<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
Quarterly Report Under Section 13 or 15 (d)
X Of the Securities Exchange Act of 1934
-----
For Quarterly Period Ended March 31, 1999
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act 1934 for the period
-----
from ___ to ___ .
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.) (I.R.S. Employer Identification No.)
9333 Genesee Ave., Suite 110
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 587-9333
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of May 10, 1999 there were 11,058,344 shares of registrant's Common Stock,
$.01 par value, outstanding.
<PAGE>
HOLLIS-EDEN PHARMACEUTICALS, INC.
Form 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I Financial Information Page
----
Item 1 Financial Statements..................................................................3
Balance Sheet - December 31, 1998 and March 31, 1999..................................3
Statements Of Operations for the Three-Month Periods Ended March 31, 1998
and 1999 and Period from August 15, 1994 to March 31, 1999........................... 4
Statements Of Cash Flows for the Three-Month Periods Ended March 31, 1998 and 1999
and Period from August 15, 1994 to March 31, 1999..................................... 5
Notes To Financial Statements......................................................... 6
Item 2 Management's Discussion and Analysis of Results of Operations and Financial
Condition............................................................................. 7
PART II Other Information
Item 1 Legal Proceedings.....................................................................10
Item 2 Changes in Securities.................................................................10
Item 3 Defaults Upon Senior Securities.......................................................10
Item 4 Submission of Matters to a Vote of Security Holders...................................10
Item 5 Other Information.....................................................................10
Item 6 Exhibits and Reports on Form 8-K......................................................10
</TABLE>
2
<PAGE>
Part I. Financial Information
Item I. Financial Statements
Hollis-Eden Pharmaceuticals, Inc.
(A Development Stage Company)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Dec. 31, March 31,
1998 1999
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................................ $ 24,189,806 $ 52,870,267
Prepaid expenses...................................................... 26,250 162,750
Deposits.............................................................. 9,163 27,185
Other receivable from related party................................... 206,663 245,414
------------ ------------
Total current assets............................................... 24,431,882 53,305,616
Property and equipment, net of accumulated
depreciation of $28,201 and $34,530.................................. 92,343 120,340
------------ ------------
Total assets........................................................ $ 24,524,225 $ 53,425,956
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses................................. $ 221,670 $ 479,286
------------ ------------
Total liabilities.................................................. 221,670 479,286
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued or outstanding 40 -
Common stock, $.01 par value,
30,000,000 shares authorized;8,592,202 and
11,058,344 shares issued and outstanding............................. 85,922 110,583
Paid-in capital....................................................... 38,795,887 74,550,684
Deferred compensation-stock options, net of
accumulated amortization of $590,000 and $641,333.................... (1,258,000) -
Deficit accumulated during development stage.......................... (13,321,294) (21,714,597)
------------ ------------
Total stockholders' equity........................................... 24,302,555 52,946,670
------------ ------------
Total liabilities and stockholders' equity........................... $ 24,524,225 $ 53,425,956
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Hollis-Eden Pharmaceuticals, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Period from
Inception
(Aug.15,1994)
to
3 months ended March 31, March 31,
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
Operating expenses:
Research and development.............. $ 556,047 $ 758,979 $ 8,838,835
General and administrative............ 712,395 8,131,824 14,538,173
------------ ------------ --------------
Total operating expenses............... 1,268,442 8,890,803 23,377,008
Other income (expense):
Interest income....................... 85,135 497,500 1,711,960
Interest expense...................... - - (49,549)
------------- ------------------------------------
Total other income..................... 85,135 497,500 1,662,411
------------- -------------------------------------
Net loss............................... $ (1,183,307) $ (8,393,303) $ (21,714,597)
============= =====================================
Net loss per share..................... $ (0.17) $ (0.92)
Weighted average number of
common shares outstanding............. 6,796,485 9,101,991
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Hollis-Eden Pharmaceuticals, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Inception
(Aug. 15, 1994)
to
3 months ended March 31, March 31,
1998 1999 1999
------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (1,183,307) $ (8,393,303) $ (21,714,597)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation.................................. 4,873 6,329 34,530
Common stock issued as consideration
for amendments to license agreements.......... - - 32,540
Common stock issued as consideration
for termination of a finance agreement........ - - 33,962
Common stock issued as consideration
for license fees and services................. - - 595,000
Expense related to warrants issued as
consideration to consultants.................. - 2,140,000 2,140,000
Expense related to options issued as
consideration to consultants.................. 104,006 10,029 432,070
Expense related to warrants issued to a
director for successful closure of merger..... - - 570,000
Expense related to stock options
issued........................................ - 4,900,000 5,140,000
Deferred compensation expense related
to options issued............................. 77,000 126,333 716,333
Changes in assets and liabilities:
Prepaid expenses.............................. (48,850) (136,500) (162,750)
Deposits...................................... - (18,022) (27,185)
Receivable from related party................. - (38,751) (245,414)
Accounts payable and accrued expenses......... (14,607) 247,588 479,286
Disposal of Assets............................ - 6,834 6,834
R & D fees payable to related party........... (88,000) - -
--------------- ----------------- ----------------
Net cash used in operating activities....... (1,148,885) (1,149,463) (11,969,391)
Cash flows provided by investing activities:
Purchase of property and equipment............. (4,924) (41,160) (161,704)
--------------- ----------------- ----------------
Net cash used in investing activities........ (4,924) (41,160) (161,704)
Cash flows from financing activities:
Borrowings from related party................. - - 342,000
Payments on note payable to related party..... - - (342,000)
Contributions from stockholder................ - - 103,564
Net proceeds from sale of preferred stock..... - - 4,000,000
Net proceeds from sale of common stock........ 102,475 24,772,506 42,171,834
Proceeds from issuance of debt................ - - 371,164
Net proceeds from recapitalization............ - - 6,270,782
Net proceeds from warrants exercised.......... - 5,098,578 12,084,018
--------------- ----------------- ----------------
Net cash from financing activities............ 102,475 29,871,084 65,001,362
Net increase in cash.......................... (1,051,334) 28,680,461 52,870,267
Cash at beginning of period................... 7,102,620 24,189,806 -
--------------- ----------------- ----------------
Cash at end of period......................... $ 6,051,286 $ 52,870,267 $ 52,870,267
=============== ================= ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HOLLIS-EDEN PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The information at March 31, 1999, and for the three-month periods ended
March 31, 1998 and 1999, is unaudited. In the opinion of management, these
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods presented. Interim results are not necessarily indicative of results
for a full year. These financial statements should be read in conjunction with
Hollis-Eden Pharmaceuticals (the "Company") Annual Report on Form 10-K for the
year ended December 31, 1998, which was filed with the United States Securities
and Exchange Commission on March 30, 1999.
2. Acceleration of Options
On March 1, 1999, the Company announced the resignation of its president.
Concurrent therewith, the Company accelerated the vesting of 300,000 stock
options previously granted to the president. This acceleration is considered to
be a new grant of options and as such, the Company expensed a one time non-cash
charge of $4.9 million during the first quarter of 1999.
3. Issuance of Warrants
During March 1999, the Company entered into a three-year agreement with a
financial consulting organization affiliated with a director of the Company.
The Company agreed to issue as compensation for services, warrants to purchase
500,000 shares of Common Stock with an exercise price of $20.50 per share and an
expiration date of March 2002. The warrants are not subject to any vesting
provisions. The warrants were estimated to have a value of approximately $2.1
million, which was expensed as a non-cash charge during the first quarter of
1999.
4. Preferred Stock converted to Common Stock
During January 1999, the Company issued 346,217 shares of common stock in
connection with the conversion of the Series A convertible preferred stock and
additional shares relating to the adjustable common stock. The adjustable
common stock was issued during the private placement of May 1998 and was subject
to adjustment based on the future average stock price of the Company's Common
Stock.
5. Private Placements of Common Stock
During January 1999, the company completed two private placements of an
aggregate of 1,367,868 shares of Common Stock at prices ranging from $18.00 to
$18.50 per share. In connection with the private placements, the Company issued
warrants to purchase an aggregate of 90,000 shares of the Company's Common
Stock, with an exercise price of $18.25 per share, as a finder's fee. The
Company raised approximately $25.0 million.
6. Termination of Additional Merger Share Rights
6
<PAGE>
During January 1999, the Company terminated the additional merger share
rights as a result of the above mentioned private placement and the Company's
average closing stock price. The additional merger share rights were granted to
non-affiliated stockholders of Initial Acquisition Corp. at the time of the
merger between Hollis-Eden and Initial Acquisition Corp.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The forward-looking comments contained in the following discussion involve
risks and uncertainties. The Company's actual results may differ materially
from those discussed here. Factors that could cause or contribute to such
differences can be found in the following discussion, as well as in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
While management believes that the discussion and analysis in this report
is adequate for a fair presentation of the information, management recommends
that this discussion and analysis be read in conjunction with Management's
Discussion and Analysis of Results of Operations and Financial Condition
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998, which was filed with the United States Securities and Exchange
Commission on March 30, 1999.
General
Hollis-Eden is a pharmaceutical company in the development stage. We
intend to discover, develop and commercialize products for the treatment of a
number of targeted disease states caused by viral, bacterial, parasitic or
fungal infections, including HIV/AIDS, hepatitis B and C, and malaria. We have
three technology platforms, the first based on cellular energy regulation, the
second on a unique immune system modulation technology, and the third on the
inhibiting of protein RNA and DNA synthesis. We believe that certain of our
drug candidates may provide the first long-term treatment of HIV without the
development of viral strain resistance to the drugs' effectiveness, significant
toxicity or severe side effects. Hollis-Eden has not yet generated any operating
revenues. We have experienced significant operating losses due to substantial
expenses incurred to acquire and fund development of our drug candidates and, as
of March 31, 1999, had an accumulated deficit of $21.7 million.
When and if any of Hollis-Eden's drug candidates have been approved for
commercial sale, we plan to market them in the United States. For international
markets, we intend to develop strategic alliances with major pharmaceutical
companies that have foreign regulatory expertise and established distribution
channels, and will also consider corporate strategic partnerships and co-
marketing agreements. No assurances can be given that any of our drug
candidates will be approved for commercial sale or that any of the foregoing
proposed arrangements will be implemented or prove to be successful.
Hollis-Eden has been unprofitable since inception and expects to incur
substantial additional operating losses for at least the next few years as it
increases expenditures on research and development and begins to allocate
significant and increasing resources to its clinical testing and other
activities. In addition, during the next few years, we will have to meet the
substantial new challenge of developing the capability to market products.
Accordingly, our activities to date are not as broad in depth or scope as the
activities we must undertake in the future, and our historical operations and
financial information are not indicative of the iour future operating results or
financial condition or our ability to operate profitably as a commercial
enterprise when and if we succeed in bringing any drug candidate to market.
Results of Operations
Hollis-Eden has not generated any revenues for the period from the
founding, on August 15, 1994, through March 31, 1999. We have devoted
substantially all of our resources to the payment of licensing fees
7
<PAGE>
and research and development fees plus expenses related to the startup of our
business. From the founding until March 31, 1999, we have incurred expenses of
approximately $8.8 million in research and development fees, $14.5 million in
general and administrative expenses, and $1.6 million in net interest income
resulting in a loss of $21.7 million for the period.
Research and Development expenses totaled $759,000 for the three months
ended March 31, 1999, compared to $556,000 million for the comparable period in
1998. The research and development expenses relate primarily to the ongoing
development and preclinical costs of the Company's first drug candidate, HE2000.
The increase in research and development expenses in 1999 as compared to 1998
were due to increased staffing and preclinical expenses.
General and administrative expenses totaled $8.1 million for the three
month's ended March 31, 1999, compared to $712,000 for the comparable period in
1998. The 1999 general and administrative expenses included (i) $7.0 million for
non-cash charges for the acceleration of vesting of stock options for the
Company's former president and the issuance of warrants for services (see notes
2 and 3 above), (ii) increased staffing, (iii) increased expenses for salaries,
benefits, and travel, and (iv) non-cash charges for options issued to
consultants and directors.
Net interest income increased to $497,000 from $85,000 in the first three
months of 1999 compared to 1998 due to higher balances of cash and cash
equivalents as a result of the private placements of May, 1998 and January,
1999.
Liquidity and Capital Resources
Hollis-Eden has financed its operations since inception through the sale of
shares of stock and with loans from the founder, Richard B. Hollis, which were
repaid in January 1996.
During the year ended December 31, 1995, Hollis-Eden received cash proceeds
of $250,000 from the sale of its securities. In May 1996, we completed a private
placement of shares of Common Stock, from which we received aggregate gross
proceeds of $1.3 million. In March 1997, the Merger of IAC and Hollis-Eden
provided us with $6.5 million in cash and other receivables. During May 1998, we
closed a private placement of shares of Common and Preferred Stock with gross
proceeds totaling $20.6 million. During January 1999, we closed two private
placements of shares of Common Stock with aggregate gross proceeds of
approximately $25.0 million. In addition, during the past two years, we have
received $12.1 million from the exercise of warrants.
Under the license agreements with Patrick T. Prendergast, Colthurst and
Edenland, Hollis-Eden is obligated to pay certain minimum license fees to
maintain its rights to its drug candidates. As of March 31, 1999, the we are
current on all license fee obligations under these agreements.
Under its Research and Development Agreement with Edenland and Patrick T.
Prendergast, Hollis-Eden committed to pay $3.0 million for the development costs
related to REVERSIONEX. These development costs were accrued as an expense
during 1997 and paid in full by April 1998.
Hollis-Eden's operations to date have consumed substantial capital without
generating any revenues, and we will continue to require substantial and
increasing amounts of funds to conduct necessary research and development and
preclinical and clinical testing of our drug candidates, and to market any drug
candidates that receive regulatory approval. We do not expect to generate
revenue from operations for the foreseeable future, and our ability to meet our
cash obligations as they become due and payable is expected to depend for at
least the next several years on our ability to sell securities, borrow funds or
some combination thereof. Based upon our current plans, we believe that our
existing capital resources, together with interest thereon, will be sufficient
to meet our operating expenses and capital requirements through the end of 2001.
There can be no assurance, however, that changes in our research and development
plans or other events affecting our operating
8
<PAGE>
expenses will not result in the expenditure of such cash before that time. No
assurance can be given that we will be successful in raising necessary funds.
Our future capital requirements will depend upon many factors, including
progress with preclinical testing and clinical trials, the number and breadth of
our programs, the time and costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other proprietary rights, the time
and costs involved in obtaining regulatory approvals, competing technological
and market developments, and our ability to establish collaborative
arrangements, effective commercialization, marketing activities and other
arrangements. In any event, we will continue to incur increasing negative cash
flows and net losses for the foreseeable future.
Year 2000
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish the 21st century dates from 20th century dates. As a result, in
less than one year, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements.
We upgraded our accounting software during 1998 with a version that is Year
2000 compliant. In addition, we have upgraded all of our computer operating
systems. We recently completed the upgrading our communications systems and
other non-information technology systems. We believe that our computer systems,
applications and communications systems are Year 2000 compliant.
We do not expect that the costs associated with achieving Year 2000
compliance will have a material adverse effect on its future results of
operations, liquidity or capital resources. We have spent less than five
thousand dollars in connection with our Year 2000 compliance efforts to date.
We have been contacting our material suppliers and third party service
providers to identify their Year 2000 problems and provide solutions to prevent
the disruption of our business activities. We expect to complete our review of
the compliance efforts by these parties during the second quarter of 1999.
We cannot guarantee that the computer systems and applications of other
companies on which we rely upon will be timely converted. Any such failure by
these other companies to become Year 2000 compliant could materially adversely
affect us. Moreover, the following could have a material adverse effect on our
business or financial condition:
. failure of suppliers and third-party service providers equipment to
operate or to operate accurately;
. failure of clinical trial site medical equipment to perform properly;
. failure of necessary materials or supplies to be available to us when
needed, or
. failure of other equipment, software, or systems as a result of Year
2000 problems.
We intend to assess worst case scenarios and to develop one or more
contingency plans that may be necessary, such as securing alternative vendors,
at the completion of our review of our materials suppliers and third-party
service providers.
9
<PAGE>
PART II Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During January 1999, the Company closed a two private financings totaling
$25.0 million in gross proceeds. The Company issued 1,367,868 shares of Common
Stock to certain accredited investors. In connection with the private
placements, the Company paid $210,000 and issued warrants to purchase 90,000
shares of the Company's Common Stock, as a finder's fee. The Company intends to
use the proceeds to fund operations.
During March 1999, the Company entered into a three-year agreement with a
financial consulting organization affiliated with a director of the Company.
The Company agreed to issue as compensation for services, warrants to purchase
500,000 shares of Common Stock with an exercise price of $20.50 per share and an
expiration date of March 2002. The warrants are not subject to any vesting
provisions.
The sales and issuances of securities in the transactions described in the
foregoing paragraphs were deemed to be exempt from registration under the
Securities Act of 1933, as amended, by virtue of Section 4(2) and/or Regulation
D promulgated under such Act. The recipients in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
4.1 Form of Stock Purchase Agreement
10.10 Separation and mutual release agreement by and between
Registrant and Terren S. Peizer effective as of February 25,
1999, without exhibits
27 Financial Data Schedule (filed electronically only)
The Company filed the following report on Form 8-K during the quarter:
On February 2, 1999, a report on Form 8-K dated January 26, 1999 was filed
with the SEC announcing the completion of a private placement of Common Stock.
10
<PAGE>
Signatures
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 10, 1999 By: /s/ Robert W. Weber
------------------------------
Robert W. Weber
Vice President-Controller
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
4.1 Form of Stock Purchase Agreement
10.10 Separation and mutual release agreement by and between Registrant and
Terren S. Peizer effective as of February 25, 1999, without exhibits
27 Financial Data Schedule (Filed Electronically Only)
11
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EXHIBIT 4.1
STOCK PURCHASE AGREEMENT
This Agreement is made as of _________________, by and between Hollis-Eden
Pharmaceuticals, Inc., a Delaware corporation with its principal office at 9333
Genesee Avenue, Suite 110, San Diego, California 92121 (the "Company"), and
___________________, a __________ corporation with its principal office at
__________________________________________ (the "Purchaser").
In Consideration of the mutual covenants and agreements contained herein,
the Company and the Purchaser agree as follows:
1. Purchase of Common Stock. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties contained
herein, at the Closing (as hereinafter defined) the Company agrees to sell to
Purchaser and Purchaser agrees to purchase from the Company,
___________________________ (_________) shares of the Company's Common Stock
(the "Shares"). The purchase price per share shall be $_____.
2. Closing Date; Delivery.
2.1 Closing; Closing Date. Subject to the terms of Section 5, the
closing of the sale and purchase of the Shares under Section 1 of this Agreement
(the "Closing") shall be held at 2:00 p.m. (PDT) on January 22, 1999 (the
"Closing Date") at the offices of the Company, or at such other time and place
as the Company and Purchaser may agree.
2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to Purchaser a stock certificate, in the names
designated by Purchaser, representing the shares of Common Stock deliverable at
such Closing, dated as of Closing, against payment of the purchase price
therefor by wire transfer, unless other means of payment shall have been agreed
upon by Purchaser and the Company.
3. Representations And Warranties Of The Company. Subject to and except
as disclosed by the Company in the Schedule of Exceptions attached hereto as
Exhibit A, the Company hereby represents and warrants and covenants to Purchaser
as follows:
3.1 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement has been taken. The Company has the
requisite corporate power to enter into this Agreement and carry out and perform
its obligations under the terms of this Agreement. At the Closing, the Company
will have the requisite corporate power to sell the shares of Common Stock to be
sold at such Closing. This Agreement has been duly authorized, executed and
delivered by the Company and, upon due execution and delivery by Purchaser, this
Agreement will be a valid and binding obligation of the Company, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or by equitable
principles.
3.2 No Conflict with Other Instruments. The execution, delivery and
performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Certificate of
Incorporation or Bylaws as either shall be in effect; (b) any provision of any
judgment, decree or order to which the Company is a party or by which it is
bound; (c) any material contract, obligation or commitment to which the Company
is a party or by which it is
1.
<PAGE>
bound; or (d) any statute, rule or governmental regulation applicable to the
Company.
3.3 Certificate of Incorporation; By-laws. Attached hereto as
Exhibits B and C, respectively, are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as in effect on the date
hereof.
3.4 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
3.5 Disclosure Documents. The Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1997, and
Forms 10-Q for the fiscal quarters ended March 31, June 30, and September 30,
1998, did not, when filed with the Securities and Exchange Commission, contain
any untrue statements of material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
3.6 Capitalization.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, of which 8,989,406 shares were issued and
outstanding as of January 19, 1999, and 10,000,000 shares of Preferred Stock,
none of which are outstanding. All such issued and outstanding shares have been
duly authorized and validly issued, and are fully paid and nonassessable and
have been issued in compliance with all applicable federal and state securities
laws.
(b) Except as described on Exhibit A, after giving effect to
the sale of stock hereunder, there are no preemptive or other outstanding
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from the Company of any shares of its capital stock or other
securities of the Company.
3.7 Subsidiaries. The Company does not presently own or control,
directly or indirectly, and has no stock or other interest as owner or principal
in, any other corporation or partnership, joint venture, association or other
business venture or entity.
3.8 Valid Issuance of Shares. The shares of Common Stock which will
be purchased by Purchaser hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly authorized and issued, fully paid and nonassessable and, based
in part upon the representations of Purchaser in Section 4.3 of this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
3.9 Litigation, etc. There is no action, suit or proceeding pending
nor, to the best of its knowledge, any action, suit, proceeding or investigation
currently threatened against the Company, nor, to the best of its knowledge, is
there any basis therefor, which might result, either individually or in the
aggregate, in any material adverse change in the assets, condition,
2.
<PAGE>
affairs or prospects of the Company, financial or otherwise. The foregoing
includes, without limitation, any action, suit, proceeding or investigation,
pending or threatened, that questions the validity of this Agreement or the
right of the Company to enter into the Agreement.
3.10 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.
3.11 Brokers Fee. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by the
Company.
3.12 No Material Change. Since September 30, 1998, (i) the Company
has not incurred any material liabilities or obligations, indirect, or
contingent, or entered into any material verbal or written agreement or other
transaction which is not in the ordinary course of business or which could
result in a material adverse effect on the Company; (ii) the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and the Company is not in
material default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock other than
the sale of the Shares hereunder, shares issued pursuant to employee equity
incentive plans or purchase plans approved by the Company's Board of Directors
or indebtedness material to the Company (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties or results of
operations of the Company.
3.13 Intellectual Property. The Company has sufficient trademarks,
trade names, patent rights, copyrights, licenses, and governmental
authorizations to conduct its businesses as now conducted; and the Company has
no knowledge of any material infringement by it of trademark, trade name rights,
patent rights, copyrights, licenses, trade secrets or other similar rights of
others, and no claim has been made against the Company regarding trademark,
trade name, patent, copyright, license, trade secrecy or other infringement
which could have a material adverse effect on the condition (financial or
otherwise), business or results of operations of the Company.
3.14 Compliance. The Company has not been advised, and has no reason
to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition (financial or
otherwise), business or results of operations of the Company.
3.15 Investment Company. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
3.16 SEC Documents; Financial Statements . The Company has filed in
a timely manner all documents that it was required to file with the SEC under
Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), during the
3.
<PAGE>
twelve (12) months preceding the date of this Agreement. As of their respective
filing dates (or, if amended prior to the date of this Agreement, when amended),
all documents filed by the Company with the SEC (the "SEC Documents") complied
in all material respects with the requirements of the Exchange Act. None of the
SEC Documents as of their respective dates contained any untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Documents (the "Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the financial
position of the Company at the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring adjustments). The Company is eligible to use
the Registration Statement on Form S-3 for resale of the Shares.
4. Representations And Warranties Of Purchaser.
Purchaser hereby represents and warrants to the Company as follows:
4.1 Legal Power. Purchaser has the requisite legal power to enter
into this Agreement, to carry out and perform its obligations under the terms of
this Agreement and, at the Closing, will have the requisite legal power to
purchase the Shares.
4.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by Purchaser, and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding obligation of Purchaser,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by equitable principles.
4.3 Investment Representations. In connection with the purchase of
the Shares, the Purchaser makes the following representations:
(a) the Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Shares
contemplated hereby, is knowledgeable, sophisticated and experienced in making,
and is qualified to make, decisions with respect to investments in shares
representing an investment decision like that involved in the purchase of the
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;
(b) the Purchaser is acquiring the Shares in the ordinary
course of its business and for its own account for investment only (as defined
for purposes of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the
regulations thereunder) and with no present intention of distributing any such
Shares or any arrangements or understanding with any other persons regarding the
distribution of such Shares;
(c) 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 except in
compliance with the Securities Act of 1933, as
4.
<PAGE>
amended, (the "Act") and the rules and regulations of the Securities and
Exchange Commission (the "SEC");
(d) the Purchaser has completed or caused to be completed the
Registration Statement Questionnaire and the Stock Certificate Questionnaire,
both attached hereto as Appendix I, for use in preparation of the Registration
Statement and the answers thereto are true and correct to the best knowledge of
the Purchaser as of the date hereof and will be true and correct as of the
effective date of the Registration Statement;
(e) the Purchaser has, in connection with its decision to
purchase the Shares, relied solely upon the representations and warranties of
the Company contained herein;
(f) the Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act;
(g) the Purchaser understands that (i) the shares of Common
Stock to be purchased under this Agreement have not been registered under the
Act by reason of a specific exemption therefrom, that such securities must be
held by Purchaser, and that Purchaser must, therefore, bear the economic risk of
such investment, until a subsequent disposition thereof is registered under the
Act or is exempt from such registration; (ii) each certificate representing such
shares will be endorsed with the following legends:
(1) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(2) THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED JANUARY 22,
1999. A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE RECORD
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO HOLLIS-EDEN
PHARMACEUTICALS, INC. AT ITS PRINCIPAL PLACE OF BUSINESS."
(3) Any legend required to be placed thereon by the
Company's Bylaws (and shown on Exhibit C hereto or as may hereafter be added to
such Bylaws with respect to all Common Stock of the Company) or under applicable
state securities laws; and (iii) the Company will instruct any transfer agent
not to register the transfer of the shares of Common Stock purchased pursuant to
this Agreement (or any portion thereof) unless the conditions specified in the
foregoing legends are satisfied, until such time as a transfer is made, pursuant
to the terms of this Agreement, and in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is to the
further effect that such legend is not required in order to establish compliance
with any provisions of the Act or this Agreement; and
5.
<PAGE>
(h) the Purchaser has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the shares of Common Stock purchased hereunder.
4.4 No Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by
Purchaser.
5. Conditions To Closing.
5.1 Conditions to Obligations of Purchaser at Closing. Purchaser's
obligation to purchase the Shares at the Closing is subject to the fulfillment
to Purchaser's satisfaction, on or prior to the Closing, of all of the following
conditions, any of which may be waived by Purchaser:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of said date
and the Company shall have performed and complied with all obligations and
conditions herein required to be performed or complied with by it on or prior to
the Closing and a certificate duly executed by an officer of the Company, to the
effect of the foregoing, shall be delivered to the Purchaser.
(b) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to counsel to the Purchaser, and counsel to
the Purchaser shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares shall have been duly obtained and shall
be effective on and as of the Closing. No stop order or other order enjoining
the sale of the Shares such Closing shall have been issued and no proceedings
for such purpose shall be pending or, to the knowledge of the Company,
threatened by the Securities and Exchange Commission, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Shares
shall be legally permitted by all laws and regulations to which the Purchaser
and the Company are subject.
5.2 Conditions to Obligations of the Company at Closing. The
Company's obligation to issue and sell the Shares to be sold at the Closing is
subject to the fulfillment to the Company's satisfaction, on or prior to the
Closing of the following conditions, any of which may be waived by the Company:
(a) Representations and Warranties True. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing with the same force
and effect as if they had been made on and as of the date hereof.
6.
<PAGE>
(b) Performance of Obligations. Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by it on or before the Closing and a Certificate duly
executed by an officer of the Purchaser, to the effect of the foregoing, shall
be delivered to the Company.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares shall have been duly obtained and shall
be effective on and as of the Closing. No stop order or other order enjoining
the sale of such shares shall have been issued and no proceedings for such
purpose shall be pending or, to the knowledge of the Company, threatened by the
SEC, or any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing the sale and
issuance of the Shares shall be legally permitted by all laws and regulations to
which the Purchaser and the Company are subject.
6. Registration of the Shares.
6.1 Within 30 days following the Closing, the Company will prepare
and file with the SEC a registration statement on Form S-3 (or such other form
that the Company may be eligible to use) relating to the sale of the Shares by
Purchaser from time to time (the "Registration Statement"), and use its best
efforts, subject to receipt of necessary information from Purchaser, to cause
such Registration Statement to be declared effective by the SEC as soon as
practicable after the SEC has completed its review process. The Company agrees
to use its best efforts to keep such Registration Statement effective until the
date on which the Shares may be resold by Purchaser without registration by
reason of Rule 144(k) under the Act of 1933 or any other rule of similar effect.
Notwithstanding the foregoing, following the effectiveness of the Registration
Statement, the Company may, at any time, suspend the effectiveness of the
Registration Statement for up to no longer than 30 days, as appropriate (a
"Suspension Period"), by giving notice to the Purchaser, if the Company shall
have determined that the Company may be required to disclose any material
corporate development. The Company will use its best efforts to minimize the
length of any Suspension Period. Notwithstanding the foregoing, no more than two
Suspension Periods may occur in any twelve (12) month period. Purchaser agrees
that, upon receipt of any notice from the Company of a Suspension Period,
Purchaser will not sell any Shares pursuant to the Registration Statement until
(i) Purchaser is advised in writing by the Company that the use of the
applicable prospectus may be resumed, (ii) Purchaser has received copies of any
additional or supplemental or amended prospectus, if applicable, and (iii)
Purchaser has received copies of any additional or supplemental filings which
are incorporated or deemed to be incorporated by reference in such prospectus.
Purchaser further covenants to notify the Company promptly of the sale of all of
its Shares.
6.2 Indemnification. For the purpose of this Section 6.2:
(i) the term "Purchaser/Affiliate" shall include
Purchaser and any affiliate of Purchaser;
(ii) 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 6.1.
(a) The Company agrees to indemnify and hold harmless
Purchaser and each person, if any, who controls Purchaser within the meaning of
the Securities Act, against any losses, claims, damages, liabilities or expenses
to which Purchaser or such controlling person
7.
<PAGE>
may become subject, under the Securities Act, the Exchange Act, or any other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, including the
prospectus, financial statements and schedules, and all other documents filed as
a part thereof or incorporated by reference therein, as amended at the time of
effectiveness of the Registration Statement, including any information deemed to
be a part thereof as of the time of effectiveness pursuant to paragraph (b) of
Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the
prospectus, in the form first filed with the Commission pursuant to Rule 424(b)
of the Regulations, or filed as part of the Registration Statement at the time
of effectiveness if no Rule 424(b) filing is required (the "Prospectus"), or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, and will reimburse Purchaser and each such controlling person for
any legal and other expenses as such expenses are reasonably incurred by
Purchaser or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company (i) by or on behalf of Purchaser expressly for use therein or (ii) the
failure of Purchaser to comply with the covenants and agreements contained in
this Agreement respecting the sale of the Shares, the inaccuracy of any
representations made by Purchaser herein or any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered to
Purchaser prior to the pertinent sale or sales by Purchaser. In addition to its
other obligations under this paragraph (a), the Company agrees that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company in this Agreement or failure to perform its
obligations in this Agreement, all as described in this paragraph (a), it will
reimburse Purchaser on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's obligation, to reimburse Purchaser for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, Purchaser shall promptly
return it to the Company together with interest, compounded daily, determined on
the basis of the prime rate (or other commercial lending rate for borrowers of
the highest credit standing) announced from time to time by Bank of America
National Trust and Savings Association, San Francisco, California (the "Prime
Rate"). Any such interim reimbursement payments which are not made to a
Purchaser within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Purchaser will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Securities Act, against any losses, claims, damages, liabilities or
expenses to which the Company, each of its directors, each of its officers who
signed the Registration Statement or controlling person may become subject,
under the Securities Act, the Exchange Act, or any other federal or state
statutory law or regulation, or at
8.
<PAGE>
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of Purchaser) insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Purchaser expressly for use therein, and
will reimburse the Company, each of its directors, each of its officers who
signed the Registration Statement or controlling person for any legal and other
expense reasonably incurred by the Company, each of its directors, each of its
officers who signed the Registration Statement or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this paragraph (b), Purchaser agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any failure to comply, statement
or omission, or any alleged failure to comply, statement or omission, described
in this paragraph (b) which relates to written information furnished to the
Company by or on behalf of any purchaser, it will reimburse the Company (and, to
the extent applicable, each officer, director or controlling person) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of Purchaser's
obligations to reimburse the Company (and, to the extent applicable, each
officer, director or controlling person) for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company (and, to the extent
applicable, each officer, director or controlling person) shall promptly return
it to Purchaser together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments which are not
made to the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which Purchaser may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 6.2 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 6.2 notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in this
Section 6.2 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action
9.
<PAGE>
on behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 6.2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party in the case of paragraph (a), representing the indemnified
parties who are parties to such action) or (ii) the indemnified party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of action, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 6.2
is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 6.2 in respect to any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and Purchaser from the placement of Common Stock or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but the relative fault of the Company
and Purchaser in connection with the statements or omissions or inaccuracies in
the representations and warranties in this Agreement which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Company on the one hand and Purchaser on the other shall be deemed to be in the
same proportion as the amount paid by Purchaser to the Company pursuant to this
Agreement for the Shares purchased by Purchaser that were sold pursuant to the
Registration Statement bears to the difference (the "Difference") between the
amount Purchaser paid for the Shares that were sold pursuant to the Registration
Statement and the amount received by Purchaser from such sale. The relative
fault of the Company and Purchaser shall be determined by reference to, among
other things, whether the untrue or alleged statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company or by Purchaser and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in paragraph (c) of this
Section 6.2 any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in paragraph (c) of this Section 6.2 with respect to notice
of commencement of any action shall apply if a claim for contribution is to be
made under this paragraph (d); PROVIDED, HOWEVER, that no additional notice
shall be required with respect to any action for which notice has been give
under paragraph (c) for purposes of indemnification. The Company and Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 6.2 were determined solely by pro rata allocation (even if Purchaser
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in this paragraph. Notwithstanding the provisions of this Section 6.2, the
Purchaser shall not be required to contribute any amount in excess of the amount
by which the Difference exceeds the amount of any damages that Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of
10.
<PAGE>
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in paragraphs (a)
and (b) of this Section 6.2, including the amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Judicial
Arbitration and Mediation Service (JAMS) and shall be held in San Diego,
California. Any such arbitration must be commenced by service of a written
demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of any arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the interim
reimbursement provisions contained in paragraphs (a) and (b) of this Section 6.2
and would not resolve the ultimate propriety or enforceability of the obligation
to reimburse expenses which is created by the provisions of such paragraphs (a)
and (b).
7. Miscellaneous.
7.1 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
each Purchaser herein and in the certificates for the securities delivered
pursuant hereto shall survive the execution of this Agreement, the delivery to
the Purchasers of the Shares being purchased and the payment therefor and shall
expire on the second anniversary of the date hereof.
7.2 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of California
and the United States of America, without regard to choice of law rules.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, and permitted assigns of the parties hereto.
7.4 Entire Agreement. This Agreement and the Exhibits hereto, and
the other documents delivered pursuant hereto, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
7.5 Severability. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without
11.
<PAGE>
invalidating the remainder of the Agreement. In the event of such invalidity,
the parties shall seek to agree on an alternative enforceable provision that
preserves the original purpose of this Agreement.
7.6 Amendment and Waiver. Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and Purchaser.
7.7 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery, (b) on the fifth day following mailing
by registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company and Purchaser at their respective addresses first above
written, (c) upon transmission of telegram or facsimile (with telephonic
notice), or (d) upon confirmed delivery by overnight commercial courier service.
7.8 Fees and Expenses. The Company and the Purchaser shall bear
their own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.
7.9 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.11 NASDAQ. The Company will promptly file a Notification of
Listing of Additional Shares with Nasdaq covering the Shares. The Company agrees
to take all action reasonable and necessary to maintain the listing of its
Common Stock on Nasdaq.
12.
<PAGE>
IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.
Hollis-Eden Pharmaceuticals, Inc.
By:_______________________________
Name:_____________________________
Title:____________________________
___________________________
By:_______________________________
Name:_____________________________
Title:____________________________
13.
<PAGE>
Appendix I
HOLLIS-EDEN PHARMACEUTICALS, INC.
STOCK CERTIFICATE QUESTIONNAIRE
In connection with the Agreement, please provide us with the following
information:
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 response to to item 1 above:
<PAGE>
Appendix I
HOLLIS-EDEN PHARMACEUTICALS, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. Pursuant to the "Selling Shareholder" section of the Registration
Statement, please state your or your organization's name exactly as it
should appear in the Registration Statement:
2. Please provide the number of shares that you or your organization will own
immediately after Closing, including those Shares purchased by you or your
organization pursuant to this Purchase Agreement and those shares purchased
by you or your organization through other transactions:
3. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates
other than as disclosed in the Prospectus included in the Registration
Statement?
_______ Yes ________ No
If yes, please indicate the nature of any such relationships below:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
<PAGE>
EXHIBIT A
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 3 of the
Hollis-Eden Pharmaceuticals, Inc. Common Stock Agreement dated as of January 25,
1999 (the "Agreement"). The section numbers in this Schedule of Exceptions
correspond to the section numbers in the Agreement; however, any information
disclosed herein under any section number shall be deemed to be disclosed and
incorporated into any other section number under the Agreement where such
disclosure would be appropriate. Any terms defined in the Agreement shall have
the same meaning when used in this Schedule of Exceptions as when used in the
Agreement unless the context otherwise requires.
3.6(b). The following warrants and options are outstanding as of January 19,
1999:
<TABLE>
<CAPTION>
Number of Exercise Price
Issue Date Shares Expiration Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A warrant 3/6/1996 613,688 $ 11.02 1/7/2002
- ------------------------------------------------------------------------------------------------------------------------
393,250 $ 11.02 2/8/2001
- ------------------------------------------------------------------------------------------------------------------------
B warrant 2/10/1995 37,736 $ 15.90 2/10/2000
- ------------------------------------------------------------------------------------------------------------------------
Fair market 5 years after
Royalty option 8/25/1994 169,811 value of stock milestone
on milestone date
- ------------------------------------------------------------------------------------------------------------------------
Placement Agent I 5/2/1996 1,000 $ 2.475 5/1/2003
- ------------------------------------------------------------------------------------------------------------------------
Placement Agent II 5/2/1997 452,830 $ 2.475 5/1/2004
- ------------------------------------------------------------------------------------------------------------------------
IAC Represent. 5/1995 44,790 units* $ 11.00 5/15/2000
- ------------------------------------------------------------------------------------------------------------------------
44,790 units* $ 9.00
- ------------------------------------------------------------------------------------------------------------------------
IAC Represent. 5/1995 14,741 $ 6.025 5/15/2000
- ------------------------------------------------------------------------------------------------------------------------
14,741 $ 9.00
- ------------------------------------------------------------------------------------------------------------------------
IAC Mgmt. 4/1994 152,000 $ 10.00 5/15/2000
- ------------------------------------------------------------------------------------------------------------------------
152,000 $ 9.00
- ------------------------------------------------------------------------------------------------------------------------
IIRG 2/1998 150,000 $ 14.75 2/4/99
- ------------------------------------------------------------------------------------------------------------------------
1998 Private 5/6/1998 1,437,475 $ 17.00 5/6/2001
Placement
- ------------------------------------------------------------------------------------------------------------------------
Non Plan Options 1995-1996 499,717 $ 2.25-7.95 2000 to 2003
- ------------------------------------------------------------------------------------------------------------------------
Non Plan Options 2/6/1997 2,400,000 $ 5.00 2008 to 2013
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
1997 Plan Options 1997-1998 758,800 $6.75-16.75 2007 to 2008
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Units consist of 1 share of Common Stock and 1 Common Stock purchase warrant
with an exercise price of $9.00 per share
3.12(iii). In connection with the voluntary conversion by the holders thereof
of an aggregate of 4,000 shares of Series A Preferred Stock into an aggregate of
337,230 shares of Common Stock in January 1999, the Company paid to such holders
an additional 8,897 shares of Common Stock, representing the pro rata portion of
the 5% dividend accumulated with respect to the Series A Preferred Stock as of
the dates of the respective conversions.
17.
<PAGE>
Schedule of Purchasers
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Name Purchase Number of
Price Shares
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Garo H. Armen $18.00 11,111
- -------------------------------------------------------------------------------------------------
Armen Partners L.P. $18.00 44,444
- -------------------------------------------------------------------------------------------------
Robert E. Petersen and Margaret M. Petersen as Trustees $18.50 648,649
of the R.E. & M. Petersen Living Trust Dated 1/17/83
- -------------------------------------------------------------------------------------------------
Banca Del Gottardo $18.50 108,108
- -------------------------------------------------------------------------------------------------
Clipperbay & Co. $18.00 555,556
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.10
SEPARATION AND MUTUAL RELEASE AGREEMENT
This SEPARATION AND MUTUAL RELEASE AGREEMENT ("Agreement") is made and
entered into by and between Terren S. Peizer ("Peizer") and Hollis-Eden
Pharmaceuticals, Inc. (the "Company") (collectively, Peizer and the Company
shall be referred to as the "Parties" and individually as "Party"), effective as
of February 25, 1999.
W I T N E S S E T H
-------------------
WHEREAS, Peizer has voluntarily tendered his resignation as President, Vice
Chairman and Director and all other positions he may hold with the Company to
pursue other business interests;
WHEREAS, the Company has accepted Peizer's voluntary resignation as
President, Vice Chairman and Director and all other positions he may hold with
the Company;
WHEREAS, the Parties agree that, except as set forth in Section 6 hereof,
this Agreement shall supercede and replace any previous agreements between
Peizer and the Company, including the Employment Agreement dated February 6,
1997 and the Amendment thereto dated April 1, 1997; and
WHEREAS, the Parties desire to settle and discharge any and all actual or
potential claims and controversies between them, known or unknown, and further
desire to effectuate the terms of the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is agreed by and between the Parties hereto as follows:
1. VOLUNTARY RESIGNATION. Peizer has tendered and the Company has
accepted his resignation as Director on the Board of Directors (the "Board") and
President, Vice Chairman and all other positions that he may hold with the
Company, effective February 25, 1999 (the "Separation Date").
2. ACCRUED SALARY AND VACATION. The Company will, within ten (10)
business days of Peizer's execution of this Agreement, pay Peizer thirty (30)
days of accrued and unused vacation benefits earned prior to the Separation
Date, subject to standard payroll deductions and withholdings. Peizer is
entitled to this payment regardless of whether he signs this Agreement.
3. EXPENSE REIMBURSEMENT. Within forty-five (45) business days of
Peizer's execution of this Agreement, he will submit his final documented
expense reimbursement statement reflecting all business expenses he incurred
through the Separation Date, if any, for which he seeks reimbursement. The
Company shall reimburse Peizer's expenses in accordance with Company policy and
regular business practice. The Company will reimburse Peizer for the costs
related to the termination of Peizer's lease for his residence in San Diego;
provided, however, that the aggregate of such reimbursements for the San Diego
residence shall not exceed $1,000. The Company will pay for one month of the
Quotron contract, not to exceed $600, which is currently in Peizer's name. After
such one-month period, Peizer, at his option, will
1.
<PAGE>
either (i) assign the contract and deliver the Quotron software (together with
any related documentation and materials, if any) to the Company, in which case
the Company would assume any ongoing payment obligations pursuant to the
contract, or (ii) keep the contract and the software (together with any related
documentation and materials, if any) and assume any remaining payment
obligations pursuant thereto.
4. NONSOLICITATION. Peizer agrees that for one year after the Separation
Date, he will not, either directly or through others, solicit or attempt to
solicit any person (including any entity) who is then an employee, consultant or
independent contractor of the Company to terminate his, her or its relationship
with the Company in order to become an employee, consultant or independent
contractor to or for any other person or entity.
5. SEVERANCE PAYMENT. Although the Company has no policy or procedure for
providing severance benefits, in exchange for the promises and covenants set
forth herein, and in consideration thereof, the Company agrees to make severance
payments to Peizer in the form of continuation of Peizer's base salary in effect
on the Separation Date through December 31, 1999. These payments will be made
on the Company's ordinary payroll dates, and will be subject to standard payroll
deductions and withholdings.
6. STOCK OPTION. In exchange for the promises and covenants set forth
herein, and in consideration thereof, the Company agrees that, as part of this
Agreement, it hereby amends Peizer's stock option agreement, as amended (the
"Option Agreement"), such that (i) the total number of shares of Common Stock
subject to the Option Agreement shall be One Million Two Hundred Thousand
(1,200,000), which are all vested as of the Separation Date and the term of
which shall be ten (10) years from the date of original vesting; (ii) the
options and the shares of Common Stock underlying such options shall be freely
transferable, subject to (a) compliance with securities laws, (b) the Company's
trading window period applicable to all officers, directors and affiliates of
the Company, provided that this restriction shall be applicable only during the
90-day period following the Separation Date, and (c) if the transferee
beneficially holds (as a result of such transfer) at least 100,000 shares of the
Company's Common Stock, such transferee shall agree in writing to be subject to
the second sentence of Section 11 hereof. Except as provided in the preceding
sentence, the Option Agreement shall remain in full force and effect. Peizer
agrees that he will also comply with volume restrictions and insider trading
restrictions and other relevant securities laws and regulations in connection
with receipt of stock options or Common Stock under this Agreement and the
Option Agreement. Except as provided herein, Peizer agrees and acknowledges that
all vesting under any stock compensation award from the Company shall cease upon
the Separation Date.
7. HEALTH INSURANCE. The Company will pay Peizer, within ten (10)
business days of Peizer's execution of this Agreement, a lump sum payment of
$1,460, which represents the Company's portion of Peizer's health insurance
premium through December 31, 1999.
8. OTHER COMPENSATION AND BENEFITS. Except as expressly provided herein,
Peizer acknowledges that he will not receive (nor is he entitled to) any
additional compensation, benefits, severance, stock options, stock or any other
ownership interest from the Company, notwithstanding any prior agreements to the
contrary.
2.
<PAGE>
9. PROPRIETARY INFORMATION OBLIGATIONS. Peizer hereby acknowledges his
continuing obligations under the Company's Secrecy Agreement, a copy of which is
attached hereto as Exhibit A. Peizer acknowledges that irreparable damage would
result to the Company if he breaches the provisions of this paragraph 9, and the
Company would not have an adequate remedy at law for such a breach or threatened
breach. In the event of such a breach or threatened breach, Peizer agrees that
the Company, may, notwithstanding anything to the contrary herein contained, and
in addition to the other remedies which may be available to it, seek to enjoin
him, together with all those persons associated with him, from the breach or
threatened breach of such covenants.
10. COMPANY PROPERTY. Peizer agrees to return to the Company, within five
(5) days of the execution of the Agreement, all Company documents (and all
copies thereof) and other Company property in his possession, or his control.
The Company acknowledges that Peizer will have the opportunity, upon reasonable
notice to the Company and at a reasonable time, to enter the Company premises
with a member of management to retrieve any property belonging to Peizer
remaining at the Company's premises. Peizer will also have an opportunity, at
reasonable times and in a reasonable manner, to communicate with his former
secretary for the purpose of transitioning his personal matters.
11. MUTUAL NONDISPARAGEMENT; SUPPORT OF MANAGEMENT. Neither Peizer nor
the executive officers or directors of the Company shall at any time disparage
the other Party in any manner likely to be harmful to the other Party, its
business reputation or, in the case of the Company, the personal or business
reputation of its directors, stockholders or employees, provided that each Party
shall respond accurately and fully to any question, inquiry or request for
information when required by legal process. For a period of two years from the
Separation Date, Peizer agrees to support, and vote all of his shares of Common
Stock of the Company in favor of, any management or Board proposals subject to a
stockholder vote. On a reasonable basis in the reasonable discretion of the
Company, Peizer shall be permitted to meet periodically with senior management
of the Company to discuss publicly available information concerning the Company.
12. STOCKHOLDER COMMUNICATIONS. Peizer further agrees that, with respect
to any communication between Peizer and any actual or potential stockholder of
the Company, Peizer shall not (i) make any disparaging statements regarding the
Company, its management, board members, employees or affiliates, (ii) disclose
any confidential information regarding the Company or any aspect of its business
or (iii) for a period of two years from the Separation Date, encourage any such
stockholder or potential stockholder to (a) vote against any management or Board
proposal subject to stockholder vote or (b) submit a proposal not previously
approved in writing by the Board.
13. CONFIDENTIALITY AND PUBLICITY. The provisions of this Agreement and
the Option Agreement shall be held in strictest confidence by Peizer and the
Company and shall not be publicized or disclosed in any manner whatsoever other
than pursuant to the press release issued by the Company on the Separation Date,
a copy of which is attached hereto as Exhibit B. Notwithstanding the prohibition
in the preceding sentence: (a) the Parties may disclose this Agreement and the
Option Agreement in confidence to their respective attorneys, accountants,
auditors, tax preparers, and financial advisors (and, in the case of Peizer, to
members of his immediate family); (b) the Company may disclose this Agreement
and the Option Agreement as
3.
<PAGE>
legally required corporate reporting or disclosure requirements; and (c) the
Parties may disclose this Agreement and the Option Agreement insofar as such
disclosure may be necessary to enforce its terms or as otherwise required by
law. In particular (and without limitation), the Parties agree not to discuss
the contents of this Agreement or the Option Agreement with present or former
Company employees or other personnel or with Company stockholders, except to
disclose the mere fact of Peizer's resignation from the Company.
14. RELEASE OF CLAIMS BY PEIZER. Except as otherwise set forth in this
Agreement, Peizer hereby releases, acquits and forever discharges the Company,
its officers, directors, agents, attorneys, servants, employees, stockholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys' fees, damages and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to agreements, events, acts or conduct at any time prior to
and including the execution date hereof, including but not limited to: any and
all such claims and demands directly or indirectly arising out of or in any way
connected with Peizer's employment with the Company or the termination of that
employment, including but not limited to claims arising from his Employment
Agreement dated February 6, 1997, the Amendment thereto dated April 1, 1997 and
the Option Agreement (except as such Option Agreement is amended by the terms of
Section 6 hereof); claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interests in the Company, vacation
pay, fringe benefits, expense reimbursements, sabbatical benefits, severance
benefits, or any other form of compensation; claims pursuant to any federal,
state or local law or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended; the federal Americans with Disabilities Act
of 1990; the California Fair Employment and Housing Act, as amended; tort law;
contract law; wrongful discharge; discrimination; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing.
Notwithstanding the foregoing, this release (i) shall not include any claims
based on obligations created by or reaffirmed in this Agreement and (ii) is not
intended to release any indemnification rights that Peizer may have in
connection with any third party action or claim against Peizer.
15. RELEASE OF CLAIMS BY THE COMPANY. Except as otherwise set forth in
this Agreement, the Company, on its behalf and its directors, successors,
assigns and affiliates, hereby releases, acquits and forever discharges Peizer,
his heirs, legatees, successors and assigns of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys' fees,
damages and obligations of every kind and nature, in law, equity, or otherwise,
known and unknown, suspected and unsuspected, disclosed and undisclosed, arising
out of or in any way related to agreements, events, acts or conduct at any time
prior to and including the execution date hereof. Notwithstanding the foregoing,
this release (i) shall not include any claims based on obligations created by or
reaffirmed in this Agreement or the Secrecy Agreement and (ii) is not intended
to release any indemnification rights that the Company may have in connection
with any third party action or claim against the Company.
4.
<PAGE>
16. SECTION 1542 WAIVER. The Parties acknowledge that they have read and
understand Section 1542 of the Civil Code of the State of California which reads
as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
The Parties hereby expressly waive and relinquish all rights and benefits under
that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Agreement.
17. RESIGNATION. Peizer will execute the Resignation Letter attached
hereto as Exhibit C concurrent with the execution of this Agreement.
18. NO ADMISSIONS. It is understood and agreed by Peizer and the Company
that this Agreement represents a compromise settlement of various matters, and
that the promises and payments in consideration of this Agreement shall not be
construed to be an admission of any liability or obligation by either Party to
the other Party or to any other person.
19. NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (a) by registered or certified
mail, return receipt requested, postage prepaid, or (b) via a reputable express
courier service, in each case to the address set forth below. Any such notice,
instruction or communication shall be deemed to have been delivered three
business days after it is mailed, by certified mail, postage prepaid, return
receipt requested, or one business day after it is sent via a reputable
nationwide overnight courier service.
If to the Company: Hollis-Eden Pharmaceuticals, Inc.
9333 Genesee Avenue, Suite 110
San Diego, California 92121
Attn: Chief Executive Officer
With a copy to: Eric J. Loumeau, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
If to Peizer: Terren S. Peizer
723 Pacific Coast Highway, Suite 322
Santa Monica, California 90402
With a copy to: Robert H. Platt, Esq.
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Boulevard
Los Angeles, California 90064
5.
<PAGE>
Any Party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the Party to
whom it was sent. Any Party may change the address to which notices,
instructions or communications are to be delivered by giving the other Party to
this Agreement notice thereof in the manner set forth in this paragraph 19.
20. REMEDIES OF THE COMPANY. Peizer acknowledges that irreparable damage
would result to the Company if he breaches any provision of this Agreement, and
the Company would not have an adequate remedy at law for such a breach or
threatened breach. In the event of such a breach or threatened breach, Peizer
agrees that the Company, may, notwithstanding anything to the contrary herein
contained, and in addition to the other remedies which may be available to it,
seek to enjoin him, together with all those persons associated with him, from
the breach or threatened breach of such covenants. Notwithstanding any breach by
Peizer of any provision of this Agreement, the Company shall not withhold the
issuance of Common Stock upon proper exercise of Peizer's options in accordance
with the Option Agreement.
21. ENTIRE AGREEMENT. This Agreement, including the Exhibits hereto, and
the Option Agreement (as amended by Section 6 hereof), constitutes the complete,
final and exclusive embodiment of the entire agreement between Peizer and the
Company with regard to the subject matter hereof, and supercedes that certain
Employment Agreement dated February 6, 1997, the Amendment thereto dated April
1, 1997 and the Option Agreement (except as amended pursuant to Section 6
hereof) between Peizer and the Company. It is entered into without reliance on
any promise or representation, written or oral, other than those expressly
contained herein. It may not be modified except in a writing signed by Peizer
and a duly authorized officer of the Company. Each Party has carefully read this
Agreement, has been afforded the opportunity to be advised of its meaning and
consequences by his or its respective attorneys, and signed the same of his or
its own free will.
22. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs, personal
representatives, successors, assigns, executors, and administrators of each
Party, and inure to the benefit of each Party, its heirs, successors and
assigns.
23. APPLICABLE LAW. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed entirely
within California.
24. SEVERABILITY. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
that most accurately represents the Parties' intention with respect to the
invalid or unenforceable term or provision.
25. ARBITRATION. To ensure rapid and economical resolution of any
disputes which may arise under this Agreement, Peizer and the Company agree that
any and all disputes or controversies of any nature whatsoever, arising from or
regarding the interpretation,
6.
<PAGE>
performance, enforcement or breach of this Agreement shall be resolved by
confidential, final and binding arbitration (rather than trial by jury or court
or resolution in some other forum) to the fullest extent permitted by law. Any
arbitration proceeding pursuant to this Agreement, shall be conducted by the
American Arbitration Association ("AAA") in San Diego under the then existing
AAA arbitration rules. If for any reason all or part of this arbitration
provision is held to be invalid, illegal, or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not effect any other portion of this arbitration provision
or any other jurisdiction, but this provision will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable part
or parts of this provision had never been contained herein, consistent with the
general intent of the Parties insofar as possible.
26. ATTORNEYS' FEES. In any legal action or other proceeding brought to
enforce or interpret the terms of this Agreement, the prevailing Party shall be
entitled to all reasonable attorneys' fees and out-of-pocket expenses. The
Company shall, within ten (10) business days of Peizer's execution of this
Agreement, pay Peizer $3,500 for attorneys' fees in connection with the
severance of Peizer's employment as contemplated hereunder.
27. SECTION HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
28. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have duly authorized and caused this
Agreement to be executed as follows:
<TABLE>
<CAPTION>
TERREN S. PEIZER HOLLIS-EDEN PHARMACEUTICALS
an individual
<S> <C>
/s/ TERREN S. PEIZER By: /s/ RICHARD HOLLIS
- ------------------------------------ ---------------------------------
Terren S. Peizer Richard Hollis
Date: February 25, 1999 Date: February 25, 1999
</TABLE>
7.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 52,870,267
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,305,616
<PP&E> 154,870
<DEPRECIATION> 34,530
<TOTAL-ASSETS> 53,425,956
<CURRENT-LIABILITIES> 479,286
<BONDS> 0
0
0
<COMMON> 110,583
<OTHER-SE> 52,836,087
<TOTAL-LIABILITY-AND-EQUITY> 53,425,956
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,890,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,393,303)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,393,303)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,393,303)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
