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NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of February 26,
1997 (this "AGREEMENT"), by and between LIDAK PHARMACEUTICALS, a
California corporation, with headquarters located at 00000 X.
Xxxxxx Xxxxx Xxxx, Xx Xxxxx, Xxxxxxxxxx 00000 (the "Company"),
and RGC International Investors, LDC, a Cayman Islands
corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by Rule 506 under Regulation D
("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase from the Company,
upon the terms and subject to the conditions of this Agreement, a
convertible promissory note in the principal amount of six
million dollars ($6,000,000.00) in the form attached hereto as
Annex I (the "Note"), which will be convertible into units
consisting of shares of the Company's Class A Common Stock, no
par value (the "Common Stock"), and warrants, in the form
attached hereto as Annex II (the "Warrants"), to purchase shares
of Common Stock upon the terms and subject to the conditions of
the Note;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
The Buyer hereby agrees to purchase from the
Company on the Closing Date (as defined in Section 6 below) the
Note for the purchase price set forth on the signature page of
this Agreement (the "Purchase Price"). The Purchase Price shall
be payable in United States Dollars in accordance with Section 6
below. The Note shall be delivered by the Company to the Buyer
and the Purchase Price shall be paid by the Buyer to the Company
at the Closing (as defined in Section 6 below).
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and
covenants and agrees with, the Company as follows:
a. PURCHASE FOR INVESTMENT. The Buyer is purchasing the
Note, the Warrants and the shares of Common Stock issuable upon
conversion of the Note, as payment of interest on the Note and
upon exercise of the Warrants (collectively, the "Shares" and,
together with the Note and the Warrants, the "Securities") for
its own account for investment only and not with a present
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view towards the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act;
b. ACCREDITED INVESTOR. The Buyer is an "accredited
investor" as that term is defined in Rule 501 of the General
Rules and Regulations under the 1933 Act by reason of Rule
501(a)(3);
c. REOFFERS AND RESALES. All subsequent offers and sales
of any of the Securities by the Buyer shall be made pursuant to
registration of such Securities under the 1933 Act or pursuant to
an exemption from such registration;
d. COMPANY RELIANCE. The Buyer understands that the Note
is being offered and sold, and the Shares and the Warrants are
being offered, to it in reliance on specific exemptions from the
registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth
and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Securities;
e. INFORMATION PROVIDED. The Buyer and its advisors, if
any, have been furnished with all material information relating
to the business, finances and operations of the Company which
have been requested by the Buyer; the Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the
Company regarding such information and have received complete and
satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has had the opportunity to
obtain and to review the following filings by the Company with
the SEC (collectively the "SEC Documents"): (1) Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 ("1996
Form 10-K"), (2) Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996, (3) Form 8-K filed January 15, 1997, (4)
Form 8-K filed February 11, 1997 and (5) Proxy Statement for its
annual meeting to be held March 15, 1997. The Buyer acknowledges
the risk factors contained in the 1996 Form 10-K and understands
that its investment in the Securities involves a high degree of
risk. The due diligence investigation conducted by the Buyer or
its representatives shall not modify, amend or affect the Buyer's
right to rely on the Company's representations and warranties
contained in Section 3 below;
f. ABSENCE OF APPROVALS. The Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Securities;
g. NOTE PURCHASE AGREEMENT. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the
Buyer and is a valid and binding agreement of the Buyer
enforceable in accordance with its terms; subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
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h. NO VIOLATION. The execution and delivery of this
Agreement by the Buyer and the consummation by the Buyer of the
purchase of the Note and the other transactions contemplated by
this Agreement do not and will not conflict with or result in a
breach by the Buyer of any of the terms or provisions of, or
constitute a default under, the Restated Articles of
Incorporation or By-laws of the Buyer, the investment policies
and investment restrictions of the Buyer, or any other material
agreement or instrument to which the Buyer is a party or by which
it or any of its properties or assets are bound;
i. INVESTMENT TRANSACTIONS. The Buyer is not purchasing
the Note for the purpose of covering any short sales of the
Common Stock made by the Buyer with the Shares on or prior to the
date hereof. The Buyer will not engage in any transactions
directly or indirectly related to the Common Stock in violation
of applicable securities laws, rules and regulations or NASD
regulations; and
j. ORGANIZATION AND AUTHORITY. The Buyer is validly
existing and in good standing under the laws of the Cayman
Islands, and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement, the
Registration Rights Agreement and the other agreements to be
executed and delivered by the Buyer in connection herewith, and
to consummate the transactions contemplated hereby.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to the Buyer
that:
a. ORGANIZATION AND AUTHORITY. Each of the Company and
its subsidiaries, if any, is a corporation validly existing and
in good standing under the laws of the jurisdiction in which it
is incorporated, and has all requisite corporate power and
authority to (i) own, lease and operate its properties and to
carry on its business as now being conducted, and (ii) to
execute, deliver and perform its obligations under this
Agreement, the Registration Rights Agreement, the Note, the
Warrants and the other agreements to be executed and delivered by
the Company in connection herewith, and to consummate the
transactions contemplated hereby and the issuance of the Note and
the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the
Company, its Board of Directors, or its shareholders is required.
The Company and each of its subsidiaries, if any, is duly
qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is
necessary and where failure so to qualify would have a material
adverse effect on the business, properties, operations, condition
(financial or other), results of operations or prospects of the
Company and its subsidiaries taken as a whole (a "Material
Adverse Effect").
b. CAPITALIZATION. The authorized capital stock of the
Company currently consists of (a) 99,490,000 shares of Common
Stock, no par value, of which (i) 36,469,676 shares are
outstanding as of February 17, 1997, (ii) 6,224,451 shares are
reserved for issuance upon the exercise of options granted
pursuant to certain option plans and option grants of the
Company, of
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which options exercisable into 5,407,161 shares are issued and
outstanding, (iii) 1,498,352 shares are reserved for issuance
pursuant to securities (other than the Note and the Warrants)
exercisable for, or convertible into, exchangeable for, or
otherwise entitling any person to acquire, shares of Common
Stock, (iv) 7,257,465 shares are reserved for issuance upon
conversion of the Note and (v) 3,628,733 shares are reserved for
issuance upon exercise of the Warrants (subject to adjustment
pursuant to the Note); (b) 510,000 shares of Class B Common
Stock, no par value, of which 283,000 shares are outstanding and
with respect to which 227,000 shares have been reserved for
issuance upon the exercise of option plans and option grants of
the Company; and (c) 10,000,000 shares of Preferred Stock, no par
value, of which no shares were outstanding as of February 17,
1997; and on the Closing Date (as defined herein) there will be
no material increase from February 17, 1997 in the number of
shares of Common Stock or Preferred Stock outstanding. All of
such outstanding shares of capital stock are, or upon issuance
will be, validly issued, fully paid and nonassessable. No shares
of capital stock of the Company are subject to preemptive rights
or any other similar rights of the stockholders of the Company or
any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in the SEC Documents,
as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for,
calls, rights of first refusal or commitments of any character
whatsoever relating to, or securities or rights convertible into
or exchangeable for any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or
any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated
to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement). The Company
has furnished to the Buyer true and correct copies of the
Company's Restated Articles of Incorporation as in effect on the
date hereof (the "Articles of Incorporation"), the Company's
By-laws as in effect on the date hereof (the "By-laws"). Except
as set forth on Schedule 3(b), (i) no holder of any of the
Company's securities has any rights, "demand," "piggy-back" or
otherwise, to have such securities registered by reason of the
intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement) and
(ii) except for the Company's Class D Warrants, no outstanding
securities of the Company have any anti-dilution protection
rights that would or might be triggered by the issuance of any of
the Securities. The offers and sales of the outstanding shares
of Common Stock and options, warrants and other rights to acquire
Common Stock were at all relevant times either registered under
the 1933 Act and applicable state securities laws or exempt from
such requirements.
c. CONCERNING THE SHARES. The Shares have been duly
authorized and, when issued upon conversion of the Note or
exercise of the Warrants, as the case may be, will be duly and
validly issued, fully paid and non-assessable and will not
subject the holder thereof to personal liability by reason of
being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire any of the
Securities. The Common Stock is listed for trading on the Nasdaq
National Market ("Nasdaq"), and the Company and the Common Stock
meet the criteria for continued listing and trading on the
Nasdaq. The Company has not been notified since September 30,
1996 by the Nasdaq of any failure or potential failure to meet
the criteria for continued listing and trading on the Nasdaq, and
no suspension of trading in the Common Stock is in effect. The
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Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Shares.
d. NOTE PURCHASE AGREEMENT, NOTE, WARRANTS, AND
REGISTRATION RIGHTS AGREEMENT. This Agreement, the Note, the
Warrants and the Registration Rights Agreement have been duly and
validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and
the Note, the Warrants and the Registration Rights Agreement,
when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium
and other similar laws affecting the enforcement of creditors'
rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement, the Note, the Warrants and the Registration Rights
Agreement by the Company and the consummation by the Company of
the issuance of the Securities and the other transactions
contemplated by this Agreement, the Note, the Warrants and the
Registration Rights Agreement do not and will not conflict with
or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the Articles of
Incorporation or By-laws of the Company, or any indenture,
mortgage, deed of trust or other material agreement or instrument
to which the Company is a party or by which it or any of its
properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of
any court, United States federal or state regulatory body,
administrative agency or other governmental body or
self-regulatory body having jurisdiction over the Company or any
of its properties or assets. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation,
by-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the
Company or any of its subsidiaries in default) under, and neither
the Company nor any of its subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its subsidiaries is a party or by which any property or assets of
the Company or any of its subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries, if any, are not being conducted,
and shall not be conducted so long as the Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of
any governmental entity, except for involuntary violations which
either singly or in the aggregate do not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Note or the Warrants in
accordance with the terms hereof or thereof. Except as set forth
on Schedule 3(e), all consents, authorizations, orders, filings
and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected
on or prior to the date hereof.
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f. APPROVALS. No authorization, approval or consent of,
or filing with, any court, governmental body, regulatory agency,
self-regulatory organization, or stock exchange or market or the
stockholders of the Company is required to be obtained or made by
the Company for the issuance and sale of the Securities as
contemplated by this Agreement, the Note and the Warrants, other
than (1) listing of the Shares on Nasdaq and (2) the requirements
of any applicable blue sky laws.
g. INFORMATION PROVIDED. The information provided by the
Company to the Buyer, including, without limitation, the SEC
Documents, does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they are made, not misleading.
h. ABSENCE OF CERTAIN CHANGES. Since September 30, 1996,
there has been no material adverse change and no material adverse
development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of
the Company or any of its subsidiaries, except as disclosed in
the SEC Documents filed subsequent thereto and prior to the date
hereof.
i. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect
on the properties, business, condition (financial or otherwise),
results of operations or prospects of the Company and its
subsidiaries taken as a whole or the transactions contemplated by
this Agreement or any of the documents contemplated hereby or
which would adversely affect the validity or enforceability of,
or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents;
and the Company has not been notified of any pending SEC or any
self-regulatory organization suit, proceeding, inquiry or
investigation.
j. SEC DOCUMENTS, FINANCIAL STATEMENT. Since September
30, 1996, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Company
has delivered to the Buyer true and complete copies of the SEC
Documents, except for such exhibits thereto and documents
incorporated therein. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none
of the SEC Documents, at the time that they were filed with the
SEC, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As
of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be
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otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or
summary statements) and present fairly in all material respects
the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 30, 1996 and (ii)
obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company and its subsidiaries. As of the date hereof, there is no
information that is required to be disclosed by the Company
pursuant to the requirements of the 1934 Act or the requirements
of the 1933 Act (assuming for this purpose that the Company has
an effective Registration Statement under the 1933 Act into which
all of its 1934 Act reports are incorporated) that has not been
properly disclosed in the SEC Documents.
k. PATENTS, COPYRIGHTS, ETC. Except as would not have a
Material Adverse Effect: (i) to the best of the Company's
knowledge, it owns or possess the requisite licenses or rights to
use all patents, patent rights, inventions, know-how, trade
secrets, trademarks, service marks, service names, trade names
and copyrights necessary to enable it to conduct its business as
now operated; (ii) to the best of the Company's knowledge, there
is no claim or action by any person pertaining to, or proceeding
pending or threatened which challenges the right of the Company
or any subsidiary of the Company with respect to any patents,
patent rights, licenses, inventions, know-how, trademarks,
service marks, service names, trade names and copyrights
necessary to enable it conduct its business as now operated;
(iii) to the best of the Company's knowledge, the Company's or
its subsidiaries' current and intended products, services and
processes do not infringe on any patents, patent rights,
licenses, inventions, know-how, trademarks, service marks,
service names, tradenames, copyrights or other rights held by any
person; and (iv) the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
l. FDA MATTERS. [RESERVED]
m. TAX STATUS. Except as set forth on Schedule 3(m), each
of the Company and its subsidiaries, if any, has made or filed
all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to
be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books
provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes of the Company
or any of its subsidiaries in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
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n. CERTAIN TRANSACTIONS. Except (1) as set forth on
Schedule 3(n) or in the SEC Documents, (2) for arm's length
transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the
Company could obtain from third parties and (3) for the grant of
stock options pursuant to the Company's stock option plans, none
of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of
its subsidiaries (other than for services as employees, officers
and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
the leasing of property or the licensing of rights to or from or
otherwise requiring payments to or from any officer, director or
such employee or, to the Company's knowledge, any entity in which
such person has a substantial interest or position of
responsibility.
o. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF NOTE. The
Company acknowledges and agrees that the Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company
further acknowledges that the Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated
hereby and any advice given by the Buyer or any of its
representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the
Buyer's purchase of the Note. The Company further represents to
the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of
the Company by its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act
of the issuance of the Securities to the Buyer.
q. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments relating to this
Agreement or the transactions contemplated hereby, except for
dealings with Xxxxxxx Arnouse, whose commissions and fees will be
paid by the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1)
the Note and the Warrants have not been and are not being
registered under the provisions of the 1933 Act and, except as
provided in the Registration Rights Agreement, the Shares have
not been and are not being registered under the 1933 Act, and the
Shares may not be transferred unless (A) subsequently registered
thereunder for resale or (B) the Buyer shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred
without such registration; (2) any sale of the Shares made in
reliance on Rule 144 promulgated under the 1933 Act may be made
only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such
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Shares under circumstances in which the seller, or the person
through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register
the Shares (other than pursuant to the Registration Rights
Agreement) under the 1933 Act or to comply with the terms and
conditions of any exemption thereunder (other than pursuant to
Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees
that the Note and the Warrants, and, until such time as the
Shares have been registered under the 1933 Act as contemplated by
the Registration Rights Agreement, the certificates for the
Shares, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against
transfer of the certificates for the Shares):
The securities represented by this
certificate have not been registered under the Securities Act of
1933, as amended. The securities have been acquired for
investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities
under the Securities Act of 1933, as amended, or an opinion of
counsel that registration is not required under said Act or
unless sold pursuant to Rule 144.
The legend set forth above shall be removed and
the Company shall issue a certificate without such legend to the
holder of the Securities upon which it is stamped, if, unless
otherwise required by applicable state securities laws, (a) the
Securities are included in an effective registration statement
under the 1933 Act covering the resale thereof, or (b) such
holder provides the Company with an opinion of counsel, in form,
substance and scope reasonably acceptable to the Company, to the
effect that a public sale or transfer of such Securities may be
made without registration under the 1933 Act and such Securities
are being sold or transferred in accordance with the method
described therein, or (c) such holder provides the Company with
reasonable assurances that the Securities can be sold pursuant to
Rule 144 under the 1933 Act (or a successor rule thereto) without
any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. The Buyer
agrees to sell all of the Securities, including those represented
by a certificate(s) from which the legend has been removed, in
compliance with the prospectus delivery requirements, if any,
under applicable securities laws.
The Note shall also contain a legend reflecting
its non-assignability other than to the Buyer's affiliates
(including the limited partners and shareholders thereof solely
in the case of liquidation of the Buyer). The Warrant shall also
contain a legend setting forth the restrictions on its
assignability. Notwithstanding the foregoing, nothing herein
shall affect or limit the Buyer's ability to pledge the
Securities in connection with a bona fide margin account or
lending arrangement.
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c. REGISTRATION RIGHTS AGREEMENT. The parties hereto
agree to enter into the Registration Rights Agreement on or
before the Closing Date.
d. FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to the Buyer promptly
after such filing. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to
obtain an exemption for, the Securities for sale to the Buyer
pursuant to this Agreement and on conversion of the Note under
such of the securities or "blue sky" laws of jurisdictions in the
United States as shall be applicable to the sale of the
Securities to the Buyer pursuant to this Agreement and on
conversion of the Note. The Company shall furnish copies of all
filings, applications, orders and grants or confirmations of
exemptions relating to such securities or "blue sky" laws on or
before the Closing Date.
e. NASDAQ NOTIFICATION; REPORTING STATUS. On or before
the Closing Date, the Company shall file a "NASDAQ National
Market Notification Form for Listing of Shares and Notification
Pursuant to SEC Rule 10b-17" with respect to the Shares with the
National Association of Securities Dealers, Inc. and shall
provide evidence of such filing to the Buyer. So long as the
Buyer beneficially owns any of the Securities, the Company shall
file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under
the 1934 Act, even if the 1934 Act or the rules and regulations
thereunder would permit such termination, for a period of three
years after the Closing Date.
f. USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Note for the Company's internal working
capital purposes and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person.
g. CERTAIN EXPENSES. Whether or not the Closing occurs,
the Company shall pay or reimburse the reasonable fees and
out-of-pocket expenses of the Buyer for travel, legal fees, due
diligence and other costs, up to $20,000. The obligations of the
Company under the provisions of this Section 4(g) shall be in
addition to the obligation of the Company for expenses under the
Registration Rights Agreement referred to in Section 4(c) of this
Agreement.
h. RESERVATION OF SHARES. The Company shall at all times
have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
full conversion of the outstanding amount of the Note and
issuance of the Conversion Shares in connection therewith and the
full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based on the conversion price of
the Note and the exercise price of the Warrants in effect from
time to time and subject to the limitations on total shares to be
issued as set forth in Section 2.6 of the Note). Prior to the
complete conversion of the Note and the full exercise of the
Warrants (within the above-mentioned limitations), the Company
shall not reduce the number of shares of Common Stock reserved
for issuance upon conversion of the Note and exercise of the
Warrants without the consent of the Buyer.
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i. FINANCIAL INFORMATION. The Company agrees to send the
following reports to the Buyer until the Buyer transfers,
assigns, or sells all of the Securities: (i) within ten (10)
days after the filing with the SEC, a copy of its Annual Report
on Form 10-K, its Quarterly Reports on Form 10-Q and any Current
Reports on Form 8-K; and (ii) within three (3) days after
release, copies of all press releases issued by the Company or
any of its subsidiaries.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially
owns any Note or Warrants, the Company shall maintain its
corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in
such transaction (i) assumes the Company's obligations hereunder
and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the Nasdaq, the
Nasdaq SmallCap Market, the New York Stock Exchange or the
American Stock Exchange.
K. CERTAIN ISSUANCES OF SECURITIES.
(1) Unless the Company obtains Stockholder Approval (as defined in
the Note) or a waiver thereof from Nasdaq, the Company will not
issue any shares of Common Stock or shares of any other
promissory notes or other securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire,
shares of Common Stock which would be subject to Rule 4460(i) of
Nasdaq (or any successor or replacement provision thereof) and
which would be integrated with the sale of the Note and the
Warrants to the Buyer or the issuance of Shares upon conversion
of the Note or exercise of the Warrants for purposes of Rule
4460(i) of Nasdaq (or any successor or replacement provision
thereof).
(2)The Company shall not offer, sell, contract to sell or issue (or
engage any person to assist the Company in taking any such
action) any equity securities or securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire,
any Common Stock during the period from the date of this
Agreement to the later of (x) the date which is 180 days after
the Closing Date and (y) the date on which the Registration
Statement shall have been effective and available for use by the
Buyer for 90 consecutive days; PROVIDED, HOWEVER, that nothing in
this Section 4(i)(2) shall prohibit the Company from issuing
securities (i) pursuant to compensation plans for employees,
directors, officers, advisers or consultants of the Company and
in accordance with the terms of such plans as in effect as of the
date of this Agreement, (ii) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by
the Company and outstanding as of the date of this Agreement,
(iii) as part of a transaction involving a strategic alliance,
collaboration, joint venture, partnership or other similar
arrangement of the Company or (iv) in an underwritten public
offering registered under the 1933 Act.
l. BEST EFFORTS. The parties hereto shall use their best
efforts to timely satisfy each of the conditions to closing
described in Sections 7 and 8 of this Agreement.
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5. TRANSFER AGENT INSTRUCTIONS.
The Company will instruct, and use its best
efforts to put into effect and maintain an arrangement with, its
transfer agent consistent with applicable law in order to (i)
issue certificates promptly for the Shares from time to time upon
conversion of the Note and exercise of the Warrants in such
amounts as are issuable in accordance with the terms thereof,
registered in the name of the Buyer or its permitted nominee and
in such denominations to be specified by the Buyer in connection
with each conversion of the Note or exercise of the Warrants and
(ii) enable the resale of such Shares to the public. The Company
warrants that no instruction or arrangement other than the
arrangement referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to
registration of the Shares under the 1933 Act will be given by
the Company to the transfer agent and that the Shares shall
otherwise be freely transferable on the books and records of the
Company to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall
affect in any way the Buyer's obligations and agreement to comply
with the prospectus delivery requirements, if any, of applicable
securities laws upon resale of the Securities. If the Buyer
provides the Company with an opinion of counsel that registration
of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall permit the
transfer of the Securities and, in the case of the Shares,
promptly instruct the Company's transfer agent to issue one or
more share certificates in such name and in such denominations as
specified by the Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to
the Buyer, by thwarting the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Section, that the Buyer shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach
and requiring immediate issuance and transfer, without the
necessity of showing economic loss and without any bond or other
security being required.
6. CLOSING DATE.
a. CLOSING DATE. Subject to satisfaction (or waiver) of
the conditions to closing set forth in Sections 7 and 8 below,
the date and time of the issuance and sale of the Note (the
"Closing") shall be 12:00 noon Eastern Standard Time on February
26, 1997, or such other date and time as mutually agreed by the
parties hereto (the "Closing Date"). The Closing shall occur on
the Closing Date at the offices of Xxxxx & XxXxxxxx, 000 Xxxx
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000.
b. FORM OF PAYMENT. On the Closing Date, (i) the Buyer
shall pay the Purchase Price for the Note by wire transfer of
immediately available funds to the Company, in accordance with
the Company's written wire instructions, against delivery of the
Note duly executed by the Company and (ii) the Company shall
deliver the Note against delivery of the Purchase Price.
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7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's
obligation to sell the Note to the Buyer pursuant to this
Agreement is conditioned upon:
a. The receipt and acceptance by the Buyer of this
Agreement as evidenced by execution of this Agreement by the
Buyer;
b. Delivery by the Buyer to the Company of good funds as
payment in full of an amount equal to the Purchase Price for the
Note in accordance with Section 1 hereof; and
c. The accuracy in all material respects on the Closing
Date of the representations and warranties of the Buyer contained
in this Agreement as if made on the Closing Date and the
performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on
or before such Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's
obligation to purchase the Note is conditioned upon:
a. The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement and delivery by
the Company to the Buyer of the Note in accordance with this
Agreement;
b. The accuracy (in all material respects, except where
the representation is qualified by materiality) on the Closing
Date of the representations and warranties of the Company
contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of
all covenants and agreements of the Company required to be
performed on or before the Closing Date;
c. On the Closing Date, the Buyer having received an
opinion of counsel for the Company, dated the Closing Date, in
form, scope and substance reasonably satisfactory to the Buyer,
to the effect set forth in Annex V attached hereto;
d. On or before the Closing Date, trading in the Common
Stock on Nasdaq shall not have been suspended by the SEC or
Nasdaq; and
e. The Buyer shall have received an officer's certificate
described in Section 3(b) above and an officer's certificate as
to the matters described in clauses (b), (d) and (e) of this
Section 8 (and other matters as the Buyers shall reasonably
request), dated the Closing Date.
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9. MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California as applied to
contracts entered into between residents of and to be performed
in such state. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in San
Diego, California with respect to any dispute arising under this
Agreement or the transactions contemplated hereby.
b. This Agreement may be executed in counterparts and by
the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A
facsimile transmission of this Agreement bearing a signature on
behalf of a party hereto shall be legal and binding on such
party.
c. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement.
d. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
e. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement.
f. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, or any course of dealings
between the parties, shall not operate as a waiver thereof or an
amendment hereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
g. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by mail or delivered
personally (which shall include facsimile transmission) or by
courier and shall be effective five days after being placed in
the mail, if mailed, or upon receipt, if delivered personally or
by courier, in the case of the Company addressed to the Company
at its address shown in the introductory paragraph of this
Agreement (facsimile number 619-453-5848) or, in the case of the
Buyer, at its address shown on the signature page of this
Agreement or such other address as a party shall have provided by
notice to the other party in accordance with this provision. The
Buyer hereby designates as its address for any notice required or
permitted to be given to the Buyer pursuant to the Note the
address shown on the signature page of this Agreement.
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h. The respective representations, warranties, covenants
and agreements of the Buyer and the Company contained in this
Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement shall survive the delivery of payment for the
Note and shall remain in full force and effect regardless of any
investigation made by or on behalf of them or any person
controlling or advising any of them.
i. This Agreement and its Annexes set forth the entire
agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and
understandings, whether written or oral, with respect thereto.
j. The Company shall be entitled, without the prior
approval of the Buyer, to make any press release or SEC, Nasdaq
or NASD filings with respect to such transactions as is required
by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy
thereof). The Buyer shall not make any press release related to
the transactions contemplated hereby or any public statement
related thereto, except statements as might be reasonably
necessary to the conduct of the business of Buyer (any written
statements shall be provided to the Company and the Company shall
be consulted with prior to release).
k. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Note, the
Warrant and the Registration Rights Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective officers
or their representatives thereunto duly authorized as of the date
first set forth above.
PRINCIPAL AMOUNT OF NOTE: $6,000,000.00
PURCHASE PRICE: $6,000,000.00
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By: /s/ Xxxxx Xxxxx
-----------------
Name: Xxxxx Xxxxx
Its: Managing Director
Address: x/x Xxxx Xxxx Xxxxxxx Xxxxxxxxxx, X.X.
000 Xxxx Xxxxxxxxxx Xxxx, Xxxxx 0000
Xxxxx, Xxxxxxxxxxxx 00000
Facsimile No. (000) 000-0000
LIDAK PHARMACEUTICALS
By: /s/ Xxxxx X. Xxxx
------------------
Name: Xxxxx X. Xxxx, M.D.
Its: President and Chief Executive Officer
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