and Warrants to Purchase 988,808 shares of Common Stock,
aggregating approximately $17 million in gross proceeds (the "Offering"). The
Convertible Preferred Stock has an initial conversion price of $20.30 for the
first seven months, after which it is adjustable, either higher or lower, based
on future stock prices of the Company's Common Stock. The financing involved
institutional investors and certain existing stockholders including Colthurst
Ltd., an entity controlled by Dr. Patrick Prendergast, founding scientist of the
Company.
The description of the Offering is set forth in the Press Release issued
by the Company, dated as of May 7, 1998, a copy of which is attached hereto as
Exhibit 99.1. Terms of the Warrants and the Convertible Preferred Stock are set
forth in the Form of Warrant and the Certificate of Designation, copies of which
are attached hereto as Exhibits 4.1 and 4.2, respectively.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS.
<TABLE>
<S> <C>
4.1 Form of Warrant.
4.2 Certificate of Designation of 5% Series A Convertible
Preferred Stock, as filed on May 7, 1998 with the Delaware
Secretary of State.
10.1 Stock and Warrant Purchase Agreement, dated May 7, 1998,
between the Registrant and CC Investments, LDC.
99.1 Press Release dated May 7, 1998.
</TABLE>
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.
HOLLIS-EDEN PHARMACEUTICALS, INC.
Dated: May 8, 1998 By: /s/ ROBERT W. WEBER
----------------- ------------------------------
Robert W. Weber
Vice President - Controller
(Principal Financial and
Accounting Officer)
<PAGE> 3
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
4.1 Form of Warrant.
4.2 Certificate of Designation of 5% Series A Convertible
Preferred Stock, as filed on May 7, 1998 with the Delaware
Secretary of State.
10.1 Stock and Warrant Purchase Agreement, dated May 7, 1998,
between the Registrant and CC Investments, LDC.
99.1 Press Release dated May 7, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
No. W- _____
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE _________ SHARES
OF COMMON STOCK OF
HOLLIS-EDEN PHARMACEUTICALS, INC.
(VOID AFTER MAY 6, 2001)
This certifies that ______________________ or its assigns (the "Holder"),
for value received, is entitled to purchase from Hollis-Eden Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), having a place of business at 9333
Genesee Avenue, Suite 110, San Diego, California 92121, a maximum of __________
fully paid and nonassessable shares of the Company's Common Stock ("Common
Stock") for cash at a price of $17.00 per share (the "Stock Purchase Price") at
any time or from time to time up to and including 5:00 p.m. (Pacific time) on
May 6, 2001 (the "Expiration Date"), upon surrender to the Company at its
principal office (or at such other location as the Company may advise the Holder
in writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and, if applicable, upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 5 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the holder
of record hereof, at any time or from time to time, up to the Expiration Date
for all or any part of the shares of Common Stock (but not for a fraction of a
share) which may be purchased hereunder. The Company agrees that the shares of
Common Stock purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, properly
endorsed, the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of Common Stock so purchased,
together with any other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within 3 business days after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company
shall cancel this Warrant and execute and deliver a new Warrant or Warrants of
like tenor for the balance of the shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time.
Each stock certificate so delivered shall be in such denominations of
1.
<PAGE> 2
Common Stock as may be requested by the Holder hereof and shall be registered in
the name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Stock Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
and notice of such election in which event the Company shall issue to the Holder
a number of shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (as of
one day prior to the date of such calculation)
A = the fair market value of one share of the Company's Common
Stock (as of one day prior to the date of such calculation)
B = Stock Purchase Price (as adjusted to one day prior to the
date of such calculation)
For purposes of the above calculation, the fair market value of one share of
Common Stock shall mean:
(A) If traded on a securities exchange, the fair market value of the Common
Stock shall be deemed to be the average of the closing prices of the Common
Stock on such exchange over the 30-day period ending five business days prior to
the net issuance exercise date;
(B) If traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the fair market value of the Common Stock shall be deemed to be the average of
the last reported sales prices of the Common Stock on such market over the
30-day period ending five business days prior to the net issuance exercise date;
(C) If traded over-the-counter other than on the Nasdaq National Market or
the Nasdaq SmallCap Market, the fair market value of the Common Stock shall be
deemed to be the average of the closing bid prices of the Common Stock over the
30-day period ending five business days prior to the net issuance exercise date;
and
2.
<PAGE> 3
(D) If there is no public market for the Common Stock, then fair market
value shall be determined by mutual agreement of the Holder and the Company, and
if the Holder and the Company are unable to so agree, at the Company's sole
expense, by an investment banker of national reputation selected by the Company
and reasonably acceptable to the Holder.
2. EXERCISE DISPUTES. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Warrant. If such dispute involves
the calculation of the Stock Purchase Price, the Company shall submit the
disputed calculations to a "Big Six" independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the Form
of Subscription. The accounting firm shall audit the calculations and notify the
Company and the converting Holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The accounting firm's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of shares of Common Stock in accordance with
this Section.
3. FIVE PERCENT HOLDINGS. Notwithstanding anything to the contrary
contained herein, this Warrant shall not be convertible by a Holder to the
extent (but only to the extent) that, if convertible by such Holder, such
Holder, or any of its affiliates (as defined under Rule 12b-2 of the Securities
Exchange Act of 1934, as amended), would beneficially own in excess of 4.9% of
the shares of Common Stock. To the extent the foregoing limitation applies, the
determination of whether this Warrant shall be convertible (vis-a-vis other
securities owned by such Holder) shall be in the sole discretion of the Holder
and submission of this Warrant for conversion shall be deemed to be the Holder's
determination of whether this Warrant is convertible subject to such aggregate
percentage limitation. No prior inability to convert this Warrant pursuant to
this Section shall have any effect on the applicability of the provisions of
this Section with respect to any subsequent determination of convertibility. For
the purposes of this Section, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be made in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D and G
thereunder. The provisions of this Section may be implemented in a manner
otherwise than in strict conformity with the terms of this Section with the
approval of the Board of Directors of the Company and a Holder: (i) with respect
to any matter to cure any ambiguity herein, to correct this subsection (or any
portion thereof) which may be defective or inconsistent with the intended 4.9%
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of majority of the then outstanding shares of Common Stock. The
provisions of this Section may be waived by a Holder upon ninety (90) days prior
written notice from such Holder to the Company, including, without limitation, a
limited waiver to increase the 4.9% limit herein contained to any other
percentage specified by Holder. The limitations contained in this Section shall
apply to a successor Holder of this Warrant if, and to the extent, elected by
such successor Holder concurrently with its acquisition of such Warrant, such
election to be promptly confirmed in writing to the Company (provided no
transfer or series of transfers to a successor Holder or Holders shall be used
by a Holder to evade the limitations contained herein).
3.
<PAGE> 4
4. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that
other than as set forth in that certain Stock and Warrant Purchase Agreement
between Holder and the Company dated as of May 7, 1998 (the "Purchase
Agreement"), the Company shall not be required to effect a registration under
Federal or State securities laws with respect to such exercise. The Company will
not take any action which would result in any adjustment of the Stock Purchase
Price (as set forth in Section 3 hereof) if the total number of shares of Common
Stock issuable after such action upon exercise of all outstanding options,
warrants and convertible securities, together with all shares of Common Stock
then outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation.
5. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
5.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
5.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
4.
<PAGE> 5
(a) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution, or
(b) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the holder of record of such Common Stock as of the
date on which holders of Common Stock received or became entitled to receive
such shares or all other additional stock and other securities and property.
5.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any recapitalization, reclassification or reorganization of the capital stock
of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (a
"Transaction"), then, as a condition of such Transaction, lawful and adequate
provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In the event of
any Transaction, appropriate provision shall be made by the Company with respect
to the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Common Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
5.4 CERTAIN EVENTS. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 3 are not
5.
<PAGE> 6
strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Stock
Purchase Price or the application of such provisions, so as to equitably protect
such purchase rights as aforesaid.
5.5 NOTICES OF CHANGE.
(a) Within 30 days after any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall also give written notice to the Holder at
least 10 business days prior to the date on which a Transaction shall take
place.
6. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, 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 that of the then
Holder of the Warrant being exercised.
7. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
9. REPRESENTATIONS AND WARRANTS OF THE HOLDER.
9.1 PURCHASE FOR OWN ACCOUNT. Holder represents that it is acquiring
this Warrant and the Common Stock issuable upon exercise of this Warrant
(collectively, the "Securities") solely for its own account and beneficial
interest for investment and not for sale or with a view to distribution of the
Securities or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the same, and does not presently have reason to
anticipate a change in such intention.
6.
<PAGE> 7
9.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that it has
received all the information it has requested from the Company and considers
necessary or appropriate for deciding whether to acquire this Warrant. Holder
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of this
Warrant and to obtain any additional information necessary to verify the
accuracy of the information given the Holder. Holder further represents that it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.
9.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that investment
in this Warrant involves a high degree of risk, and represents that it is able,
without materially impairing its financial condition, to hold the Securities for
an indefinite period of time and to suffer a complete loss of its investment.
9.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Holder further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the 1933 Act or is otherwise
eligible for resale pursuant to Rule 144(k).
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by Holder to a stockholder or partner (or retired partner) of
such Holder, or transfers by gift, will or intestate succession to any spouse or
lineal descendants or ancestors, if all transferees agree in writing to be
subject to the terms hereof to the same extent as if they were a Holder
hereunder.
10. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
7.
<PAGE> 8
11. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant shall survive the
exercise of this Warrant.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. REGISTRATION RIGHTS. The Holder shall have such registration rights
with respect to the Common Stock issuable upon exercise of the Warrant as are
set forth in the Purchase Agreement.
14. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
15. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
16. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware.
17. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that 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 receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
18. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
8.
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this ______ day of _____________,
1998.
HOLLIS-EDEN PHARMACEUTICALS, INC.
a Delaware corporation
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
9.
<PAGE> 10
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
Hollis-Eden Pharmaceuticals, Inc.
9333 Genesee Avenue, Suite 110
San Diego, CA 92121
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
Hollis-Eden Pharmaceuticals, Inc. (the "Company") and dated ___________
_____, 1998 Warrant No. W-___ (the "Warrant") and to purchase thereunder
________________________________ shares of the Common Stock of the
Company (the "Shares") at a purchase price of
___________________________________________ Dollars ($__________) per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
[ ] The undersigned hereby elects to convert ______ percent (___%) of the
value of the Warrant pursuant to the provisions of Section 1.2 of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
1.
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
OF THE
5% SERIES A CONVERTIBLE PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
OF
HOLLIS-EDEN PHARMACEUTICALS, INC.
---------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
---------------
HOLLIS-EDEN PHARMACEUTICALS, INC., a company organized and existing under
the General Corporation Law of the State of Delaware (the "Company"), in
accordance with the provisions of Section 103 thereof, and pursuant to Section
151 thereof, DOES HEREBY CERTIFY:
That the Certificate of Incorporation of the Company (the "Certificate of
Incorporation") authorizes the creation of up to 10,000,000 shares of the
Company's preferred stock, par value $.01 per share (such preferred stock,
together with all other preferred stock of the Company the creation of which is
in the future authorized by the Certificate of Incorporation, referred to herein
as the "Preferred Stock"); and
That pursuant to the authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Company, the Board on April
29, 1998, approved the creation, issuance and the voting powers of shares of
Preferred Stock to be issued in one Series and adopted the following resolution
creating a series of four thousand (4,000) shares of Preferred Stock designated
as set forth below:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board by provisions of the Certificate of Incorporation of the Company and
the General Corporation Law of the State of Delaware, the issuance of a series
of Preferred Stock, which shall consist of four thousand (4,000) shares of the
10,000,000 shares of Preferred Stock which the Company now has authority to
issue, be, and the same hereby is, authorized, and the Board hereby fixes the
powers, designations, preferences and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series (in addition to the powers, designations, preferences
and relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, set forth in the
Certificate of Incorporation which may be applicable to the Preferred Stock)
authorized by this resolution as follows:
Section 1. Designation, Amount and Par Value. The series of preferred
stock shall be designated as 5% Series A Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 4,000 (which
shall not be subject to increase without the
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<PAGE> 2
consent of the holders of the Preferred Stock). Each share of Preferred Stock
shall have a par value of $.01 per share and a stated value of $1000.00 per
share (the "Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors out of funds legally available therefor,
and the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 5% per annum, payable, in
cash or shares of Common Stock (as defined in Section 8) at (subject to the
terms and conditions set fort herein) the option of the Company. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Accrued dividends of the
Preferred Stock shall be paid on the date on which such Preferred Stock is
converted, provided, that the Company shall have the option to pay dividends
more frequently as and when declared by the Board of Directors. The party that
holds the Preferred Stock on an applicable record date for any dividend payment
will be entitled to receive such dividend payment and any other accrued and
unpaid dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Preferred Stock subsequent to the
applicable record date but prior to the applicable dividend payment date. Except
as otherwise provided herein, if at any time the Company pays less than the
total amount of dividends then accrued on account of the Preferred Stock, such
payment shall be distributed ratably among the holders of the Preferred Stock
based upon the number of shares held by each holder. The Company shall provide
the holders quarterly notice of its intention to pay dividends in cash or shares
of Common Stock. Such notice shall be delivered to all Holders not less than 10
Trading Days prior to March 31, June 30, September 30 and December 31 of each
year for so long as shares of Preferred Stock are outstanding. If no such notice
is given, dividends shall be paid in shares of Common Stock. If dividends are
paid in shares of Common Stock, other than upon a conversion of the Preferred
Stock, the number of shares of Common Stock payable as such dividend to each
Holder shall be equal to the cash amount of such dividend payable to such Holder
on such dividend payment date divided by the closing bid price of the Common
Stock on such dividend payment date.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in respect of such
dividends are not registered for resale pursuant to an effective registration
statement that names the recipient of such dividend as a selling stockholder
thereunder and may not be sold without
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<PAGE> 3
volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), as determined by counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the Holder;
(iii) the Common Stock shall not at such time be listed for
trading on the NASDAQ SmallCap Market, the NASDAQ Stock Market, the New York
Stock Exchange or the American Stock Exchange; or
(iv) the Company has failed to timely satisfy its obligations
pursuant to any Conversion Notice (as defined in Section 5(a)).
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 8),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not and shall cause its subsidiaries not to, without the affirmative vote
of the holders of two-thirds of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock, (b) alter or amend this Certificate of
Designation, (c) authorize or create any class of stock ranking as to dividends
or distribution of assets upon a Liquidation (as defined in Section 4) or
otherwise senior to or pari passu with the Preferred Stock, (d) amend its
certificate of incorporation, bylaws or other charter documents so as to affect
adversely any rights of any holders, (e) increase the authorized number of
shares of Preferred Stock and (f) enter into any agreement with respect to the
foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Preferred Stock shall be distributed among the
holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in
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which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 5. Conversion. (a) (i) Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio (as defined in
Section 8) at the option of the holder in whole or in part at any time after the
Original Issue Date. The Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice attached
hereto as Exhibit A (the "Conversion Notice"). Each Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior to the date
the holder delivers such Conversion Notice by facsimile (the "Conversion Date").
If no Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered pursuant to
Section 5(i). Subject to Section 5(b), each Conversion Notice, once given, shall
be irrevocable. If the holder is converting less than all shares of Preferred
Stock represented by the certificate or certificates tendered by the holder with
the Conversion Notice, or if a conversion hereunder cannot be effected in full
for any reason, the Company shall promptly deliver to such holder (in the manner
and within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(ii) Upon the first conversion under this Section 5(a) or under
Section 6, the number of shares of Common Stock otherwise issuable to such
Holder pursuant to Section 5(a)(i) or Section 6 shall be increased by such
Holder's Adjustment Share Amount (if the Adjustment Share Amount is a positive
number), or decreased by such Holder's Adjustment Share Amount (if the
Adjustment Shares Amount is a negative number). Such adjustment in the number of
shares of Common Stock issued shall be made after the computation of the number
of shares issuable under Section 5(a)(i) or Section 6 on conversion of the
shares of Preferred Stock being presented for conversion. If the Adjustment
Share Amount is a negative number that results in the Holder being required to
return shares of Common Stock to the Company in excess of the number of shares
of Common Stock otherwise issuable upon such conversion, then (A) such
additional shares may at the option of the Holder be returned in connection with
such conversion from shares otherwise held by such Holder, or applied as an
adjustment to the number of shares of Common Stock issuable on the next
succeeding conversion by such holder, or (B) such Holder may (or shall, if such
Holder has converted all shares of Preferred Stock and has no other shares of
Common Stock to deliver) pay to the Company an amount equal to the average Per
Share Market Value for the five (5) Trading Days preceding the Conversion Date
multiplied by the number of shares of Common Stock the Holder would otherwise be
required to deliver.
(iii) If at any time after the Registration Date the arithmetic
average of the Per Share Market Value of the Common Stock for five (5)
consecutive Trading Days exceeds
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the then applicable Threshold Price, the Company may elect to adjust the
Conversion Price by fixing the Profit Share Amount that will be applicable to
subsequent conversions by reference to such five day average. Such election
shall be made by giving a notice (a "Company Ratchet Notice" to the Holders,
which shall state that the Company has elected to fix the Profit Share Amount in
accordance with this Section 5(a)(iii) and setting forth the arithmetic average
of the Per Share Market Value for the five (5) Trading Days immediately
preceding (but not including) the date on which the Company Ratchet Notice is
given. Such average Per Share Market Value for the five (5) Trading Days
immediately preceding the date on which the Company Ratchet Notice is given, as
set forth in the Company Ratchet Notice, is referred to as the "Company Notice
Price." The Company may give not more than two Company Ratchet Notices to the
Holders.
(b) (i) Not later than three Trading Days after any Conversion Date,
the Company will deliver to the holder (A) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock, (B) one or more certificates representing the number of shares of
Preferred Stock not converted, and (C) a bank check in the amount of accrued and
unpaid dividends (if the Company has timely elected to pay accrued dividends in
cash); provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Preferred Stock until certificates evidencing such shares of
Preferred Stock are either delivered for conversion to the Company or any
transfer agent for the Preferred Stock or Common Stock, or the holder of such
Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, are not delivered to or as directed by the
applicable holder by the fifth Trading Day after the Conversion Date, the holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion (such
rescission shall be in addition to and not in lieu of, the rights set forth
elsewhere herein).
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, prior to the fifth Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $3,000 for each Trading Day after such
fifth Trading Day until such certificates are delivered, and, if such
certificates are not
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<PAGE> 6
delivered prior to the tenth Trading Day after the Conversion Date, an
additional $3,000 for each Trading Day after such tenth Trading Day until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein (including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving certificates representing shares of Common Stock upon
conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holders from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
(iii) In addition to any other rights available to the Holder, if
the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the fifth Trading Day after the Conversion Date,
and if after such the fifth Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash
to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the aggregate stated value of the shares of Preferred Stock for
which such conversion was not timely honored. For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 aggregate
stated value of the shares of Preferred Stock, the Company shall be required to
pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The Conversion Price for each share of Preferred Stock in
effect on any Conversion Date shall be determined as set forth in Section 8;
provided, that, (a) if the Underlying Shares Registration Statement is not filed
on or prior to the 30th day after the Original Issue Date, or (b) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as amended,
within five (5) days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed," or not subject to further review,
or (c) if the Underlying Shares Registration Statement is not declared effective
by the Commission on or prior to the 90th day after the Original Issue Date, or
(d) if such Underlying Shares Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to any
Registrable Securities (as such term is defined in the Registration Rights
Agreement) at any time prior to the expiration of the "Effectiveness Period" (as
such term as defined in the Registration Rights Agreement), without being
succeeded within 10 Trading Days by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission,
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or (e) if the Common Stock shall be suspended from trading on the NASDAQ
SmallCap Market or such other exchange or market on which the Common Stock is
listed for trading for any reason for more than three (3) Trading Days in the
aggregate, or (f) if the conversion rights of the Holders are suspended for any
reason, or (g) if the Company breaches any material covenant or other material
term or condition to the Purchase Agreement (other than a representation or
warranty contained therein), the Registration Rights Agreement or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby, and such breach continues for a
period of thirty (30) days after written notice thereof to the Company (any such
failure being referred to as an "Event," and for purposes of clauses (a), (c)
and (f) the date on which such Event occurs, or for purposes of clause (b) the
date on which such five (5) day period is exceeded, or for purposes of clause
(d) the date which such 10 Trading Day-period is exceeded, or for purposes of
clause (e) the date on which such three Trading Day period is exceeded, or for
clause (g) the date on which such thirty (30) day period is exceeded, being
referred to as "Event Date"), the Conversion Price shall be decreased by 3.75%
each month (i.e., the Conversion Price would decrease by 3.75% as of the Event
Date and an additional 3.75% as of each monthly anniversary of the Event Date).
Any decrease in the Conversion Price pursuant to this Section shall continue
notwithstanding the fact that the Event causing such decrease has been
subsequently cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations hereunder or under the Registration
Rights Agreement.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or pari passu
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue, without payment
therefor, by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Initial Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 5(c)(ii) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall issue rights or warrants to all holders of Common
Stock (and not to holders of the Preferred Stock on an equivalent basis)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value of Common Stock at the record
date mentioned below, the Initial Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
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date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in the
Initial Price pursuant to this Section 5(c)(iii), if any such right or warrant
shall expire and shall not have been exercised, the Initial Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Price made pursuant to the
provisions of this Section 5 after the issuance of such rights or warrants) had
the adjustment of the Initial Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock
are outstanding, shall distribute to all holders of Common Stock (and not to
holders of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii) and (iii) above), then in each such case the Initial Price
at which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; provided, however, that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock then outstanding; and provided,
further, that the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in good faith, in which
case the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
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(vi) Whenever the Initial Price is adjusted pursuant to Section
5(c)(ii),(iii) or (iv), the Company shall promptly mail to each Holder a notice
setting forth the Fixed Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which (i) a majority of the Company's Board of Directors will not constitute a
majority of the board of directors of the surviving entity or (ii) less than 50%
of the outstanding shares of the capital stock of the surviving entity will be
held by the same shareholders of the Company prior to such reclassification,
consolidation or merger (each, a "Change of Control Transaction"), the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to, at their option, (A) convert
such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the holders of the Preferred Stock shall be entitled upon such
event to receive such amount of securities, cash or property as the shares of
the Common Stock of the Company into which such shares of Preferred Stock could
have been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled, and the terms
of any such transaction shall include terms to such effect, or (B) require the
Company to redeem, from funds legally available therefor at the time of such
redemption, its shares of Preferred Stock at a price per share equal to the
product of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the effective date or the date of the closing, as the
case may be, of the reclassification, consolidation, merger, sale, transfer or
share exchange the triggering such redemption right or (2) the date of payment
in full by the Company of the redemption price hereunder, whichever is greater,
and (ii) the Conversion Ratio calculated on the date of the closing or the
effective date, as the case may be, of the reclassification, consolidation,
merger, sale, transfer or share exchange triggering such redemption right, as
the case may be. The entire redemption price shall be paid in cash, if any
portion of the applicable redemption price shall not be paid by the Company
within seven (7) calendar days after the date due, late fees shall accrue
thereon at the rate of 15% per annum until the redemption price plus all such
late fees are paid in full (which amount shall be paid as liquidated damages and
not as a penalty). In addition, if any portion of such redemption price remains
unpaid for more than seven (7) calendar days after the date due, the Holder of
the Preferred Stock subject to such redemption may elect, by written notice to
the Company given within 30 days after the date due, to either (i) demand
conversion in accordance with the formula and the time frame therefor set forth
in Section 5 of all of the shares of Preferred Stock for which such redemption
price, plus accrued liquidated damages thereof, has not been paid in full (the
"Unpaid Redemption Shares"), in which event the Conversion Price for such shares
shall be the lower of the Conversion Price calculated on the date such
redemption price was originally due and the Conversion Price as of the Holder's
written demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within three
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(3) Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption Shares
subject to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of Holder's notice of such election, return to the Holder all of
the Unpaid Redemption Shares. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the holder of Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(c)(vii) upon any conversion or redemption
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets
of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other
securities, cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions,
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redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Holders are entitled to convert
shares of Preferred Stock during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 30 calendar days prior to the effective date of such
action, and shall have the right to make an adjustment, not inconsistent with
the standards established in this Section 5, to the Conversion Price (including,
if necessary, any adjustment as to the securities into which shares of Preferred
Stock may thereafter be convertible) and any distribution which is or would be
required to preserve without diluting the rights of the holders of shares of
Preferred Stock. No such adjustment of the Conversion Price shall be made which
would result in an increase of the Conversion Price to more than the Conversion
Price then in effect.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) then be issuable (taking into
account the adjustments and restrictions of Section 5(c)) upon the conversion of
all outstanding shares of Preferred Stock and payment of dividends hereunder.
The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and freely tradeable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
-11-
<PAGE> 12
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each holder of Preferred
Stock at the facsimile telephone number or address of such holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 7:00 p.m. (Eastern Time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 7:00 p.m. (New
York Time) on any date and earlier than 11:59 p.m. (Eastern Time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Automatic Conversion.
All outstanding and unconverted shares of Preferred Stock shall, on
April 30, 2001, be automatically converted by the Company at the then applicable
Conversion Price, subject to adjustment as set forth in Section 5(a)(ii). For
all purposes hereof, April 30, 2001 shall be deemed to be a Conversion Date in
the event any shares of Preferred Stock are converted on such date.
Section 7. Redemptions:
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<PAGE> 13
(a) Redemption at the Option of the Company. The Company shall have
the right, upon not less than five (5) Trading Days prior notice to the Holders
(such notice is referred to as a "Company Redemption Notice"), to redeem, from
funds legally available therefor, all or any portion of the outstanding
Preferred Stock at the Company Redemption Price (as hereinafter defined) if on
the date the Company Redemption Price is given and for not less than four
consecutive Trading Days prior to the date the Company Redemption Notice is
given the Per Share Market Value is less than $8.00 (subject to appropriate
adjustment to take into account any stock splits, stock dividends, combinations
of shares or recapitalizations occurring after the Original Issue Date). The
Company Redemption Notice shall set forth the number of shares of Preferred
Stock to be redeemed and the date on which the redemption shall be effected (the
"Redemption Date"), which shall be not less than 15 days after the date the
Company Redemption Notice is given. On the Redemption Date, the Company shall
pay to each Holder the Company Redemption Price for its shares of Preferred
Stock, in cash, in immediately available funds, upon delivery by such Holder to
the Company of certificates for its shares of Preferred Stock. If less than all
of the outstanding shares of Preferred Stock are being redeemed, such shares
shall be redeemed pro rata from all Holders. If the Company fails to pay the
Company Redemption Price as and when required, then the Company Redemption
Notice shall be ineffective and the Company shall have the right to effect only
one additional redemption of the Preferred Stock under this Section 7(a), and if
the Company fails to pay the Company Redemption Price as and when required with
respect to any subsequent redemption) then the Company Redemption Notice shall
be ineffective and the Company shall no longer have any rights to effect a
redemption of Preferred Stock under this Section 7(a). The giving of a Company
Redemption Notice shall not affect the rights of the Holders to convert shares
of Preferred Stock under Section 5, provided that any Conversion Notice is given
prior to the Redemption Date for such Preferred Stock. For purposes of this
definition, the term "Company Redemption Price" shall mean a price per share of
Preferred Stock equal to (i) if the redemption occurs at any time prior to the
first anniversary of the Original Issue Date, 125% of the Stated Value of the
shares being redeemed, and (ii) if the redemption occurs at any time after the
first anniversary of the Original Issue Date, 150% of the Stated Value of the
shares being redeemed, plus, in each case, all accrued and unpaid dividends on
such shares to be redeemed.
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the Holders contained herein, upon the occurrence of a Triggering
Event (as defined below), each Holder shall have the right, at such Holder's
option on notice to the Company, to require the Company to redeem all or a
portion of such Holder's Preferred Stock at a price per share of Preferred Stock
equal to the sum of (A) the product of (i) the average Per Share Market Value
for the five (5) Trading Days immediately preceding (1) the date of the
Triggering Event or (2) the date of payment in full by the Company of such
redemption price, whichever is greater, and (ii) the Conversion Ratio calculated
on the date of the Triggering Event ("Triggering Event Redemption Price"), and
(B) the aggregate of all accrued but unpaid dividends and other amounts payable
in respect of such shares. A "Triggering Event" shall be deemed to have occurred
at such time as any of the following events:
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<PAGE> 14
(i) the failure of the Registration Statement to be declared
effective by the Securities and Exchange Commission on or prior to the 240th day
after the Original Issuance Date;
(ii) if during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Preferred Stock
for the resale of Underlying Shares in accordance with the terms of the
Registration Rights Agreement (other than by reason of a temporary suspension of
not more than two Trading Days pending the release of material information, and
such lapse or unavailability continues for a period of thirty consecutive days,
provided that the cause of such lapse or unavailability is not due to factors
solely within the control of such Holder seeking to be redeemed pursuant to this
Section 8; or
(iii) the Company's notice to any holder of Preferred Stock,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Stock into shares of
Common Stock or the conversion rights of the Holders are otherwise suspended for
any reason by the Company.
The Company will pay the Triggering Event Redemption Price within ten days after
the giving of the redemption notice by a Holder and shall pay interest on the
redemption price, in cash to such holder, accruing from the date the Triggering
Event Redemption Price is required to be paid until the Triggering Event
Redemption price and any accrued interest thereon is paid in full at a rate of
12% per annum for the first three months, and 15% per annum thereafter.
Section 8. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Adjusted Price" for a Holder shall mean (i) if such Holder's
Adjustment Period Termination Date is a date that is less than 150 days
following the Registration Date, 90% of such Holder's Weighted Average Market
Price, and (ii) if such Holder's Adjustment Period Termination Date is 150 days
or more but less than 180 days following the Registration Date, 87.5% of such
Holder's Weighted Average Market Price, and (iii) if such Holder's Adjustment
Period Termination Date is 180 days or more following the Registration Date, 85%
of such Holder's Weighted Average Market Price; provided, however, that if the
Adjusted Price as computed under the foregoing formula is greater than the
Initial Price, then the Adjusted Price shall be an amount equal to the greater
of (A) the Initial Price or (B) the Adjusted Price less an amount equal to 5% of
the Initial Price.
"Adjustment Period Termination Date" with respect to a Holder shall
mean the date which is the earlier of (A) the Automatic Adjustment Period
Termination Date or (B) the date set forth in such Holder's Adjustment Period
Termination Notice, or (C) such Holder's first Conversion Date occurring after
the Registration Date.
-14-
<PAGE> 15
"Adjustment Period Termination Notice" of a Holder shall mean a notice
given by such Holder to the Company that the Adjustment Period shall terminate
on the date set forth in such notice, which date shall not be earlier than the
date on which such notice is given. An Adjustment Period Termination Notice may
be given at any time after the Registration Date, provided that on the date such
notice is given the arithmetic average of the Per Share Market Value for the
immediately preceding ten (10) Trading Days is at least equal to the Initial
Price.
"Adjustment Share Amount" of a Holder shall mean (i) with respect to
an initial Holder who acquired 2,000 shares of Preferred Stock on the Original
Issue Date ("Holder A") (A) $2,000,000 divided by the Adjusted Price for such
Holder, minus (B) the applicable Base Number; (ii) with respect to an initial
Holder who acquired 1,333 shares of Preferred Stock on the Original Issue Date
("Holder B"), (A) $666,667 divided by the Adjusted Prince for such Holder, minus
(B) the applicable Base Number; and (iii) with respect to an initial Holder who
acquired 667 shares of Preferred Stock on the Original Issue Date ("Holder C"),
(A) $333,333 divided by the Adjusted Price for such Holder, minus (B) the
applicable Base Number. In the event an initial Holder transfers shares of
Preferred Stock prior to the first date on which any of such initial Holder's
shares of Preferred Stock are converted, then the Adjustment Share Amount for
such Holder and each of its successor Holders, as the case may be, shall be the
Adjustment Share Amount for the initial Holder multiplied by a fraction the
numerator of which is the aggregate Stated Value of all Preferred Stock held by
such Holder or successor, as the case may be, and the denominator of which shall
be the Stated Value of all Preferred Stock originally acquired by the applicable
initial Holder. The Adjustment Share Amount may be a positive or a negative
number. The Company shall place a legend on each certificate of Preferred Stock
indicating whether such Preferred Stock was initially issued to Holder A, Holder
B or Holder C.
"Automatic Adjustment Period Termination Date" shall mean the date
which is 180 days following the Registration Date; provided, however, that if at
any time during the Effectiveness Period and prior to such 180th day the
Registration Statement ceases to be effective for all Registrable Securities, or
the Company advises the Holder that the prospectus included in the "Underlying
Shares Registration Statement" (as defined in the Registration Rights Agreement)
may not be used by the Holders, or the Common Stock shall fail to be listed or
quoted on the NASDAQ SmallCap Market or other national securities exchange, then
such 180 day period shall be extended for a number of days equal to the total
number of days following the Registration Date during which the Underlying
Shares Registration Statement was not effective, the prospectus was not
permitted to be used by the Holders and the Common Stock as not listed for
trading.
"Base Number" shall mean (A) with respect to Holder A, 128,041, (B)
with respect to Holder B, 42,680, and with respect to Holder C, 21,340, in each
case adjusted to reflect any stock splits, reverse stock splits, stock dividends
and similar events occurring from the Original Issue Date to the date of
computation.
"Conversion Price" with respect to any Conversion Date on or prior to
the 210th day following the Initial Issue Date shall mean the Fixed Conversion
Price, and with respect to
-15-
<PAGE> 16
any Conversion Date occurring more than 210 days after the Initial Issue Date
shall mean the lesser of the Fixed Conversion Price at such date or the Variable
Conversion Price at such date, plus in the case of any conversion taking place
after the Registration Date, the applicable Profit Share Amount. The Conversion
Price is subject to adjustment as set forth in Section 5(c)(i).
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Common Stock" means the Company's common stock, $.01 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Company Ratchet Notice" shall have the meaning set forth in Section
5(a)(iii).
"Fixed Conversion Price" shall mean 130% of Initial Price.
"Holder" shall mean a record holder of Preferred Stock, and "Holders"
shall mean all Holders.
"Initial Price" shall mean the arithmetic average of the Per Share
Market Value for the ten Trading Days immediately preceding the Original Issue
Date, adjusted from time to time in accordance with Section 5(c).
"Junior Securities" means the Common Stock and all other equity
securities of the Company that are junior in preference to the Preferred Stock
as to the right to receive dividends or upon liquidation of the Company.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" on any particular date means (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq SmallCap
Market or other stock exchange or quotation system on which the Common Stock is
listed for trading, as reported through Bloomberg or (b) if the Common Stock is
not listed on the Nasdaq SmallCap Market or any other stock exchange or market,
the closing bid price per share of the Common Stock on such date on the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, the closing bid price per
share of Common Stock on such date on the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices), or (d) if the Common Stock
is no longer traded on the over-the-counter market
-16-
<PAGE> 17
and reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices), such
closing bid price shall be determined by reference to "Pink Sheet" quotes for
the relevant conversion period as determined in good faith by the Holder or (c)
if the Common Stock is not then publicly traded, the fair market value of a
share of Common Stock as determined by an appraiser selected in good faith by
the Holders of a majority of the outstanding shares of Preferred Stock (the
Company, after receipt of the determination by such appraiser, shall have the
right to select an additional appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such appraiser);
provided, that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, limited liability company, a business, an individual, a government
or political subdivision thereof or a governmental agency.
"Profit Share Amount" with respect to a conversion shall mean an
amount equal to 50% of the amount by which the Ratchet Price applicable to such
conversion exceeds the applicable Threshold Price. For purposes of this
definition "Ratchet Price" with respect to a conversion shall mean (A) the
Company Notice Price (as defined in Section 5(a)(iii)) per share as set forth in
the most recent Company Ratchet Notice, if any, or (B) if the Company has not
given a Company Ratchet Notice prior to such conversion, the arithmetic average
of the Per Share Market Value for the five (5) Trading Days immediately
preceding (but not including) the Conversion Date.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of the Original Issue Date, among the Company and the original holders of the
Preferred Stock.
"Registration Date" shall mean the date on which the registration
statement required to be filed pursuant to the Registration Rights Agreement is
declared effective by the Securities and Exchange Commission.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Threshold Price" shall mean, with respect to any conversion of
Preferred Stock or Company Ratchet Notice given on or prior to the first
anniversary of the Original Issue Date, 135% of the Fixed Conversion Price, and
with respect to any conversion of Preferred Stock or Company Ratchet Notice
given after the first anniversary of the Original Issue Date, 170% of the Fixed
Conversion Price.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq SmallCap Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not then listed on the
Nasdaq SmallCap Market or any stock exchange or market, a day on which the
Common Stock is traded on the over-the-counter
-17-
<PAGE> 18
market, as reported by the OTC Bulletin Board, or (c) if the Common Stock is not
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted on
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Preferred Stock is convertible and the shares of Common Stock issuable
upon payment of dividends thereon, in accordance with the terms hereof and the
Purchase Agreement.
"Variable Conversion Price" as at any Conversion Date shall mean (i)
with respect to any Conversion Date that is less than 540 days after the
Original Issue Date, the arithmetic average of the lowest consecutive Per Share
Market Value for the applicable number of Pricing Days during the applicable
Look Back Period, and (ii) with respect to any Conversion Date that is 540 days
or more after the Original Issue Date, 90% of the arithmetic average of the
lowest consecutive Per Share Market Value for the applicable number of Pricing
Days during the applicable Look Back Period. For purposes of this definition of
Variable Conversion Price, the "Look Back Period" shall be a number of Trading
Days immediately preceding (but not including) the Conversion Date determined as
follows: (A) if the Conversion Date is more than 210 days, but less than 240
days, after the Original Issue Date, the Look Back Period shall be twelve (12)
Trading Days; and (B) if the Conversion Date is 240 days or more after the
Original Issue Date, number of Trading Days in the Look Back Period shall be
increase by one Trading Day for each 30 day period or portion thereof on or
after the 240th day following the Original Issue Date, up to a maximum Look Back
Period of eighteen (18) Trading Days. For purposes of this definition of
Variable Conversion Price, the number of "Pricing Days" shall be determined as
follows: (A) if the Conversion Date is more than 210 days, but less than 240
days, after the Original Issue Date, the number of Pricing Days shall be three
(3), and (B) if the Conversion Date is 240 days or more after the Original Issue
Date, the number of Pricing Days shall be increased by one (1) Trading Day for
each three (3) Trading Days by which the Look Back Period is extended. By way of
illustration, if the Look Back Period is extended from twelve to fifteen Trading
Days, then the number of Pricing Days shall be four (4), and if the Look Back
Period is extended from twelve to eighteen Trading Days, then the number of
Pricing Days shall be five (5). Notwithstanding the foregoing, the Look Back
Period otherwise applicable with respect to any Conversion Date shall be
extended for a number of days equal to the number of days during such Look Back
Period on which (i) the Common Stock was not listed for trading on the NASDAQ
SmallCap Market, the NASDAQ National Market, the New York Stock Exchange, the
American Stock Exchange or the OTC Bulletin Board, or was suspended from
trading, on the principal market or exchange on which the Common Stock was then
listed, (ii) the Underlying Shares Registration Statement is not effective,
(iii) the prospectus included in the Underlying Shares Registration Statement
was not permitted to be used by the Holders in
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<PAGE> 19
connection with the sale of shares of Common Stock, or (iv) the Holders are
otherwise advised by the Company that sales of Common Stock must be delayed or
suspended.
"Weighted Average Market Price" with respect to a Holder shall mean
(A) the sum of (i) the arithmetic average of the Per Share Market Value of the
Common Stock during the period beginning on the Original Issue Date and ending
on the earlier of (x) the Registration Date, or (y) the 45th day after the
Original Issue Date, plus (ii) nine multiplied by the arithmetic average of the
Per Share Market Value of the Common Stock during the period beginning on the
day immediately following the Registration Date and ending on such Holder's
Adjustment Period Termination Date, divided by (B) ten.
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<PAGE> 20
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "Common Stock"), of Hollis-Eden Pharmaceuticals, Inc.
(the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
-----------------------------------------------------
Date to Effect Conversion
-----------------------------------------------------
Number of shares of Preferred Stock to be Converted
-----------------------------------------------------
Applicable Conversion Price
-----------------------------------------------------
Number of shares of Common Stock to be Issued on
Conversion (Before Adjustment)
-----------------------------------------------------
Adjustment Share Amount
-----------------------------------------------------
Number of Shares to be Issued (total, after
adjustment)
-----------------------------------------------------
Signature
-----------------------------------------------------
Name
-----------------------------------------------------
Address
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed by its President, under penalties of perjury, this 6th day of May, 1998.
HOLLIS-EDEN PHARMACEUTICALS, INC.
By:
-----------------------------------------
Terren S. Peizer, President
<PAGE> 1
EXHIBIT 10.1
STOCK AND WARRANT PURCHASE AGREEMENT
OF
HOLLIS-EDEN PHARMACEUTICALS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. AUTHORIZATION OF SALE OF THE SHARES AND THE WARRANT SHARES.....................................1
2. AGREEMENT TO SELL AND PURCHASE THE SHARES AND WARRANTS.........................................1
3. DELIVERY OF THE SHARES AND WARRANTS AT THE CLOSING.............................................1
4. REPRESENTATIONS, WARRANTIES AND COVENANTS......................................................2
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.....................................5
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.........................................6
7. REGISTRATION OF THE SHARES AND WARRANT SHARES; COMPLIANCE WITH THE SECURITIES ACT..............6
8. REDEMPTION EVENTS.............................................................................13
9. BROKER'S FEE..................................................................................13
10. NOTICES.......................................................................................14
11. CHANGES.......................................................................................14
12. HEADINGS......................................................................................14
13. SEVERABILITY..................................................................................14
14. GOVERNING LAW.................................................................................14
15. COUNTERPARTS..................................................................................14
16. REMEDIES......................................................................................15
</TABLE>
<PAGE> 3
STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is made as of
May __, 1998 between HOLLIS-EDEN PHARMACEUTICALS, INC., a Delaware corporation
with its principal place of business at 9333 Genesee Avenue, Suite 110, San
Diego, California 92121 (the "Company"), and the purchaser whose name and
address is set forth on the signature page hereof (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Purchaser agree as follows:
1. AUTHORIZATION OF SALE OF THE SHARES AND THE WARRANT SHARES. Subject to the
terms and conditions of this Agreement, the Company has authorized the sale of
one hundred sixty-six thousand six hundred sixty-six (166,666) shares of Common
Stock of the Company (the "Shares") at a sales price of $12.00 per Share, and
the issuance of warrants to purchase one hundred sixty-six thousand six hundred
sixty-six (166,666) shares of Common Stock of the Company at an exercise price
of $17.00 per share (the " Warrant Shares").
2. AGREEMENT TO SELL AND PURCHASE THE SHARES AND WARRANTS. At the Closing (as
defined in Section 3), the Company will sell to the Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the Shares for the aggregate purchase price of $2,000,000, and the Company will
issue to the Purchaser, upon the terms and conditions hereinafter set forth,
warrants to purchase the Warrant Shares. The warrants shall be in the form
attached hereto as Exhibit A (the "Warrant" or collectively the "Warrants").
3. DELIVERY OF THE SHARES AND WARRANTS AT THE CLOSING. The completion of the
purchase and sale of the Shares to be issued pursuant to this Agreement and the
issuance of the Warrants pursuant to this Agreement (the "Closing") shall occur
upon (i) receipt by the Company of (A) a signed copy of this Agreement, (B) a
completed Stock Certificate and Warrant Questionnaire, the form of which is
attached hereto as Exhibit B, and (C) the aggregate purchase price for the
Shares, or (ii) following the occurrence of the actions set forth in clause (i)
above on such other date as may be agreed to by the Company and the Purchaser.
At the Closing, the Company shall deliver to the Purchaser or the Purchaser's
custodian bank, in accordance with the Purchaser's delivery instructions, (A) a
signed copy of this Agreement, (B) one or more stock certificates registered in
the name of the Purchaser, or in such nominee name(s) as designated by the
Purchaser, representing the number of Shares set forth in Section 2 above, and
(C) one or more Warrants issued in the name of the Purchaser, or in such nominee
name(s) as designated by the Purchaser, representing the number of Warrant
Shares set forth in Section 2 above. The name(s) in which the stock certificates
and Warrants are to be issued are set forth in the Stock Certificate and Warrant
Questionnaire attached hereto as Exhibit B. The Company's obligation to complete
the purchase and sale of the Shares and deliver such stock certificate(s) and
Warrant(s) to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived by the Company: (a) subject
to delivery of the share certificates to the Purchaser or Purchaser's custodian
bank, receipt by the Company of immediately available funds, by check or wire
transfer, in the full amount of the purchase price for the Shares being
purchased hereunder; (b) the accuracy of the representations and warranties
<PAGE> 4
made by the Purchaser herein as of the Closing; and (c) the fulfillment of those
undertakings of the Purchaser to be fulfilled prior to the Closing. The
Purchaser's obligation to accept delivery of such Warrant(s) and stock
certificate(s) and to pay for the Shares evidenced thereby shall be subject to
the following conditions: (i) the accuracy of the representations and warranties
made by the Company herein as of the Closing; and (ii) the fulfillment of those
undertakings of the Company to be fulfilled prior to the Closing. The
Purchaser's obligations hereunder are expressly conditioned on the simultaneous
or prior purchase of a total aggregate amount of at least $12 million of the
Company's securities (including the amount purchased hereunder) pursuant to the
Financing (as defined in Section 4.7 hereof) on the terms and conditions set
forth in the forms of agreement attached hereto as Exhibit C, which agreements
substantially set forth the terms set forth in the term sheet, dated April 23,
1998, included in Exhibit C.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company hereby represents
and warrants to, and covenants with, the Purchaser as follows:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to conduct its
business as currently conducted.
4.2 DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENTS. The
Company's execution, delivery and performance of this Agreement (a) has been
duly authorized by all requisite corporate action by the Company, and (b) will
not violate the Certificate of Incorporation or Bylaws of the Company or violate
or result in a breach of or constitute a default under any provision of any
material indenture, mortgage, agreement, contract or other material instrument
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary or any of their respective properties or assets is bound as of the
date hereof. Upon the execution and delivery, and assuming the valid execution
thereof by the Purchaser, this Agreement will constitute a valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements
of the Company in Section 7.8 hereof may be legally unenforceable.
4.3 ISSUANCE, SALE AND DELIVERY OF THE SHARES. The authorized capital stock
of the Company consists of thirty million (30,000,000) shares of Common Stock
and ten million (10,000,000) shares of Preferred Stock, $0.01 par value per
share. As of April 29, 1998, there were issued and outstanding 6,828,170 shares
of the Company's Common Stock, which shares are duly authorized, validly issued,
fully paid and nonassessable. When issued, delivered to Purchaser or Purchaser's
custodian bank and paid for by Purchaser in accordance with the terms and
conditions of this Agreement, the Shares to be sold hereunder and the Warrant
Shares to be issued by the Company will be validly issued, fully paid and
nonassessable and will be delivered to Purchaser free and clear of all liens,
pledges, claims, encumbrances, security interests or other restrictions, except
for restrictions on transfer imposed to ensure compliance with the Securities
Act of 1993, as amended (the "Securities Act"). No shares of capital stock of
the Company (including the Shares and the Warrant Shares) are subject to
preemptive rights or any other
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similar rights of the stockholders of the Company. Except as disclosed in
Schedule 4.3, as of the date of this Agreement, there are no outstanding
options, warrants, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company, or
contracts, commitments, understanding or arrangements by which the Company is or
may become bound to issue additional shares of capital stock of the Company.
4.4 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 Purchaser of the Shares and Warrant Shares, and the Company shall file all
reports required to be filed by the Company with the Securities and Exchange
Commission (the "SEC") in a timely manner and take all other necessary action so
as to maintain such eligibility for the use of Form S-3.
4.5 REPORTING STATUS. The Common Stock is registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") as has been
so registered since at least March 1997. So long as any Purchaser beneficially
owns any of the Shares, Warrants or Warrant Shares, the Company shall timely
file all reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not voluntarily terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.
4.6 LISTING. The Company's Common Stock is listed on the Nasdaq SmallCap
Market and for so long as any Purchaser owns any of the Shares, Warrants or
Warrant Shares, the Company shall continue the listing and trading of its Common
Stock on the Nasdaq SmallCap Market, the Nasdaq National Market System, the New
York Stock Exchange or the American Stock Exchange, secure and maintain listing
and trading of the Shares and Warrant Shares on such exchange, and comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such exchange. The Company is not aware of any delisting or
suspension proceeding regarding its Common Stock or any SEC or Nasdaq inquiries
regarding the Company, and does not reasonably anticipate any such delisting,
suspension or inquiry.
4.7 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of one hundred and
eighty (180) days following the date of the Closing, the Company shall not issue
or agree to issue, (except (i) to Purchasers pursuant to this Agreement, (ii) to
other investors purchasing securities of the Company in connection with the
Financing (as defined below), (iii) up to 400,000 shares of Common Stock
issuable upon exercise of stock options which may be granted to employees,
directors, officers or consultants pursuant to the Company's stock option plan,
(iv) pursuant to a merger entered into by the Company undertaken at the
reasonable discretion of the Board of Directors of the Company, the primary
purpose of which is not to raise equity capital, or (v) a public offering of the
Company's securities) any equity securities at a price less than $17.00 per
share or any variably priced equity securities or equity like securities of the
Company (or any security convertible into or exercisable or exchangeable,
directly or indirectly, for equity or equity like securities of the Company)
(each of the foregoing being a "Restricted Security"); provided, however, that
the foregoing restrictions shall apply only for so long as the Purchaser
continues to hold at least fifteen percent (15%) of the Shares purchased
pursuant hereto. Following such one hundred and eighty (180) day period, the
Company may issue Restricted
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Securities provided that any securities so issued (and any securities issued or
issuable, directly or indirectly, upon conversion, exercise or exchange of any
of such securities) shall be ineligible for conversion, exercise, exchange,
sale, resale and registration under Federal and state securities laws for a
period of nine (9) months following the Closing. In addition, the Company shall
use its best efforts to cause each of its executive officers and directors to
execute within 5 days, and comply with, a lockup agreement, the form of which is
attached hereto as Exhibit D. The Company shall at all times enforce its rights
and pursue its remedies under such lockup agreements. For purposes of this
Section 4.7, "Financing" shall mean up to $20 million being raised by the
Company through the sale of equity securities between April 30 and May 15, 1998
in one or more closings.
4.8 ADDITIONAL INFORMATION. The Company represents and warrants that the
information contained in the following documents, which the Company has
furnished to the Purchaser, is true and correct in all material respects as of
their respective final dates:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (without exhibits);
(b) the Company's Proxy Statement dated April 15, 1998 for the
Company's 1998 Annual Meeting of Stockholders; and
(c) the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998 (the "Form 10-Q").
4.9 NO MATERIAL CHANGE. As of the date hereof, there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition, results of operations or prospects of the
Company since December 31, 1997. Except for the execution and performance of
this Agreement, no material adverse fact (within the meaning of the federal
securities laws of the United States) is in the possession of the Company or its
agents with respect to the Company which has not been publicly disclosed.
4.10 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Shares for working capital purposes.
4.11 REGULATORY FILINGS. In connection with the sale of Shares and Warrants
hereunder, the Company shall (i) file a Form D (the "Form D") pursuant to
Securities and Exchange Commission Regulation D within 15 days of the Closing
and (ii) file, within the prescribed time, (a) the Form D, (b) a consent to
service of process by the Company and (c) the required fees, pursuant to the
California Corporate Securities Law of 1968, as amended.
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5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
The Purchaser represents, warrants and covenants with the Company as
follows:
5.1 The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser, taking into account the personnel and resources
it can practically bring to bear on the purchase of the Shares and Warrant
Shares contemplated hereby, is knowledgeable, sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments in
shares presenting an investment decision like that involved in the purchase of
the Shares and Warrant Shares, including investments in securities issued by the
Company, and has requested, received, reviewed and considered all information it
deems relevant in making an informed decision to purchase the Shares and Warrant
Shares, as applicable; (ii) the Purchaser is acquiring the number of Shares and
Warrant Shares, as applicable, set forth in Section 2 above for its own account
for investment only and with no present intention of distributing any of such
Shares or Warrant Shares or any arrangement or understanding with any other
persons regarding the distribution of such Shares or Warrant Shares; (iii) the
Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Shares or Warrant Shares except in
compliance with the Securities Act and the rules and regulations promulgated
thereunder; (iv) the Purchaser has completed or caused to be completed the Stock
Certificate and Warrant Questionnaire, attached hereto as Exhibit B and the
answers thereto are true and correct to the best knowledge of the Purchaser as
of the date hereof; (v) the Purchaser has, in connection with its decision to
purchase the number of Shares and Warrant Shares, as applicable, set forth in
Section 2 above, relied solely upon the information delivered to the Purchaser
as described in Section 4.4 above and the representations and warranties of the
Company contained herein; and (vi) the Purchaser is an " accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act. By making the representations in this Section 5.1, the Purchaser does not
agree to hold the Shares or Warrant Shares for a minimum or other specific term
and reserves the right to dispose of the Shares and the Warrant Shares at any
time in accordance with or pursuant to a registration statement or an exemption
from registration under the Act.
5.2 The Purchaser further represents and warrants to, and covenants with,
the Company that (i) the Purchaser has full right, power, authority and capacity
to enter into this Agreement and to consummate the transactions contemplated
hereby and has taken all necessary action to authorize the execution, delivery
and performance of this Agreement, and (ii) upon the execution and delivery of
this Agreement, this Agreement shall constitute a valid and binding obligation
of the Purchaser enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements
of the Purchaser in Section 7.3 hereof may be legally unenforceable.
5.3 Purchaser acknowledges and agrees that the Shares and Warrant Shares
acquired by Purchaser must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Purchaser has been advised
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or is aware of the provisions of Rule 144 promulgated under the Securities Act,
which permits limited resale of securities in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being made through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) and the number of shares being sold during any three-month period not
exceeding specified limitations.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding any
investigation made by any party to this Agreement, all covenants, agreements,
representations and warranties made by the Company and the Purchaser herein and
in the certificates for the Shares and Warrant Shares delivered pursuant hereto
shall survive the execution of this Agreement, the delivery to the Purchaser of
the Shares and Warrant Shares being purchased and the payment therefor.
7. REGISTRATION OF THE SHARES AND WARRANT SHARES; COMPLIANCE WITH THE
SECURITIES ACT.
7.1 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) within 30 days following the Closing, prepare and file with the
Commission a registration statement on Form S-3 (the "Registration Statement")
in order to register with the Securities and Exchange Commission (the
"Commission") the sale of all the Shares and Warrant Shares (collectively, the
"Registrable Securities") by the Purchaser from time to time through
underwriters, agents or otherwise, in negotiated or market transactions or
through the automated quotation system of Nasdaq or the facilities of any
national securities exchange on which the Company's common stock is then traded
or in privately negotiated transactions or pursuant to such other method or
methods of distribution as Purchaser may require. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 7.1 that the Purchaser shall furnish to the Company such information
regarding itself, the Shares and Warrant Shares to be sold by Purchaser, and the
intended method of disposition of such securities as shall be required to effect
the registration of the Shares and Warrant Shares;
(b) use its best efforts, subject to the receipt of necessary
information from the Purchasers, to cause the Registration Statement to become
effective as soon as commercially reasonable but in any event no later than the
90th day following the Closing (the "Registration Deadline"). If (i) the
registration statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 7.1(a) hereof is not declared effective
by the SEC on or before the Registration Deadline, or (ii) after the
registration statement has been declared effective by the SEC (the "Effective
Date"), sales of the Shares and the Warrant Shares cannot be made pursuant to
the registration statement (by reason of a stop order or the Company's failure
to update the registration statement or any other reason outside the control of
the Purchaser), and such condition continues for more than 10 business days,
then the Company will make payments to the Purchaser in such amounts and at such
times as shall be determined pursuant to this Section 7.1(b) as partial relief
for the damages to the Purchaser by reason of any such delay in or reduction of
their ability to sell the Shares and the Warrant Shares (which
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remedy shall not be exclusive of any other remedies available at law or in
equity). In such event, the Company shall pay to the Purchaser an amount equal
to (x) (A) .03 times (B) the aggregate purchase price of the Shares held by the
Purchaser times (y) the sum of: (A) the number of months (prorated per day for
partial months) after the Registration Deadline that sales cannot be made prior
to the Effective Date plus (B) the number of months (prorated per day for
partial months) prior to the termination of the Registration Period (as defined
below) that sales cannot be made pursuant to the Registration Statement after
the Effective Date. Such amounts shall be paid in cash. 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, payments shall be made for each such thirty (30)
day period within five (5) days after the end of such thirty (30) day period.
(c) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith and take such other actions as may be necessary to keep the
Registration Statement continually effective and available for use for a period
of three years following the Closing (the "Registration Period") or, if earlier,
until all of the Shares and Warrant Shares have been sold pursuant thereto;
(d) furnish to the Purchaser with respect to the Shares and Warrant
Shares registered under the Registration Statement such number of copies of
prospectuses and preliminary prospectuses in conformity with the requirements of
the Securities Act, in order to facilitate the public sale or other disposition
of all or any of the Shares and Warrant Shares by the Purchaser; provided,
however, that the obligation of the Company to deliver copies of prospectuses or
preliminary prospectuses to the Purchaser shall be subject to the receipt by the
Company of reasonable assurances from the Purchaser that the Purchaser will
comply with the applicable provisions of the Securities Act and of such other
securities or blue sky laws as may be applicable in connection with any use of
such prospectuses or preliminary prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser; provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;
(f) bear all expenses incurred by the Company in connection with the
procedures in paragraphs (a) through (e) of this Section 7.1 and the
registration of the Shares and Warrant Shares pursuant to the Registration
Statement;
(g) file the reports required to be filed by it under the Securities
Act and the Exchange Act and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, it will,
upon the request of Purchaser, make publicly available other information so long
as necessary to permit sales pursuant to Rule 144 under the Securities Act) and
it will provide a written statement to the Purchaser that it has complied with
the reporting requirements of Rule 144, the Securities Act and the Exchange Act,
a copy of the most recent annual or quarterly report, as the case may be, of the
Company and such other reports and documents so filed by the Company and to take
such further action as the Purchaser may reasonably request, all to the extent
required from time to time to enable the Purchaser to sell its Shares and
Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as
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such rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of the
Purchaser, the Company shall deliver to Purchaser a written statement as to
whether it has complied with such requirements;
(h) The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein and, as of the dates such
documents were filed, all documents incorporated by reference 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;
(i) The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel
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;
(j) As soon as practicable after becoming aware of such event, the
Company shall notify (by telephone and also by facsimile and reputable overnight
courier) each Purchaser 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 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 Purchaser as such Purchaser may reasonably request;
(k) The Company shall permit a single firm of counsel designated by
the Purchaser, at the Purchaser's cost, to review the Registration Statement and
all amendments and supplements thereto 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;
(l) At the request of the Purchaser, the Company shall promptly
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement;
(m) The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Exchange Act, and the
rules and regulations promulgated by the Commission);
(n) The Company shall take all such other actions as the Purchaser or
the underwriters, if any, commercially reasonably request in transactions of
this nature, in order to expedite or facilitate the disposition of such
Registrable Securities; and
(o) From and after the date of this Agreement, unless otherwise
required by the SEC or applicable SEC regulations, the Company shall not, and
shall not agree to, allow the
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holders of any securities of the Company to include any of their securities in
any Registration Statement or any amendment or supplement thereto under Section
7.1(a) hereof without the consent of the Purchaser.
7.2 In the event that the offering of Registrable Securities pursuant to
the Registration Statement is underwritten, the Company shall make available for
inspection by the lead underwriter and its legal counsel, all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company, as reasonably requested by such persons, in each case subject to
appropriate confidentiality arrangements.
7.3 Purchaser shall have received at the Closing an opinion of the
Company's outside legal counsel, dated as of the Closing, in form and substance
reasonably acceptable to Purchaser.
7.4 The Company shall file a Report on Form 8-K, with this Agreement and
the form of Warrant (and any other agreement related to the Financing required
to be filed pursuant to the rules and regulations of the SEC) filed as exhibits
thereto, and issue a press release within 3 business days after Closing.
7.5 LEGEND. The legend shall be removed and the Company shall issue a
certificate without any legend to the Purchaser of any security upon which such
legend is stamped, and a certificate for a security shall be originally issued
without any legend, if, unless otherwise required by applicable state securities
laws, (a) the resale of such security is permitted pursuant to an effective
registration statement under the Securities Act, (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions (the reasonable cost of which
shall be borne by the Company), to the effect that a public sale or transfer of
such security may be made without registration under the Securities Act or (c)
such security can be sold pursuant to Rule 144. The Purchaser agrees to sell all
Shares and Warrant Shares, including those represented by a certificate(s) from
which the legend has been removed, or which were originally issued without the
legend, pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the legend is
removed from any security or any security is issued without the legend and
thereafter the effectiveness of a registration statement covering the resale of
such security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser holding such security, the Company may
require that the legend be placed on any such security that cannot then be sold
pursuant to an effective registration statement or Rule 144 or with respect to
which the opinion referred to in clause (b) next above has not been rendered,
which legend shall be removed when such security may be sold pursuant to an
effective registration statement or Rule 144 or such holder provides the opinion
with respect thereto described in clause (b) next above.
7.6 PAYMENT OF CASH DEFAULTS. Whenever the Company is required to make any
cash payment to a Holder under this Agreement or the Warrant, such cash payment
shall be made to the Holder by the method (by certified or cashier's check or
wire transfer of immediately available funds) elected by such Holder. If such
payment is not delivered when due such Holder shall thereafter be entitled to
interest on the unpaid amount until such amount is paid
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in full to the Holder at a per annum rate equal to the lower of (x) fifteen
percent (15%) and (y) the highest interest rate permitted by applicable law.
7.7 TRANSFER OF SHARES AFTER REGISTRATION. The Purchaser agrees that it
will promptly notify the Company of any changes in the material information set
forth in the Registration Statement regarding the Purchaser or its Plan of
Distribution; provided, however, that, for purposes of this Section 7.7, a mere
change in the share ownership of the Purchaser, unless such change causes the
Purchaser to beneficially own more than 5% of the Company's then outstanding
shares of Common Stock, shall not be deemed to be a "change in material
information."
7.8 INDEMNIFICATION.
(a) the term "SELLING STOCKHOLDER" shall mean the Purchaser and, if
the Purchaser is an institution, the Purchaser's directors or trustees, officers
and employees and each person who controls the Purchaser within the meaning of
the Securities Act;
(b) the term "REGISTRATION STATEMENT" shall include any final
prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 7.1; and
(c) the term "UNTRUE STATEMENT" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
The Company agrees to indemnify and hold harmless each Selling Stockholder from
and against any losses, claims, damages or liabilities to which such Selling
Stockholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement of a
material fact contained in the Registration Statement on the effective date
thereof, or arise out of any failure by the Company to fulfill any undertaking
included in the Registration Statement, and the Company will reimburse such
Selling Stockholder for any reasonable legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon, an untrue statement made in such Registration
Statement in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Selling Stockholder specifically for use
in preparation of the Registration Statement, or the failure of such Selling
Stockholder to comply with the covenants and agreements contained in Section 5.1
or 7.7 hereof respecting sale of the Shares or Warrant Shares or any statement
or omission in any prospectus that is corrected in any subsequent prospectus
that was delivered to the Purchaser prior to the pertinent sale or sales by the
Purchaser.
The Purchaser agrees to indemnify and hold harmless the Company (and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer,
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director or controlling person) may become subject (under the Securities Act or
otherwise), insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any failure
to comply with the covenants and agreements contained in Section 5.1 or 7.7
hereof respecting sale of the Shares or Warrant Shares, or any untrue statement
of a material fact contained in the Registration Statement on the Effective Date
if such untrue statement was made in reliance upon and in conformity with
written information furnished by or on behalf of the Purchaser specifically for
use in preparation of the Registration Statement, and the Purchaser will
reimburse the Company (or such officer, director or controlling person), as the
case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim. In no event shall the liability of the Purchaser hereunder be greater in
amount than the dollar amount of the gross proceeds received by the Purchaser
upon the sale of Shares and Warrant Shares giving rise to such indemnification
obligation.
Promptly after receipt by any indemnified person of a notice of a claim or the
beginning of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 7.8, such indemnified person shall
notify the indemnifying person in writing of such claim or of the commencement
of such action, and, subject to the provisions hereinafter stated, in case any
such action shall be brought against an indemnified person and such indemnifying
person shall have been notified thereof, such indemnifying person shall be
entitled to participate therein, and, to the extent it shall wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
person. After notice from the indemnifying person to such indemnified person of
its election to assume the defense thereof, such indemnifying person shall not
be liable to such indemnified person for any legal expenses subsequently
incurred by such indemnified person in connection with the defense thereof;
provided, however, that if there exists or shall exist a conflict of interest
that would make it inappropriate, in the opinion of counsel to the indemnified
person, for the same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the indemnified
person shall be entitled to retain its own counsel at the expense of such
indemnifying person; provided, however, that no indemnifying person shall be
responsible for the fees and expenses of more than one separate counsel for all
indemnified parties.
If the indemnification provided for in this Section 7.8 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any losses, claims, damages or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall to the
extent permitted by applicable law contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the act or omission that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by Purchaser hereunder exceed
the gross proceeds from the offering received by such Purchaser.
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The obligations of the Company and Purchaser under this Section 7.8 shall
survive completion of any offering of Shares or Warrant Shares in a registration
statement and the termination of this Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
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
7.8 to the fullest extent permitted by law; provided, however, that (i) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Shares or Warrant Shares who was not guilty of such fraudulent
misrepresentation, and (ii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Shares or Warrant
Shares shall be limited in amount to the net amount of proceeds received by such
seller from the sale of such Shares or Warrant Shares.
7.9 TERMINATION OF CONDITIONS AND OBLIGATIONS. Notwithstanding anything
stated herein to the contrary, the conditions precedent imposed by Section 5 or
this Section 7 upon the transferability of the Shares and Warrant Shares shall
cease and terminate as to any particular number of the Shares or Warrant Shares
when such Shares or Warrant Shares shall have been effectively registered under
the Securities Act and sold or otherwise disposed of in accordance with the
intended method of disposition set forth in the Registration Statement covering
such Shares or Warrant Shares or at such time as an opinion of counsel
satisfactory to the Company shall have been rendered to the effect that such
conditions are not necessary in order to comply with the Securities Act.
The rights of the Purchaser hereunder, including the right to have the Company
register the Shares and Warrant Shares pursuant to this Agreement, shall be
automatically assigned by each Purchaser to any transferee of all or any portion
of the Shares, the Warrants or the Warrant Shares if: (a) the Purchaser agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee, and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act or applicable
state securities laws, (d) 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 for the benefit of the Company to be bound by all of
the provisions contained herein, and (e) such transfer shall have been made in
accordance with the applicable requirements of the this Agreement.
8. REDEMPTION EVENTS. In addition to all other rights of the Purchaser
contained herein, upon the occurrence of a Triggering Event (as defined below),
the Purchaser shall have the right, at the Purchaser's option on notice to the
Company, to require the Company to redeem all or a portion of such Purchaser's
Shares at a price per share equal to the greater of the Per Share
12
<PAGE> 15
Market Value (as defined below) and the purchase price per share of the Shares
(the "Triggering Event Redemption Price"). The "Per Share Market Value" shall
mean the average of the closing bid prices per share of the Common Stock for the
preceding five (5) trading days on the Nasdaq SmallCap Market or other stock
exchange or quotation system on which the Common Stock is listed for trading. A
"Triggering Event" shall be deemed to have occurred at such time as any of the
following events occurs:
(a) The failure of the Registration Statement to be declared
effective by the Commission on or prior to the 240th day after the Closing; or
(b) If, during the Registration Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the Purchaser for the resale of
the Purchaser's Shares in accordance with the terms of this Agreement (other
than by reason of a temporary suspension of not more than two trading days
pending the release of material information), and such lapse or unavailability
continues for a period of thirty consecutive days, provided that the cause of
such lapse or unavailability is not due to factors solely within the control of
the Purchaser seeking to be redeemed pursuant to this Section 8.
The Company will pay the Triggering Event Redemption Price within ten
days after the giving of the redemption notice by the Purchaser and shall pay
interest on the redemption price, in cash to the Purchaser, accruing from the
date the Triggering Event Redemption Price is required to be paid until the
Triggering Event Redemption price and any accrued interest thereon is paid in
full at a rate of 12% per annum for the first three months, and 15% per annum
thereafter.
9. BROKER'S FEE. Each of the parties hereto hereby represents that on the
basis of any actions and agreements by it, there are no brokers or finders
entitled to compensation in connection with the sale of Shares or Warrant Shares
to the Purchaser.
13
<PAGE> 16
10. NOTICES. All notices, requests, consents and other communications hereunder
shall be in writing, shall be sent by facsimile or mailed by first class
registered or certified airmail, or nationally recognized overnight express
courier postage prepaid, and shall be deemed given when so sent by facsimile or
mailed and shall be delivered as follows:
(a) if to the Company, to:
Hollis-Eden Pharmaceuticals, Inc.
9333 Genesee Avenue, Suite 110
San Diego, CA 92121
Attention: President
with a copy so mailed to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, California 92121
Attention: Eric J. Loumeau, Esq.
or to such other person at such other place as the Company shall designate to
the Purchaser in writing; and
(b) if to the Purchaser, at its address as set forth at the end of
this Agreement, or at such other address or addresses as may have been furnished
to the Company in writing.
11. CHANGES. This Agreement may not be modified or amended except pursuant to
an instrument in writing signed by the Company and the Purchaser.
12. HEADINGS. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
13. SEVERABILITY. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as applied to contracts
entered into and performed entirely in Delaware by Delaware residents.
15. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument.
16. REMEDIES. In addition to being entitled to exercise all rights and remedies
provided herein or granted by law for any breach by the Company hereunder, the
Purchaser will be entitled to specific performance of its rights under this
Agreement. In that regard, the Company acknowledges and agrees that monetary
damages would not be adequate compensation for any
14
<PAGE> 17
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
17. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. Notwithstanding anything
to the contrary contained herein, including, without limitation, the rights of
Purchaser hereunder shall be assignable to and exercisable by a bona fide
pledgee of the Shares, Warrant or Warrant Shares in connection with Purchaser's
margin or brokerage accounts.
18. 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 transactions of this nature in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
15
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
HOLLIS-EDEN PHARMACEUTICALS, INC. PURCHASER
By: CC Investments, LDC
---------------------------------- Residency: Cayman Islands
Name:
--------------------------------
Title: By:
------------------------------- ------------------------------------
John Ziegelman
Director
Notices to be sent to:
CC Investments, LDC
C/o Castle Creek Partners, LLC
333 West Wacker Drive, Suite 1410
Chicago, IL 60606
Attn: Portfolio Manager
Phone: (312) 554-2770
Fax: (312) 435-2636
With a copy to:
Peter H. Lieberman, Esq.
Altheimer & Gray
10 South Wacker Drive
Chicago, IL 60606
Phone: (312) 715-4015
Fax: (312) 715-4800
<PAGE> 19
EXHIBIT A
FORM OF WARRANT
<PAGE> 20
EXHIBIT B
HOLLIS-EDEN PHARMACEUTICALS, INC.
STOCK CERTIFICATE AND WARRANT QUESTIONNAIRE
Pursuant to Section 3 of the Stock Purchase Agreement, please provide us
with the following information:
<TABLE>
<S> <C> <C>
1. The exact name that your Shares are to be -------------------------
registered in (this is the name that will
appear on your stock certificate(s)). You may
use a nominee name if appropriate:
2. The relationship between the Purchaser of the -------------------------
Shares and the Registered Holder listed in
response to item 1 above:
3. The mailing address of the Registered Holder -------------------------
listed in response to item 1 above:
4. The Social Security Number or Tax -------------------------
Identification Number of the Registered
Holder listed in the response to item 1
above:
5. The exact name that your Warrants are to be -------------------------
issued in (this is the name that will appear
on your Warrant(s)). You may use a nominee
name if appropriate:
6. The relationship between the Purchaser of the -------------------------
Warrant and the Registered Holder listed in
response to item 5 above:
7. The mailing address of the Registered Holder -------------------------
listed in response to item 5 above:
8. The Social Security Number or Tax -------------------------
Identification Number of the Registered
Holder listed in the response to item 5
above:
</TABLE>
<PAGE> 21
EXHIBIT D
[LOCKUP AGREEMENT]
_______________, 1998
[ADDRESS TO COMPANY WITH COPY TO CCI]
Dear Ladies and Gentlemen:
The undersigned understands that Hollis-Eden Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), is entering into a Stock and Warrant
Purchase Agreement (the "Purchase Agreement") dated as of the date hereof, with
CC Investments, LDC ("CCI"), providing for issuance by the Company to CCI of
shares of Common Stock (the "Shares"), par value $0.01 per share (the "Common
Stock"), of the Company, and warrants (the "Warrants") to purchase such Common
Stock.
The undersigned understands that it is a condition to CCI's obligations to
consummate the purchases contemplated by the Purchase Agreement that the
undersigned enter into this agreement with the Company. Therefore, the
undersigned hereby irrevocably agrees that the undersigned will not, during the
period from the date hereof until the date which is 180 days from the Closing
(as defined in the Purchase Agreement), directly or indirectly, offer, sell,
transfer, assign or otherwise dispose (" Transfer") of any shares of Common
Stock, or any securities directly or indirectly convertible into or exercisable
or exchangeable for, or warrants, options or rights to purchase or acquire
shares of Common Stock (all such securities, "Options") or enter into any
agreement, contract, arrangement or understanding with respect to any such
Transfer of any Common Stock or Options; provided, however, that the undersigned
shall be permitted to Transfer not more than 20%, on a fully diluted basis, of
the undersigned's shares of Common Stock and/or Options.
The term of this undertaking shall begin on the date hereof and terminate
on the earliest to occur of (i) the day which is 180 days following the Closing,
(ii) the date on which the Purchaser's aggregate holdings of Shares and Warrants
are first below 15% of the aggregate number of Shares and Warrants purchased by
Purchaser pursuant to the Purchase Agreement. The term "Common Stock" includes
any shares of capital stock issued with respect to the Common Stock, into which
the Common Stock is changed or for which it is exchanged.
The undersigned agrees that the provisions of this undertaking shall be
binding upon the successors, assigns, heirs and personal representatives of the
undersigned.
Very truly yours,
-------------------------------
Name:
<PAGE> 1
EXHIBIT 99.1
HOLLIS-EDEN COMPLETES $17 MILLION PRIVATE FINANCING
SAN DIEGO - May 8, 1998 - Hollis-Eden Pharmaceuticals, Inc. (NASDAQ: HEPH), a
biopharmaceutical company engaged in the development and commercialization of
products for the treatment of infectious diseases and immune system disorders,
today announced that it has closed a private financing of approximately $17
million. An aggregate of 1,007,538 Common Shares, $4 million principal amount of
Convertible Preferred Stock, and Warrants to purchase 963,808 shares of Common
Stock at $17.00 per share were issued in the financing. The Convertible
Preferred Stock has an initial conversion price of $20.30 for the first seven
months, after which it can be adjusted, either up or down, based on the future
stock prices of the Company's Common Stock.
The financing involved institutional investors and existing stockholders
including Colthurst Ltd. Colthurst Ltd. is controlled by Patrick T. Prendergast
Ph.D., founding scientist of the Company. Hollis-Eden and its research
affiliates now have approximately $25 million in cash and cash equivalents. The
Company has 7,835,708 shares of Common Stock outstanding.
"We are pleased to have achieved this financing which strongly capitalizes our
Company and further validates our technology as we advance our lead drug
candidates INACTIVIN(TM) and REVERSIONEX(TM) through the clinical trial
process." stated Chief Executive Officer, Richard B. Hollis.
Hollis-Eden's drug candidates are initially being tested to treat HIV/AIDS
patients. INACTIVIN (PPB2) decreases the supply of energy enzymes the host cell
requires to replicate HIV, therefore inhibiting viral replication by starving
the virus. The Company believes that its second drug candidate, REVERSIONEX, may
dramatically boost the immune system of AIDS patients by stopping HIV's ability
to "trick" the immune system into down regulation. The Company believes that
these new drug therapies for HIV/AIDS work independently from the viral
structure and may avoid resistance issues plaguing current combination therapies
(Protease and Reverse Transcriptase Inhibitors), thereby providing a more
durable and sustained treatment.
Hollis-Eden Pharmaceuticals, Inc. is a pharmaceutical company engaged in the
discovery, development, and commercialization of products for the treatment of
infectious diseases and immune system disorders. The Company has three
technology platforms: one based on cellular energy regulation, the second on a
unique immune system modulation technology, and the third on biochemical
synthesis regulators.
Statements made in this press release may constitute forward-looking statements
and are subject to numerous risks and uncertainties, including the failure to
successfully complete pivotal clinical trials, the Company's future capital
needs, the Company's ability to obtain additional funding and required
regulatory approvals, the development of competitive products by others, and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. The actual results may differ materially
from those contained in this press release.
