-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ui13EM+qrfX8FOy+l+hmz01YcSjd+P9IVOZ3sNwKUh6A87knIi9fXsP6XkY/vJwd 7R/v3TBUWDqaG6vUd4rbhw== 0000898432-02-000179.txt : 20020415 0000898432-02-000179.hdr.sgml : 20020415 ACCESSION NUMBER: 0000898432-02-000179 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20020301 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KIMBERLIN KEVIN CENTRAL INDEX KEY: 0000904841 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: SPENCER TRASK SECURITIES INC STREET 2: 535 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123555565 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNE RESPONSE CORP CENTRAL INDEX KEY: 0000817785 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 330255679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-41038 FILM NUMBER: 02565257 BUSINESS ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 6194317080 MAIL ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 SC 13D 1 aschel13d.txt 3/1/02 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 NAME OF ISSUER: The Immune Response Corporation TITLE OF CLASS OF SECURITIES: Common Stock, par value $.0025 per share. CUSIP NUMBER: 45252T10 NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS: Kevin B. Kimberlin c/o Spencer Trask & Co. 535 Madison Avenue, 18th Floor New York, New York 10022 Tel: (212) 355-5565 Fax: 212-751-3483 DATE OF EVENT WHICH REQUIRES FILING: February 14, 2002 If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: [ x ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO.: 45252T10 1. NAME OF REPORTING PERSON: Kevin B. Kimberlin 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) (b) x 3. SEC USE ONLY Page 2 of 8 4. SOURCE OF FUNDS: AF 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e): Yes No X 6. CITIZENSHIP OR PLACE OF ORGANIZATION: UNITED STATES 7. SOLE VOTING POWER: 9,070,549 8. SHARED VOTING POWER: 0 9. SOLE DISPOSITIVE POWER: 9,070,549 10. SHARED DISPOSITIVE POWER: 0 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 9,105,549 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: Yes No x 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 21.4% 14. TYPE OF REPORTING PERSON: IN Item 1. Security and Issuer This statement relates to the Common Stock, $0.0025 par value per share ("Common Stock"), issued by The Immune Response Corporation, a Delaware corporation (the "Company"), whose principal executive offices are located at 5935 Darwin Court, Carlsbad, California 92008. Item 2. Identity and Background (a) This statement is filed by Kevin B. Kimberlin. (b) The business address of Mr. Kimberlin is c/o Spencer Trask & Co., 535 Madison Avenue, New York, New York 10022. (c) Mr. Kimberlin's present principal occupations are Chairman of Spencer Trask & Co. and private investor. (d) Mr. Kimberlin has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Mr. Kimberlin has not, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Page 3 of 8 (f) Mr. Kimberlin is an individual of United States citizenship. Item 3. Source and Amount of Funds or Other Consideration On November 9, 2001, the Company entered into a note purchase agreement (the "Note Purchase Agreement"), with Kevin Kimberlin Partners, L.P. ("KKP") which was subsequently amended to add Oshkim Limited Partnership ("Oshkim") as a party, and provided for the sale of notes and warrants in multiple-stage private placements. Mr. Kevin Kimberlin, a member of the Company's Board of Directors, is an affiliate of each of KKP and Oshkim. At the initial closing on November 9, 2001 (the "November Closing"), the Company issued to KKP a note convertible into 1,733,703 shares of Common Stock and a warrant to purchase 1,733,703 shares of Common Stock in exchange for gross proceeds of $2.0 million. At a subsequent closing on February 14, 2002 (the "February Closing"), the Company issued to Oshkim a note which is convertible into 1,716,001 shares of Common Stock and a warrant to purchase 1,716,001 shares of Common Stock in exchange for gross proceeds of $2.0 million. Item 4. Purpose of Transaction The Company's management and Board of Directors determined that the Company should raise additional capital through the sale of equity securities to address its short-term working capital needs. Kevin B. Kimberlin, a member of the Company's Board of Directors and a partner of each of KKP and Oshkim, decided to finance the Company when it was unable to obtain financing on acceptable terms. In a multiple-stage private placement, notes convertible into Common Stock and warrants to purchase Common Stock were acquired by KKP and Oshkim. Similar notes and warrants may be sold to KKP or Oshkim in subsequent closings pursuant to the Note Purchase Agreement. Mr. Kimberlin does not have any plans or proposals which relate to or would result in any of the following: (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) Any change in the present Board of Directors or management of the Company; (e) Any material change in the present capitalization or dividend policy of the Company; (f) Any other material change in the Company's business or corporate structure; (g) Changes in the Company's charter, By-laws, or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) A class of securities of the Company being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; Page 4 of 8 (i) A class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) Any action similar to any of those enumerated above. Item 5. Interest in Securities of the Issuer (a) The aggregate percentage of shares of Common Stock reported beneficially owned by Mr. Kimberlin is based upon 35,572,099 shares outstanding, which is the total number of shares of Common Stock outstanding as of February 14, 2002, as represented by the Company. As of the date of this statement, Mr. Kimberlin is the beneficial owner of 9,105,549 shares of Common Stock, which represented approximately 21.4% of the issued and outstanding number of shares of Common Stock as of February 14, 2002. Mr. Kimberlin's spouse held 35,000 shares of Common Stock; a retirement account for the benefit of Mr. Kimberlin held 16,000 shares of Common Stock; Kimberlin Family Partners, L.P., a Colorado limited partnership, of which Mr. Kimberlin is the general partner, held 227,916 shares of Common Stock; Kevin Kimberlin Partners, L.P., of which the general partner is KKP Management LLC, a Nevada limited liability company, of which Mr. Kimberlin is the managing member, held 1,794,871 shares of Common Stock. Additionally, Mr. Kimberlin can be deemed to be the beneficial owner of (a) 1,733,703 shares of Common Stock issuable on conversion of the promissory note held by KKP from the November Closing, (b) 1,733,703 shares of Common Stock issuable on exercise of the warrant held by KKP from the November Closing, (c) 1,716,001 shares of Common Stock issuable on conversion of the promissory note held by Oshkim from the February Closing and (d) 1,716,001 shares of Common Stock issuable on exercise of the warrant held by Oshkim from the February Closing. Upon the exercise of options, 132,354 shares may be acquired by Mr. Kimberlin currently or within 60 days after February 14, 2002. Mr. Kimberlin, as of February 14, 2002, may be deemed to be the beneficial owner of 9,105,549 shares representing 21.4% of the class, based on the 35,572,099 shares of Common Stock outstanding as of February 14, 2002. (b) Mr. Kimberlin has the sole power to vote and dispose of all shares of Common Stock beneficially owned by him, other than in respect of the 35,000 shares of Common Stock held by his spouse. (c) See Item 6 below. (d) No person other than each respective owner of shares of Common Stock referred to herein is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares of Common Stock. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Page 5 of 8 On November 9, 2001, the Company entered into the Note Purchase Agreement with KKP which was subsequently amended to add Oshkim as a party, and provided for the sale of notes and warrants in multiple-stage private placements. At the November Closing, the Company issued to KKP a note with a discounted conversion price which is convertible into 1,733,703 shares of Common Stock and a warrant with a fair market exercise price, to purchase 1,733,703 shares of Common Stock in exchange for gross proceeds of $2.0 million. At the February Closing, the Company issued to Oshkim a note with a conversion price equal to 112.5% of the average closing bid prices for Common Stock for the five consecutive trading days ending the trading day prior to the date of the issuance of the note, which is convertible into 1,716,001 shares of Common Stock and a warrant, with a fair market exercise price, to purchase 1,716,001 shares of Common Stock in exchange for gross proceeds of $2.0 million. On February 7, 2002, to address Nasdaq's concerns regarding whether the Company was compliant with NASD Rule 4350(i)(1)(A), the Company entered into a Letter Agreement with KKP (the "Letter Agreement"). Under NASD Rule 4350(i)(1)(A), Nasdaq-listed companies must obtain stockholder approval of a plan or arrangement under the following paragraph (the "Insider Rule"): "when a stock option or purchase plan is to be established or other arrangement made pursuant to which stock may be acquired by officers or directors, except for warrants or rights issued generally to security holders of the company or broadly based plans or arrangements including other employees (e.g. ESOPs). In a case where the shares are issued to a person not previously employed by the company, as an inducement essential to the individual's entering into an employment contract with the company, shareholder approval will generally not be required. The establishment of a plan or arrangement under which the amount of securities which may be issued does not exceed the lesser of 1% of the number of shares of common stock, 1% of the voting power, or 25,000 shares will generally not require shareholder approval." At a special meeting of the Company's shareholders to be held on April 2, 2002 (the "Meeting"), the Company will be seeking the approval of its stockholders for the issuance and sale of the notes and warrants in all closings pursuant to the Note Purchase Agreement to satisfy the Insider Rule. THE LETTER AGREEMENT PROVIDES THAT FROM ITS DATE OF EXECUTION UNTIL THE RECEIPT OF STOCKHOLDER APPROVAL OF THE TRANSACTIONS UNDER THE NOTE PURCHASE AGREEMENT (THE "RESTRICTION TERMINATION DATE"), KKP WOULD NOT VOTE, SELL, PLEDGE, OFFER, DISPOSE OF OR TRANSFER ANY OF THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTE ISSUED IN THE NOVEMBER CLOSING OR EXERCISE OF THE WARRANT ISSUED IN THE NOVEMBER CLOSING. KKP MAY TRANSFER SHARES UNDER CERTAIN LIMITED CONDITIONS. KKP ALSO AGREED THAT IT WOULD NOT RECEIVE ANY SHARES OF THE COMPANY'S STOCK AS A RESULT OF EITHER A STOCK DIVIDEND OR STOCK DISTRIBUTION ON COMMON STOCK IN THE EVENT THAT THE COMPANY PAYS ANY DIVIDEND OR ISSUES ANY STOCK DISTRIBUTION PRIOR TO THE RESTRICTION TERMINATION DATE. Under NASD Rule 4350(i)(1)(D), companies whose securities are traded on Nasdaq must obtain stockholder approval for the issuance of securities in a private offering of common stock at a price less than the greater of the book or market value per share of the stock, if the issuance amounts to 20% or more of the common stock or 20% or more of the voting power of a company outstanding Page 6 of 8 before the issuance (the "20% Rule"). Under NASD Rule 4350(i)(1)(B), Nasdaq-listed companies must obtain stockholder approval for any issuance of securities that would result in a change of control (the "Control Rule"). After the November Closing and before the February Closing, the Company had several discussions with Nasdaq and KKP with respect to Nasdaq's concerns about whether the Company was in compliance with the Insider Rule and whether additional financings under the Note Purchase Agreement would be in compliance with the Insider Rule, 20% Rule and Control Rule. As a result of these discussions, the Company entered into Amendment No. 1 to the Note Purchase Agreement with KKP and Oshkim on February 14, 2002 ("Amendment No. 1"). Amendment No. 1 added Oshkim as a party to the Note Purchase Agreement and allowed the Company to issue the note and warrant in the February Closing to Oshkim on different terms than the note and warrant issued in the November Closing so that the issuance would be in compliance with the Insider Rule, 20% Rule and Control Rule. The notes issued pursuant to the Note Purchase Agreement accrue interest at a rate of 8% per year. The note issued in the November Closing will mature on May 5, 2002 unless the Company obtains, at the Meeting, the required stockholder approval under the 20% Rule, in which case the maturity date will be extended to November 9, 2004, the three-year anniversary of its issuance. The note issued in the February Closing and any note which potentially may be issued in any subsequent closings will mature on the three-year anniversary of their respective issuance dates. The initial conversion price for the shares of Common Stock issued upon conversion of the note issued at the November Closing is $1.1536 per share. The initial conversion price for the shares of Common Stock issued upon conversion of the note issued at the February Closing is $1.1655 per share. The conversion price of the note issued in the February Closing is equal to 112.5% of the average closing bid prices for the Common Stock for the five consecutive trading days ending the trading day prior to the date of the February Closing. The principal and any accrued and unpaid interest on any notes issued in any subsequent closing shall initially be convertible into Common Stock at a price per share equal to 80% of the average closing bid prices for Common Stock for the ten consecutive trading days ending the trading day prior to the date such additional note is issued. The conversion price of the notes shall adjust for stock splits, recapitalizations, recombinations, and stock dividends. The conversion price of the notes shall also be reduced pursuant to a fully-weighted average adjustment in the event the Company issues securities without consideration or for a consideration per share of less than the then-applicable conversion price of such note. Notwithstanding the foregoing, any potential fully-weighted average adjustment to the conversion price of the note issued in the February Closing will not be effective, to the extent that such adjustment would not be in compliance with NASD Rule 4350(i), unless the Company receives the required stockholder approval under the 20% Rule. The initial purchase price for the shares of Common Stock issuable upon exercise of the warrant issued at the November Closing is $1.4420 per share. The initial purchase price for the shares of Common Stock issuable upon exercise of the warrant issued at the February Closing is $1.036 per share. The exercise price of the warrant issued in the February Closing will equal the average of the closing bid prices for the Common Stock for the five consecutive trading days ending the trading day prior to the February Closing. At each subsequent closing, Oshkim shall receive additional warrants. The number of shares of Common Stock that may be purchased upon exercise of an additional warrant shall equal the face value of the corresponding note issued in the subsequent closing divided by the initial conversion price of such note. The exercise price of the warrant shall equal the average of the closing bid prices for the Common Stock for the ten consecutive trading days ending the trading day prior to the date the corresponding note is issued. Page 7 of 8 After discussions with Nasdaq and to ensure that the Company will be in compliance with the 20% Rule, Oshkim agreed to restrictions on its ability to exercise the warrant issued in the February Closing. The warrant issued in the February Closing shall be exercisable only to the extent that shares issuable on exercise of the warrant, when aggregated with shares issuable on conversion of the note and warrant issued in the November Closing and the note issued in the February Closing, would not infringe the 20% Rule. The restrictions on Oshkim's ability to exercise the warrant shall terminate if the Company obtains shareholder approval at the Meeting. Additionally, if the average of the closing bid prices of Common stock for any ten consecutive trading days is less than 75% of the then effective exercise price of a warrant (the "Adverse Market Price"), then the exercise price of the warrant will adjust to that ten-day average closing price. The number of shares issuable on exercise of the warrants will not be adjusted in connection with this adjustment to the purchase price. To exercise at the adjusted ten-day average closing price, KKP or Oshkim must give a notice to the company during a period in which the ten-day average closing price remains equal to or below the Adverse Market Price and pay the exercise price to the Company within five days of the delivery of the notice. On November 9, 2001, the Company entered into an Intellectual Property Security Agreement (the "Security Agreement") with KKP to secure the note and on February 14, 2002 entered into Amendment No. 1 to the Security Agreement to add Oshkim as a party. Pursuant to the Security Agreement, the Company granted to KKP and Oshkim a prior security interest in all of its rights to its trademarks, patents, trademark licenses, and patent licenses (unless prohibited expressly by the terms of the license), and any related proceeds from its trademarks or patents. The Security Agreement prohibits the Company from entering into any license agreement that is inconsistent with the Security Agreement or is reasonably likely to have a material adverse effect on the security interests held by KKP and Oshkim. The Security Agreement also restricts the Company's ability to sell or assign an interest in the patents, trademarks, patent licenses, or trademark licenses absent the prior written consent of KKP and Oshkim. The Security Agreement further provides that the Company will take steps to preserve its rights in the patents, the trademarks, the patent licenses and the trademark licenses. Item 7. Material to be Filed as Exhibits 1. Note Purchase Agreement, dated November 9, 2001, between KKP and the Company. 2. 8% Convertible Secured Promissory Note, dated November 9, 2001, issued by the Company in favor of KKP. 3. Warrant Agreement, dated November 9, 2001, between KKP and the Company. 4. Intellectual Property Security Agreement, dated November 9, 2001, between KKP and the Company. 5. Amendment No. 1 to Note Purchase Agreement, dated February 14, 2002, between KKP, Oshkim and the Company. 6. 8% Convertible Secured Promissory Note, dated February 14, 2002, issued by the Company in favor of Oshkim. 7. Warrant Agreement, dated February 14, 2002, between Oshkim and the Company. 8. Amendment No. 1 to Intellectual Property Agreement, dated February 14, 2002, between KKP, Oshkim and the Company. Page 8 of 8 Signature After reasonable inquiry and to the best of his knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. March 1, 2002 /s/ Kevin B. Kimberlin ------------------- Kevin B. Kimberlin EXHIBIT INDEX 1. Note Purchase Agreement, dated November 9, 2001, between KKP and the Company. 2. 8% Convertible Secured Promissory Note, dated November 9, 2001, issued by the Company in favor of KKP. 3. Warrant Agreement, dated November 9, 2001, between KKP and the Company. 4. Intellectual Property Security Agreement, dated November 9, 2001, between KKP and the Company. 5. Amendment No. 1 to Note Purchase Agreement, dated February 14, 2002, between KKP, Oshkim and the Company. 6. 8% Convertible Secured Promissory Note, dated February 14, 2002, issued by the Company in favor of Oshkim. 7. Warrant Agreement, dated February 14, 2002, between Oshkim and the Company. 8. Amendment No. 1 to Intellectual Property Security Agreement, dated February 14, 2002, between KKP, Oshkim and the Company. EX-99 3 exhibit1.txt EXHIBIT 99.1 Exhibit 1 --------- NOTE PURCHASE AGREEMENT ----------------------- NOTE PURCHASE AGREEMENT, dated as of November 9, 2001 (this "Agreement"), by and between Kevin Kimberlin Partners, L.P., a Delaware limited partnership ("Buyer"), and The Immune Response Corporation, a Delaware corporation ("Seller"). WHEREAS, Seller desires to issue to Buyer, and Buyer has agreed to purchase from Seller, a convertible secured promissory note substantially in the form of Exhibit A hereto (the "Initial Note") in the principal loan amount of $2,000,000, which will be convertible and prepayable as set forth herein; WHEREAS, to induce Buyer to make such a loan, Seller has agreed to issue to Buyer a warrant (the "Initial Warrant") to purchase a 1,733,703 shares of Seller's common stock, $.0025 par value per share (the "Common Stock"), which equals $2,000,000 divided by eighty (80%) percent of the exercise price per share, which will initially equal the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the issuance date of the Initial Warrant (the "Exercise Price"), subject to the adjustments as set forth in the warrant agreement substantially in the form of Exhibit B hereto (the "Warrant Agreement"); and WHEREAS, in connection with, and as a condition to, the issuance and purchase of the Initial Note, Seller and Buyer have agreed, subject to (among other terms and conditions set forth herein) the achievement of the commercial and technical milestones to be set forth on a written schedule (the "Milestone Schedule") to be reasonably negotiated by the parties as soon as reasonably practicable following the Initial Closing (as defined in Section 2.1 hereof), that the Seller will issue, and the Buyer will purchase, additional convertible secured promissory notes (the "Additional Notes" and each, an "Additional Note"; and together with the Initial Note, the "Notes"), each in the form of the Initial Note and each in the principal amount to be reasonably agreed to (up to $2,000,000) by the parties, and additional warrants (the "Additional Warrants" and each, an "Additional Warrant"; and together with the Initial Warrant, the "Warrants") to purchase, pursuant to an additional warrant agreement (the "Additional Warrant Agreement"; and together with the Warrant Agreement, the "Warrant Agreements"), the number of shares of the Common Stock equal to the principal loan amount of such corresponding Additional Note divided by eighty (80%) percent of the exercise price per share of such Additional Warrants, which exercise price shall be equal to the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the issuance date of such Additional Warrant, determined and adjusted in accordance with, and subject to the same terms and conditions provided in, the Warrant Agreement. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, the parties hereby agree as follows: 1. PURCHASE AND SALE. ----------------- 1.1 SALE OF NOTES AND WARRANTS. At the Initial Closing, Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the Purchase Price (as defined in Section 1.2(a) hereof), the Initial Note and the Initial Warrant (together, the "Securities"). Subject to Section 1.3 hereof, at each and any of the Subsequent Closings (as defined in Section 2.1 hereof), Seller shall issue to Buyer, and Buyer shall purchase from Seller, for the applicable Additional Purchase Price (as defined in Section 1.2(a) hereof), an Additional Note and an Additional Warrant (together, the "Additional Securities"). 1.2 PURCHASE PRICE AND PAYMENT. (a) PURCHASE PRICE. The aggregate purchase price for the Securities shall be $2,000,000 (the "Purchase Price"). The aggregate purchase price for any Additional Securities shall be the principal amount of each Additional Note (the "Additional Purchase Price"). The parties hereby agree that ninety-five (95%) percent of the Purchase Price (or, as applicable, of the Additional Purchase Price) will be allocated to each of the Notes and five (5%) percent of the Purchase Price (or, as applicable, of the Additional Purchase Price) will be allocated to each of the Warrants. (b) PAYMENT OF PURCHASE PRICE. The Purchase Price or, as applicable, the Additional Purchase Price shall be paid to Seller by Buyer on the applicable Closing Date (as defined in Section 2.1 hereof) via federal funds wire transfer(s) of immediately available funds in accordance with written instructions to be provided to Buyer by Seller at least two (2) business days prior to the applicable Closing Date. 1.3 SALE OF ADDITIONAL SECURITIES. Provided that the Initial Closing shall have occurred, subject to the other conditions contained herein, Buyer shall acquire, and Seller shall issue, Additional Securities for the applicable Additional Purchase Price if Seller shall have achieved, in accordance with the Milestone Schedule, the scheduled milestone(s) on or before the applicable date that such milestone(s) was to be achieved. 2. CLOSING. ------- 2.1 INITIAL CLOSING; SUBSEQUENT CLOSINGS. The closing of the sale and purchase of the Initial Note and the issuance of the Initial Warrant (the "Initial Closing"), and the closing of any sale and purchase of Additional Notes and issuance of other Additional Warrants (the "Subsequent Closings"; and together with the Initial Closings, the "Closings") shall be deemed to take place at the offices of Kirkpatrick & Lockhart LLP, 1251 Avenue of the Americas, 45th Floor, New York, NY 10020, at 10:00 a.m., local time, on such date as Buyer and Seller may mutually agree in writing. The date upon which the Initial Closing shall occur is herein called the "Initial Closing Date" and the date upon which any of the Subsequent Closings shall occur is herein called the "Subsequent Closing Date"; each, a "Closing Date". 2.2 CLOSING DELIVERIES. (a) SELLER DELIVERIES. Unless otherwise indicated herein, at each of the Closings, Seller shall deliver or cause to be delivered to Buyer the following: 2 (i) the duly executed Initial Note or Additional Note, as the case may be; (ii) a duly executed Intellectual Property Security Agreement (as defined in Section 3.6 hereof) and duly executed UCC-1 financing statements, at the Initial Closing; (iii) a duly executed Warrant Agreement or Additional Warrant Agreement, as the case may be; (iv) copies of any consents of all persons necessary to effectuate this Agreement and to consummate the transactions contemplated hereby; (v) a legal opinion, dated as of the applicable Closing Date, of Pillsbury Winthrop LLP, counsel to Seller, reasonably satisfactory in form and substance to Buyer; and (vi) written evidence of Nasdaq Consent (as defined in Section 6.2(c) hereof); PROVIDED, HOWEVER, that such evidence shall not be required at the Initial Closing. (b) BUYER DELIVERY. At each of the Closings, Buyer shall deliver or cause to be delivered to Seller the Purchase Price or, as applicable, the Additional Purchase Price. 3. TERMS OF THE NOTES. ------------------ 3.1 AMOUNT. The principal amount of the Initial Note shall be $2,000,000 and the principal amount of any Additional Note shall be the amount to be listed on the Milestone Schedule. 3.2 MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof or unless extended in writing by Buyer in its sole discretion, each of the Notes shall mature on the three-year anniversary date of the date of issuance of such Note (each, a "Note Maturity Date"). On the applicable Note Maturity Date of any of the Notes, unless converted into the Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing on such Note shall be immediately paid by Seller. 3.3 INTEREST; INTEREST RATE; PAYMENT. (a) Each of the Notes shall bear interest at a rate equal to eight (8%) percent (the "Interest Rate") per annum based on a 365-day year and shall be payable quarterly in arrears. Interest (other than interest accruing as a result of a failure by Seller to pay any amount when due as set forth in subsection (b) below) in respect of each of the Notes shall accrue until all amounts remaining owed under such Note shall be fully repaid or the date on which such Note shall be fully converted into Conversion Shares (the "Conversion Date"), as the case may be, and shall be payable in full on the earlier of (i) the Note Maturity Date, (ii) if only the principal of such Note shall have been converted, and such conversion shall have occurred prior to the Note Maturity Date, ten (10) days after the Conversion Date or (iii) otherwise in accordance with Section 6.2(c)(iii) hereof; PROVIDED, 3 HOWEVER, that any interest accruing on overdue amounts pursuant to subsection (b) of this Section 3.3 shall be payable on demand. (b) If all or a portion of the principal amount of any of the Notes or any interest payable thereon shall not be repaid when due whether on the applicable repayment date, by acceleration or otherwise, such overdue amounts on such Note shall bear interest at a rate per annum that is three (3%) percent above the Interest Rate (i.e., 11%) from the date of such non-payment until such amount is paid in full (after as well as before judgment). All payments to be made by Seller hereunder or pursuant to the Notes shall be made, without setoff or counterclaim, in lawful money of the United States by certified check or wire transfer in immediately available funds. 3.4 CONVERSION; VOLUNTARY PREPAYMENT. (a) Subject to Section 3.5 hereof, Buyer may convert the principal and/or any accrued and unpaid interest of any of the Notes, in whole or part, into shares (the "Conversion Shares") of Common Stock at the Conversion Price (as defined below) at any time and from time to time on or after the date of issuance of such Note. For purposes hereof, "Conversion Price" (which shall be hereafter subject to adjustment as provided in Sections 3.7 and 3.8 hereof) for any of the Notes shall mean the product of (i) 0.8 multiplied by (ii) the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the issuance date of such Note. The Conversion Price for the Initial Note, as of the date hereof, shall be $1.1536. Upon conversion, Buyer shall receive the number of shares of Common Stock calculated by dividing the principal amount of, and (at Buyer's election) any interest on, such Note being converted by the Conversion Price. No fractional shares of Common Stock shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. None of the Notes shall be subject to automatic conversion or to conversion at the option of Seller. (b) All or part of any of the Notes may be prepaid by Seller ten (10) days following receipt by Buyer of written notice thereof from Seller; PROVIDED, HOWEVER, that any such prepayment on such Note shall be first applied to accrued and unpaid interest of the outstanding Notes and then against their outstanding principal in the inverse order of maturity; and PROVIDED, FURTHER, that if Buyer shall have received such prior written notice that all or any part of such Note shall be prepaid, Buyer shall be immediately entitled to convert such Note at the applicable Conversion Price. 3.5 CONVERSION PROCEDURES. In order to exercise the voluntary conversion rights set forth in Section 3.4 hereof, Buyer may surrender any of the Notes, appropriately endorsed, to Seller at Seller's principal office, accompanied by written notice to Seller (i) stating that Buyer elects to convert such Note (or portion thereof) and (ii) setting forth the name or names (with address(es)) in which the Conversion Shares shall be issued and registered on the books of Seller. The Conversion Date shall be deemed to be the date that such Note and notice is received by Seller. Within five (5) business days after the Conversion Date, Seller shall deliver to Buyer a stock certificate or certificates (in the denominations requested by Buyer) for the Conversion Shares and/or a notice certified by Seller's Secretary that the Conversion Shares due on such conversion have been issued to and registered on the books of Seller in the name or names specified by Buyer. 4 3.6 SECURITY. Each of the Notes shall be secured by Seller's intellectual property (including, without limitation, the patents, trademarks and tradenames set forth on SCHEDULE 4.8(a) hereto) pursuant to and as set forth in the Intellectual Property Security Agreement substantially in the form of EXHIBIT C hereto, as the same may be amended, modified, restated or supplemented from time to time (the "Intellectual Property Security Agreement"), which shall be recorded on or promptly after the Initial Closing Date with the assignment division of the United States Patent and Trademark Office. 3.7 CONVERSION PRICE ADJUSTMENT. (a) The Conversion Price shall be subject to adjustment as follows: (i) In the event that Seller shall issue additional shares of capital stock (or securities convertible into or exchangeable for capital stock) via a stock dividend or stock distribution paid with respect to its Common Stock, or declare any dividend or other distribution payable with additional shares of its capital stock (or securities convertible into or exchangeable for capital stock) with respect to its Common Stock or effect a split or subdivision of its outstanding shares of Common Stock, the Conversion Price shall, concurrently with the effectiveness of such stock dividend, stock distribution, split or subdivision, or the earlier declaration thereof, be proportionately decreased. (ii) In the event that the outstanding shares of the Common Stock shall be combined or consolidated, by reclassification, reverse stock split or otherwise, into a lesser number of shares of Common Stock, the Conversion Price shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (iii) In the event that Seller shall issue Additional Shares of Common Stock (as defined in the Warrant Agreement) without consideration or for a consideration per share less than the then-applicable Conversion Price, then and in such event, such Conversion Price shall be adjusted in the same manner (and in accordance with the adjustment provisions set forth in the Warrant Agreement) that the Exercise Price (as defined in the Warrant Agreement) shall be adjusted in the event that Seller shall issue Additional Shares of Common Stock without consideration or for a consideration per share less than the then-applicable Exercise Price. (b) Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 3.7, Seller, at its expense, shall promptly compute such adjustment or readjustment of the Conversion Price in accordance with the terms hereof and furnish to Buyer a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and, if applicable, shall obtain a Nasdaq Consent. 3.8 PRESERVATION OF CONVERSION RIGHTS UPON MERGER, CONSOLIDATION, ETC. In the case of any consolidation of Seller with, or merger of Seller with or into, another corporation or entity (other than a consolidation or merger that does not result in any reclassification or change of the outstanding capital stock of Seller), or in the case of any sale or conveyance to another corporation or entity of all or substantially all of the assets of Seller, Seller or such successor or purchasing corporation or entity, as the case may be, shall provide in a written agreement to Buyer that Buyer shall have the right thereafter to be issued upon conversion of any of the Notes in accordance 5 with its terms the kind and amount of equity interests and/or other securities and property that Buyer would have owned or have been entitled to receive as a result of such consolidation, merger, sale or conveyance had such Note been converted in full immediately prior to such action. At the request of Buyer, the resulting or surviving entity in any such transaction, if other than Seller, shall acknowledge in writing Buyer's rights hereunder. The provisions of this Section 3.8 shall similarly apply to successive consolidations, mergers, sales or conveyances. 3.9 ASSURANCES WITH RESPECT TO CONVERSION RIGHTS. Seller shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by Seller, but shall at all times in good faith assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of Buyer against impairment or dilution. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer as follows: 4.1 DUE ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as presently contemplated. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or the locations of its property requires such qualification, except where the failure to do so would not have a material adverse effect on Seller's business, operations, assets or condition (financial or otherwise). 4.2 POWER AND AUTHORITY. Seller has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements contemplated by this Agreement (including, without limitation, the Notes, Intellectual Property Security Agreement and Warrant Agreements) and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and all other agreements contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. When executed and delivered by Seller at a Closing, each of the Notes, the Intellectual Property Security Agreement and the Warrant Agreements will be the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 6 4.3 AUTHORIZATION OF THE NOTES, WARRANTS, CONVERSION AND WARRANT SHARES. All corporate action on the part of Seller and its stockholders necessary for the authorization, issuance, sale and/or delivery of the Notes, the Warrants, the Conversion Shares and the Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") has been (or, prior to the applicable Subsequent Closing Date, subject only to obtaining a Nasdaq Consent, will be) taken, including, without limitation, the appropriate waiver of the stockholder rights provided by the Rights Agreement between Seller and First Interstate Bank, Ltd, as Rights Agent, dated as of February 26, 1992, or any other similar anti-takeover protections. The issuance, sale and/or delivery of the Initial Note and the Initial Warrant shall not require a Nasdaq Consent. The Conversion Shares and the Warrant Shares, when converted or exercised in accordance with this Agreement, will be validly issued and outstanding, fully paid and nonassessable, and neither they nor any of the Notes or Warrants will trigger or be subject to any preemptive, anti-dilution, ratchet, voting, change of control, first offer or refusal or other similar rights of any stockholder of Seller or other that shall not have been irrevocably and unconditionally waived as of the Initial Closing. 4.4 COMPLIANCE WITH LAWS. Seller is in compliance in all material respects with all Federal, state, local and foreign laws, statutes, ordinances, regulations, orders, judgments, injunctions, awards or decrees (collectively, "Laws") applicable to it or any of its properties or operations. Seller has not received any notice of material violation or alleged material violation of any Law by it. Seller has all licenses, permits, orders and approvals of Federal, state, local and foreign governmental or regulatory bodies necessary for the conduct of its business and operations. 4.5 NO BREACH; CONSENTS. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not (i) result in any lien, pledge, mortgage, security interest, claim, lease, charge, option, easement, servitude or other encumbrance whatsoever (collectively, "Liens") upon any of the property of Seller (other than in favor of Buyer) or (ii) violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of, accelerate or trigger the rights of any person under, or constitute (or with notice or lapse of time or both would constitute) a default under (a) any material instrument, contract or other agreement to which Seller is a party or by or to which it or any of its properties is bound or subject; (b) Seller's Certificate of Incorporation or By-laws (and all amendments thereto up through the date hereof); or (c) any Law applicable to Seller or any of its properties or operations. Except as set forth on SCHEDULE 4.5(a) hereto, no consent, approval or authorization of, or declaration or filing with, any governmental authority, stockholder of Seller or other person is required on the part of Seller in connection with the execution, delivery or performance of this Agreement or the consummation by it of the transactions contemplated hereby. 4.6 LITIGATION. Except as disclosed in Seller's SEC Reports (as defined in Section 4.7 hereof), there are no material suits or actions, administrative, arbitration or other proceedings or governmental investigations pending or, to Seller's knowledge, threatened against or affecting Seller or any of its properties or assets. There are no judgments, orders, injunctions, decrees or awards against Seller that are not satisfied or remain outstanding. 7 4.7 SEC REPORTS. Seller has timely filed the following Seller reports (the "SEC Reports") with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"): (a) annual reports on Form 10-K for the years ended December 31, 1998, 1999 and 2000; (b) quarterly reports on Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001; and (c) proxy statements for the years 1998, 1999 and 2000. As of their respective dates, none of the SEC Reports or statements or communication provided therein contained any untrue statement of a material fact or omitted to state any 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. There is no fact, occurrence, condition or development known to Seller that materially adversely affects the business, properties, prospects or financial condition of Seller that has not been set forth in the SEC Reports. 4.8 INTELLECTUAL PROPERTY. Schedule 4.8(a) hereto sets forth all material United States and foreign patents, patent applications, service marks, trade names, trademarks, copyrights, whether registered or unregistered or existing under statute or common law, and all registrations, applications and licenses to use any of the foregoing, owned or used by Seller in the conduct of its business (the "Intellectual Property"). Except as set forth on SCHEDULE 4.8(b) hereto, Seller has full right, title and interest in and to all of such Intellectual Property, free and clear of any Lien and no third party has any ownership right, title, interest, claim in or on any of the Intellectual Property. None of the Intellectual Property nor, to Seller's best knowledge, any product, formula, formulation, process, method, know-how, substance, part or other material relating to such Intellectual Property or otherwise being used in the business of Seller infringes upon or violates any rights owned or held by any other person. Except as set forth on SCHEDULE 4.8(b), there is not pending nor, to Seller's knowledge, threatened any claim, suit or action contesting or challenging the rights of Seller in or to any Intellectual Property or the validity of any of the Intellectual Property. To Seller's knowledge, there is no infringement upon or unauthorized use of any of the Intellectual Property by any third party. Except as set forth on SCHEDULE 4.8(b), there is no liability or obligation of Seller to pay amounts for the use of any of the Intellectual Property pursuant to any license or otherwise, and none of the Intellectual Property is licensed by or to Seller or any of its affiliates (I.E., any other person controlling, controlled by or under common control with Seller) or associates (as defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities Act")). Seller has not received any notice or other communication indicating that any of the letters patent, service marks or trademarks included in the Intellectual Property are invalid. No officer, director, equityholder or affiliate of Seller nor any of their respective associates has any right to or interest in any of the Intellectual Property, including, without limitation, any right to payments (by royalty or otherwise) in respect of any use or transfer thereof. All fees or other amounts due to any governmental authority in respect of the Intellectual Property, including, without limitation, any amounts payable in respect of filings, registrations and/or renewals have been, and will be through the Initial Closing Date, fully and timely paid. To Seller's knowledge, all technical information developed by and belonging to Seller that has not been patented has been kept confidential. 4.9 REGISTRATION RIGHTS. No person or entity has, and as of the Initial Closing no person or entity will have, demand, "piggy-back", or other rights to cause Seller to file any registration statement under the Securities Act relating to any securities of Seller or to participate in any such registration statement. 8 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and warrants to Seller as follows: 5.1 DUE ORGANIZATION. Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite partnership power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted. 5.2 POWER OF BUYER. Buyer has the requisite partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency, reorganization or other similar laws generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 5.3 NO BREACH. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby will not violate, conflict with or otherwise result in the breach of any of the terms and conditions of, result in a material modification of or constitute (or with notice or lapse of time or both would constitute) a default under (i) any of the organizational documents of Buyer; (ii) any material instrument, contract or other agreement to which Buyer is a party or by or to which it or any of its properties is bound or subject; or (iii) any Law applicable to Buyer or any of its properties or operations. 5.4 GOVERNMENTAL AND OTHER CONSENTS. No consent, approval or authorization of, or declaration or filing with, any governmental authority or other person is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement by it or the consummation of the transactions contemplated hereby. 5.5 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Securities and the Additional Securities, if any (and any Common Stock issuable upon conversion or exercise of the Securities or Additional Securities), for Buyer's own account, for investment and not with a view to, or for sale in connection with, any distribution of such securities or any part thereof. Buyer (i) has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks involved in purchasing the Securities and any Additional Securities, (ii) is able to bear the economic risks involving in purchasing the Securities and any Additional Securities, (iii) is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (iv) has had the opportunity to ask questions of, and receive answers from, Seller and persons acting on Seller's behalf concerning Seller's business, management, and financial affairs and the terms and conditions of the Securities and Additional Securities. 9 6. COVENANTS AND AGREEMENTS. ------------------------ 6.1 PRE-CLOSING COVENANTS AND AGREEMENTS. The parties hereto covenant and agree to perform or take any and all such actions to effectuate the following from the date hereof until the earlier of the Initial Closing Date or the termination of this Agreement: (a) FURTHER ASSURANCES. Each of the parties shall, prior to or at the Initial Closing, as may be appropriate, execute such documents and other papers and take such other further actions as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, and in the Initial Note, the Warrant Agreement and the Intellectual Property Security Agreement. Each party shall use its best efforts to fulfill or obtain the fulfillment of the conditions to its obligation to effect the Initial Closing, including promptly obtaining any consents required in connection herewith. (b) ADDITIONAL DISCLOSURE. Seller shall promptly notify Buyer of, and furnish Buyer with, any information it may reasonably request with respect to the occurrence of any event or condition or the existence of any fact that would cause any of the conditions to Buyer's obligation to consummate the transactions contemplated by this Agreement not to be fulfilled. 6.2 POST-CLOSING COVENANTS AND AGREEMENTS. Buyer and Seller covenant and agree from and after the Initial Closing Date to perform or take the following actions: (a) RESERVE FOR CONVERSION SHARES AND WARRANT SHARES. Subject to Section 6.2(c) hereof, Seller shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock for the purpose of issuing Common Stock upon the conversion in full of any of the Notes and exercise in full of the Warrants. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to satisfy the conversion in full of the Notes and exercise of the Initial Warrant and Additional Warrants, if any, Seller shall, subject to Section 6.2(c), forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (b) REGISTRATION RIGHTS. ------------------- (i) DEMAND REGISTRATION. At any time on or after the date six (6) months following the date hereof, Buyer may, by written notice to Seller (a "Demand Notice"), demand that Seller register for sale under the Securities Act all or any portion of the Conversion Shares or Warrant Shares (including shares covered by the Notes and/or Warrants to the extent Seller receives appropriate assurances that such Notes or Warrants will be converted or exercised prior to or upon the effectiveness of such registration) held by Buyer (or its successor in interest or transferee) in the amount and manner specified in the Demand Notice; PROVIDED, HOWEVER, that the reasonably anticipated aggregate price of the securities to be registered and offered to the public would exceed $500,000. Seller shall be obligated to register securities pursuant to this Section 6.2(b)(i) on two (2) occasions only; PROVIDED, HOWEVER, that if Seller is a registrant then entitled to file a registration statement on Form S-3 or any successor form thereto, Seller shall be obligated to register Buyer's securities on one (1) additional occasion if Buyer provides a Demand Notice requesting that its securities be registered on Form S-3 or any successor form thereto; and PROVIDED, FURTHER, that any such obligation shall be deemed satisfied only when a registration statement covering all registrable securities specified in the Demand Notice shall have become effective. 10 (ii) PIGGYBACK REGISTRATION. If, at any time(s) after the date hereof, Seller shall determine to register for its own account or the account of any other(s) under the Securities Act any of its equity securities, it shall send to Buyer (or its successor in interest) written notice of such determination and, if within twenty (20) days after receipt of such notice, Buyer (or its successor in interest or transferee) shall so request in writing, Seller shall include in such registration statement all of the Conversion Shares or Warrant Shares (including shares covered by the Notes and/or Warrants to the extent Seller receives appropriate assurances that such Notes or Warrants will be converted or exercised upon the effectiveness of such registration) held by Buyer (or its successor in interest or transferee), and requested to be registered. Notwithstanding the foregoing, in the event that any registration shall be, in whole or in part, an underwritten offering, the number of registrable securities to be included in such an underwriting may be reduced (PRO RATA among the Buyer and its successors or assigns and the holders of the other registrable securities contemplated being included in such registrations based on the number of registrable securities requested to be registered by each of them) if and to the extent that the managing underwriter shall be of the good faith opinion (expressed in writing) that such inclusion would reduce the number of registrable securities to be offered by Seller or otherwise adversely affect such offering. Nothing herein shall be construed so as to require Seller, in connection with any proposed offering, to engage the services of an underwriter, as, for example, if Seller shall file a registration statement under Rule 415 of the Securities Act without the services or engagement of any underwriter. This "piggy-back" registration right shall not apply to an offering of equity securities on Form S-4 or S-8 (or their then-equivalent forms) relating to securities to be issued solely in connection with an acquisition of any entity or business or securities issuable in connection with a stock option or other employee benefit plan. (iii) REGISTRATION PROCEDURES. Whenever Seller is required by this Section 6.2(b) to effect the registration of any securities under the Securities Act, Seller will: (A) prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such securities as expeditiously as possible after delivery of a Demand Notice and in no event later than 90 days after receipt of the Demand Notice, and use its best efforts to cause such registration statement to become effective under the Securities Act not later than one hundred twenty (120) days from the date of the Demand Notice; PROVIDED, HOWEVER, that if such Demand Notice requests that Seller register such securities on Form S-3, Seller shall use its best efforts to cause such registration statement to become effective under the Securities Act not later than sixty (60) days from the date of the Demand Notice. Such registration statement shall remain effective for the lesser of one hundred eighty (180) days or until all of Buyer's securities included in such registration statement have been sold ("Requisite Period"); (B) promptly prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the Requisite Period and comply with the provisions of 11 the Securities Act with respect to the disposition of all securities covered by such registration statement; (C) promptly furnish to Buyer and to each underwriter (if any) such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as Buyer reasonably may request in order to facilitate the intended disposition of the securities covered by such registration statement; (D) use its best efforts (w) to register or qualify the securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as Buyer or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, (x) to prepare and file in those jurisdictions such amendments (including post effective amendments) and supplements, and take such other actions, as may be necessary to maintain such registration and qualification in effect at all times for the period of distribution contemplated thereby, (y) to take such further action as may be necessary or advisable to enable the disposition of the securities covered by such registration statement in such jurisdictions and (z) to remain a registrant entitled to use Form S-3 or any successor form to register the re-sale of the securities under the Securities Act; PROVIDED, HOWEVER, that Seller shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (E) use its best efforts (to the extent eligible therefor) to facilitate the listing and reporting of such securities on the Nasdaq National Market (the "NNM"); (F) immediately notify Buyer and, if applicable, each underwriter participating in the offering covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which Seller has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and promptly amend or supplement such registration statement to correct any such untrue statement or omission; (G) immediately notify Buyer of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and use its best effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time; (H) pay all expenses incurred in complying with this Section 6.2(b), including, without limitation, all registration and filing fees, printing expenses, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc. and fees of transfer agents and registrars, and Seller shall permit, at Seller's expense, subject to the immediately succeeding proviso, a single firm of 12 counsel and a single accounting firm designated by Buyer to review the registration statement and all amendments and supplements thereto for a reasonable period of time prior to their filing; PROVIDED, HOWEVER, that in no event shall Seller be required to reimburse Buyer for legal and accounting fees in excess of $25,000 per registration statement, and Seller shall not file any document in a form to which such counsel reasonably objects; (I) if the offering is an underwritten offering, enter into a written agreement with the managing underwriter in such form and containing such provisions as are usual and customary in the securities business for such an arrangement between such underwriter and companies of Seller's size and investment stature, including, without limitation, customary indemnification and contribution provisions; (J) if the offering is an underwritten offering, at the request of Buyer, use its best efforts to furnish to Buyer on the date that securities are delivered to the underwriter(s) for sale pursuant to such registration: (x) a copy of an opinion dated such date of counsel representing Seller for the purposes of such registration, addressed to the underwriter(s), reasonably satisfactory to Buyer and such underwriter(s) and (y) a copy of a letter dated such date from the independent public accountants retained by Seller, addressed to the underwriter(s), reasonably satisfactory to Buyer and such underwriters; (K) make available for inspection by Buyer, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by Buyer or underwriter, all financial and other records, pertinent corporate documents and properties of Seller, and cause Seller's officers, directors and employees to supply all information reasonably requested by Buyer, or such underwriter, attorney, accountant or agent in connection with such registration statement; (L) take all actions reasonably necessary to facilitate the timely preparation and delivery of certificates (not bearing any legend restricting the resale or transfer of such securities) representing the securities to be sold pursuant to the registration statement and to enable such certificates to be in such denominations and registered in such names as Buyer or any underwriter may reasonably request; and (M) take all other reasonable actions necessary to expedite and facilitate the registration of the securities pursuant to the registration statement. (iv) Seller shall not grant to any third party any registration rights materially inconsistent with any of those contained herein, or that would, in any way, materially adversely affect or limit the registration rights of Buyer or its permitted assigns without the prior written consent of Buyer. (c) NASDAQ CONSENT. -------------- (i) If, as a result of a Conversion Price adjustment pursuant to Section 3.7 hereof and/or an Exercise Price adjustment pursuant to Section 3.3 of the Warrant Agreement, the Securities could be converted or 13 exercised, as applicable, into a number of shares of Common Stock in excess of which Seller is permitted to issue (I.E., nineteen and 99/100 (19.99%) percent of the then-outstanding shares of Seller's capital stock (the "Nasdaq Threshold")) under the rules or regulations (the "Trading Regulations") of the NNM, or any stock exchange or other self-regulatory organization to which Seller or its securities is subject (collectively, "Nasdaq"), Seller shall (x) promptly thereupon call and hold a meeting of its stockholders in respect thereof and (y) use its best efforts to (A) obtain the necessary approval of its stockholders, (B) obtain an appropriate order from Nasdaq that there is an applicable exemption from the Trading Regulations or (C) obtain a written opinion from Seller's legal counsel that such approval is otherwise not required, which opinion shall be reasonably satisfactory to Buyer (each, a "Nasdaq Consent"). (ii) If, as a result of the Trading Regulations, Seller may not issue to Buyer all of the Conversion Shares and/or Warrant Shares to which Buyer would otherwise be entitled pursuant to this Agreement, the Initial Note and the Initial Warrant Agreement without first obtaining Nasdaq Consent, Seller shall, upon request of Buyer, issue to Buyer the maximum number of shares of Common Stock that Seller may issue without exceeding the Nasdaq Threshold. In no event shall Buyer exercise or convert any of the Securities or Additional Securities into a number of shares of Common Stock that would exceed the Nasdaq Threshold unless and until Seller shall obtain a Nasdaq Consent. (iii) If Seller shall fail to obtain any Nasdaq Consent that would be required in order for Buyer to receive all of the securities of Seller to which it would otherwise be entitled hereunder within one hundred and twenty (120) days following an adjustment in excess of the Nasdaq Threshold (the "Nasdaq Trigger Date"), then in such event (x) the portion of the principal of, and any accrued and unpaid interest on, outstanding Note(s) that, if converted into shares of Common Stock, would be in excess of the Nasdaq Threshold, shall be immediately due and payable to Buyer by Seller and (y) Buyer shall be entitled to the additional anti-dilution protection set forth in the following sentence. If at any time after the Nasdaq Trigger Date, Seller shall issue Additional Shares of Common Stock (as defined in Section 3.3(1)(D) of the Warrant Agreement), then in such event, Seller shall issue to Buyer warrants ("Trigger Date Warrants") to purchase additional shares of Common Stock in an amount equal to twenty (20%) percent of such Additional Shares of Common Stock (less the number of shares of Common Stock that Buyer shall be entitled to as a result of any other anti-dilution protection in this Agreement or in the Warrant Agreements in respect of such issuance) at an exercise price per share equal to fifty (50%) percent of the Fair Market Value (as defined in the Warrant Agreement) of such Common Stock at such time, and Seller shall promptly issue such warrants pursuant to a warrant agreement substantially in the form of the Warrant Agreement; PROVIDED, HOWEVER, that the obligation of Seller to issue such warrants pursuant to this Section 6.2(c)(iii) shall terminate at such time as Buyer shall have received warrants to purchase a number of shares of Common Stock equal to the number of securities of Seller that Buyer would have been entitled to but for the Trading Regulations; and PROVIDED, FURTHER, that to the extent that the issuance of the Trigger Date Warrants shall cause Seller to issue to Buyer such number of shares of Common Stock that shall exceed the Nasdaq Threshold, Seller shall have the right to immediately pay any portion of principal and accrued and unpaid interest on the then-outstanding Note(s) to reduce the number of shares of Common Stock into which Buyer may convert and/or 14 exercise without exceeding the Nasdaq Threshold. In the event that any provision in this Section 6.2(c)(iii) shall conflict with any of the Trading Regulations, Buyer and Seller shall reasonably negotiate an alternative provision that comes closest to expressing the intention of such conflicting provision. (iv) If Buyer desires to purchase Additional Securities and each of the conditions (other than that contained in Section 8.2(a) hereof) to the purchase and issuance of any Additional Securities has been met (or duly waived), including, without limitation, the achievement of the scheduled milestone on or before the applicable date that such milestone was to be achieved in accordance with the Milestone Schedule, but such issuance would require, in accordance with the Trading Regulations, obtaining Nasdaq Consent, then (x) Seller shall issue, and Buyer shall purchase, the maximum number of Additional Securities permitted without obtaining such approval, which Additional Securities shall be allocated between the Notes and the Warrants as Buyer and Seller shall reasonably agree and (y) Seller shall use its best efforts to obtain Nasdaq Consent as soon as practicable. (d) INTELLECTUAL PROPERTY NOTIFICATION. Seller shall promptly notify Buyer of any notice or other communication indicating that any of the letters patent, service marks or trademarks included in the Intellectual Property are invalid or may become invalid for any reason, including, without limitation, Seller's failure to make timely payments of all fees and other amounts due to any governmental authority or any other person in respect of the Intellectual Property, including any amounts payable in respect of filings, registrations and/or renewals. (e) LIEN PERFECTION. Seller agrees to execute the UCC-1 financing statements provided for by Law, together with any and all other instruments, assignments or documents, and shall take such other action as may be required to perfect or continue the perfection of Buyer's security interest in the Intellectual Property. Unless prohibited by Law, Seller hereby authorizes Buyer to execute and file any such financing statement on its behalf. (f) NOTICES OF RECORD DATE. If, during any time that any of the Notes or Warrants is outstanding, Seller shall propose: (i) to declare any dividend or distribution upon any class or series of capital stock, whether in cash, property, stock or other securities; (ii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iii) to merge or consolidate with or into any other entity, or to sell, lease or convey all or substantially all of its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, Seller shall mail to Buyer: (x) at least twenty (20) days' prior written notice of the date on which a record shall be taken for such dividend or distribution (and specifying the date on which the holders of the affected class or series of capital stock shall be entitled thereto) or for determining the rights to vote, if any, in respect of the matters referred to in clauses (ii) and (iii) in this Section 6.2(f) above; and (y) in the case of the matters referred to in clauses (ii) and (iii) in this Section 6.2(f), written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, 15 whichever is earlier, and shall also notify Buyer in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction (and specify the date on which the holders of shares of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event) and Seller shall thereafter give Buyer prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after Seller has given the first notice provided for herein or sooner than ten (10) days after Seller has given notice of any material changes as provided for herein. (g) FURTHER ASSURANCES; MILESTONE SCHEDULE. Each of the parties shall execute such documents and other papers and take such further action as may be reasonably required to carry out the provisions hereof and effectuate the transactions contemplated hereby, including, but not limited to, obtaining any consents, waivers or approvals required in connection herewith. As soon as is reasonably practicable following the Initial Closing Date, Buyer and Seller shall make reasonable efforts to negotiate and complete the Milestone Schedule, which shall set forth, among other items, the dates upon which certain commercial and technical milestones shall be reached by Seller and the rights and obligations of Buyer and Seller in respect of purchasing and issuing of Additional Securities at such times. 7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE. -------------------------------------------------------- 7.1 INITIAL CLOSING. The obligation of Buyer to complete the Initial Closing is subject to the fulfillment on or prior to the Initial Closing Date of all of the following conditions, any one or more of which (other than Section 7.1(d) hereof) may be waived by Buyer in writing: (a) AGREEMENTS AND CONDITIONS. On or before the Initial Closing Date, Seller shall have complied with and duly performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Initial Closing Date with the same force and effect as though such representations and warranties had been made on and as of such Closing Date. (c) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall not have accrued any change, circumstance or event that constitutes or has resulted in, or that is reasonably likely to result in, a material adverse change in Buyer's business, assets, operations or financial condition. (d) NO LEGAL PROCEEDINGS. No court or governmental action or proceeding shall have been instituted or threatened to restrain or prohibit the transactions contemplated hereby. (e) CONSENTS. Seller shall have obtained all consents necessary to effectuate this Agreement and to consummate the transactions contemplated hereby and delivered copies thereof to Buyer. 16 (f) OPINION OF SELLER'S COUNSEL. Buyer shall have received a legal opinion, dated the applicable Closing Date, of Pillsbury Winthrop LLP, counsel to Seller, reasonably satisfactory in form and substance to Buyer. (g) INITIAL NOTE. Seller shall have duly executed and delivered to Buyer the Initial Note. (h) INTELLECTUAL PROPERTY SECURITY AGREEMENT. Seller shall have duly executed and delivered to Buyer the Intellectual Property Security Agreement. (i) FINANCING STATEMENTS. Seller shall have duly executed and delivered to Buyer such UCC-1 financing statements or other documents or instruments that Buyer reasonably believes are necessary to secure, or evidence the security on, the Notes. (j) INITIAL WARRANT AGREEMENT. Seller shall have duly executed and delivered to Buyer the Initial Warrant Agreement. (k) PAYMENT OF CERTAIN FEES. Buyer shall have received the Expense Reimbursement (as defined in Section 11.5 hereof). 7.2 SUBSEQUENT CLOSINGS. The obligation of Buyer to complete any of the Subsequent Closings is subject to the fulfillment on or prior to the applicable Subsequent Closing Date of each of the conditions set forth in Section 7.1 hereof (except subsections (c), (g), (h), (i), (j) and (k) thereof) and all of the following conditions, any one or more of which (including the applicable conditions in Section 7.1, except subsection (d) thereof, and Section 7.2(a) below) may be waived by Buyer in writing: (a) NASDAQ CONSENT. Buyer shall have received written evidence reasonably satisfactory to it that Seller shall have obtained any necessary Nasdaq Consent. (b) MILESTONE SCHEDULE. Buyer shall have received written evidence reasonably satisfactory to it that Seller has achieved the scheduled milestone on or before the applicable date that such milestone was to be achieved in accordance with the Milestone Schedule. (c) ADDITIONAL NOTES. Seller shall have duly executed and delivered the appropriate Additional Note. (d) ADDITIONAL WARRANT AGREEMENTS. Seller shall have duly executed and delivered the appropriate Additional Warrant Agreement. 8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE. --------------------------------------------------------- 8.1 INITIAL CLOSING. The obligation of Seller to complete the Initial Closing is subject to the fulfillment on or prior to the Initial Closing Date of all of the following conditions, any one or more of which (other than Section 8.1(c) hereof) may be waived by Seller in writing: 17 (a) AGREEMENTS AND CONDITIONS. On or before the Initial Closing Date, Buyer shall have complied with and performed and satisfied in all material respects all agreements and conditions on its part to be complied with and performed by such date pursuant to this Agreement. (b) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Initial Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. (c) NO LEGAL PROCEEDINGS. No court or governmental action or proceeding shall have been instituted or threatened to restrain or prohibit the transactions contemplated hereby. (d) INITIAL WARRANT AGREEMENT. Buyer shall have duly executed and delivered to Seller the Initial Warrant Agreement. (e) PAYMENT OF PURCHASE PRICE. Buyer shall have paid to Seller the Purchase Price. 8.2 SUBSEQUENT CLOSINGS. The obligation of Seller to complete any Subsequent Closing is subject to the fulfillment on or prior to the applicable Subsequent Closing Date of each of the conditions set forth in Section 8.1 hereof and all of the following conditions, any one or more of which (including the conditions in Section 8.1, except subsection (c) thereof, and Section 8.2(a) below) may be waived by Seller in writing: (a) NASDAQ CONSENT. Seller shall have received written evidence reasonably satisfactory to it that any necessary Nasdaq Consent shall have been obtained. (b) ADDITIONAL WARRANT AGREEMENTS. Buyer shall have duly executed the appropriate Additional Warrant Agreement. (c) PAYMENT OF ADDITIONAL PURCHASE PRICE. Buyer shall have paid to Seller the appropriate Additional Purchase Price 9. EVENTS OF DEFAULT. If any of the following events (each, an "Event of Default") shall occur and be continuing: (i) Seller shall fail to pay any principal of any of the Notes, within three (3) business days after such principal payment becomes due in accordance with the terms thereof or hereof; or Seller shall fail to pay any interest on any of the Notes or any other amount payable thereunder, within five (5) business days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; (ii) Any representation or warranty made or deemed made by Seller herein or in any other agreement, certificate or instrument contemplated by this Agreement or that is contained in any certificate, document or financial or other statement furnished by Seller at any time under or in connection with this Agreement shall have been incorrect in any material respect on or as of the date made or deemed made; 18 (iii) Seller shall default, in any material respect, in the observance or performance of any other agreement contained in this Agreement or any other agreement or instrument contemplated by this Agreement (including the Warrant Agreements and the Intellectual Property Security Agreement), and such default shall continue unremedied for a period of ten (10) days after written notice to Seller of such default; or (iv) (a) Seller shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts or (y) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Seller shall make a general assignment for the benefit of its creditors; or (b) there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (a) above that (A) results in the entry of an order for relief of any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (c) there shall be commenced against Seller any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (d) Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (a), (b) or (c) above; or (e) Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, then, and in any such event, (x) if such event is an Event of Default specified in clause (iv) above of this Section 9 with respect to Seller, all of the Notes (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and any of the Notes shall automatically and immediately become due and payable and (y) if such event is any other Event of Default, Buyer may, by written notice to Seller, immediately declare all of the Notes (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and any of the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 9, presentation, demand, protest and all other notices of any kind are hereby expressly waived by Seller. 10. TERMINATION. This Agreement may be terminated prior to the Initial Closing Date: (a) at any time by the mutual consent in writing of the parties hereto; (b) by Seller or Buyer in writing if the Initial Closing shall not have occurred by November 15, 2001, but only if the Initial Closing shall not have occurred for a reason other than the breach by such terminating party of any of its representations, warranties, covenants or agreements contained herein; 19 (c) at any time by Buyer in writing upon a material breach of any of the representations, warranties, covenants or agreements of Seller contained in this Agreement; or (d) at any time by Seller in writing upon a material breach of any of the representations, warranties, covenants or agreements of Buyer contained in this Agreement. In the event of termination of this Agreement by Seller or Buyer prior to the Initial Closing as set forth above, this Agreement shall forthwith terminate and there shall be no liability on the part of Seller or Buyer; PROVIDED, HOWEVER, that no party shall be relieved of any loss, damage or liability occurring or sustained as a result of a termination following such party's material breach of any representation, warranty, covenant or agreement contained in this Agreement. Notwithstanding any termination of this Agreement, the provisions of this Section 10 and Section 11 hereof shall survive. 11. MISCELLANEOUS. ------------- 11.1 PUBLICITY. The parties may issue a public announcement following the Initial Closing in form and content reasonably satisfactory to each of the parties hereto. 11.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: The Immune Response Corporation 5935 Darwin Court Carlsbad, CA 92008 Attention: President Facsimile: (760) 431-8636 With a copy (which copy shall not constitute notice) to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Attention: Thomas E. Sparks, Esq. Facsimile: (415) 983-7396 20 (ii) If to Buyer: Kevin Kimberlin Partners, L.P. 535 Madison Avenue New York, NY 10022 Attention: Kevin Kimberlin and Bruno Lerer, Esq. Facsimile: (212) 486-7392 With a copy (which copy shall not constitute notice) to: Kirkpatrick & Lockhart LLP 1251 Avenue of the Americas, 45th Floor New York, NY 10020-1104 Attention: Stephen R. Connoni, Esq. Facsimile: (212) 536-3901 11.3 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and the certificates executed in connection with the consummation of the transactions contemplated hereby embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof. 11.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such jurisdiction. 11.5 EXPENSES. Seller and Buyer shall, subject to the immediately succeeding sentence, bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement, the Notes, the Warrants and the Intellectual Property Security Agreement and the consummation of the transactions contemplated hereby and thereby, including, without limitation, all fees and expenses of agents, representatives, counsel, brokers or finders and accountants. Notwithstanding the preceding sentence, Seller shall reimburse Buyer at the Initial Closing for all legal expenses and costs incurred by Buyer in connection with the negotiation, preparation and execution of this Agreement and the other agreements contemplated hereby (the "Expense Reimbursement") in an amount equal to $35,000. The Expense Reimbursement shall be deducted from the Purchase Price or paid by Seller separately, as Seller and Buyer shall agree. 11.6 TRANSFERABILITY. Subject to securities laws restrictions of general applicability, this Agreement, the Notes, the Intellectual Property Security Agreement and the Warrant Agreements (collectively, the "Loan Documents") and all rights hereunder and thereunder are freely and separately transferable and assignable, in whole or in part, by Buyer, directly or indirectly, to any of its affiliates (the "Permitted Transferees"). Neither Buyer nor any of the Permitted Transferees shall (i) transfer any of the Loan Documents to any person or entity known by Buyer to be a competitor of Seller or (ii) assign less than twenty-five (25%) percent of any of the Notes to any person or entity (other than a Permitted Transferee), except as expressly provided herein or with the prior written consent of Seller, which consent shall not be unreasonably withheld. The foregoing permitted transferees and assignees shall be entitled to the rights provided in the Loan Documents. Notwithstanding the foregoing, in the event of an assignment or transfer of any of the Loan 21 Documents to a person or entity other than a Permitted Transferee, Buyer shall act as collateral agent in respect of the Intellectual Property Security Agreement and prior to such assignment or transfer, Seller, Buyer and the transferee shall enter into a Collateral Agent Agreement on reasonable terms to be agreed upon among the parties at such time. Seller may not assign or delegate any of its obligations under the Loan Documents without the prior written consent of Buyer (or its successor or permitted transferee or assignee). For purposes hereof, a sale or exchange by Seller of all or substantially all of its assets shall constitute an assignment/delegation requiring Buyer's prior written consent. [SIGNATURE PAGE FOLLOWS] 22 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement on the date first above written. KEVIN KIMBERLIN PARTNERS, L.P. By:/s/ Kevin Kimberlin --------------------------------- Name: Kevin Kimberlin Title: Member Manager THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson --------------------------------- Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer 23 EXHIBIT A --------- Convertible Secured Promissory Note EXHIBIT B --------- Warrant Agreement EXHIBIT C --------- Intellectual Property Security Agreement EX-99 4 exhibit2.txt EXHIBIT 99.2 EXHIBIT 2 --------- THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE IMMUNE RESPONSE CORPORATION 8% CONVERTIBLE SECURED PROMISSORY NOTE -------------------------------------- $2,000,000 New York, New York November 9, 2001 FOR VALUE RECEIVED, the undersigned, The Immune Response Corporation, a Delaware corporation (the "Issuer"), hereby unconditionally promises to pay on the Note Maturity Date (as defined in that certain Note Purchase Agreement, dated November 9, 2001, by and between the Purchaser (as defined below) and the Issuer (the "Note Purchase Agreement")) to the order of Kevin Kimberlin Partners, L.P., a Delaware limited partnership (the "Purchaser"), at the office of the Purchaser located at 535 Madison Avenue, 18th Floor, New York, New York 10022, or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) Two Million Dollars ($2,000,000) or (b) if less as a result of any voluntary conversion(s) of this Note in part in accordance with Section 3.4 of the Note Purchase Agreement, the aggregate unpaid principal amount of this Note. Subject to Section 3.4 of the Note Purchase Agreement, the Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time, from the date hereof, in like money, at the rate of eight (8%) percent per annum, as and at the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, is secured as provided therein (and as provided in that certain Intellectual Property Security Agreement, dated November 9, 2001, executed by the Issuer) and is subject to conversion as set forth therein. In the event of any conflict between the Note Purchase Agreement and this Note, the terms and provisions of the Note Purchase Agreement shall govern. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. Subject to the provisions of the legend above, this Note is freely transferable, in whole or in part, by the Purchaser, and such transferee shall have the same rights hereunder as the Purchaser. The Issuer may not assign or delegate any of its obligations under this Note without the prior written consent of the Purchaser (or its successor, transferee or assignee). All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Section 3.3 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be subject to prepayment only in accordance with the terms of the Note Purchase Agreement. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson ------------------------------ Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer -2- EX-99 5 exhibit3.txt EXHIBIT 99.3 EXHIBIT 3 --------- WARRANT AGREEMENT ----------------- WARRANT AGREEMENT (this "Agreement"), dated as of November 9, 2001, by and between The Immune Response Corporation, a Delaware corporation (the "Company"), and Kevin Kimberlin Partners, L.P., a Delaware limited partnership (the "Warrant Holder"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the parties have entered into that certain Note Purchase Agreement, dated as of November 9, 2001, by and between the Company and the Warrant Holder (the "Note Purchase Agreement"); and WHEREAS, pursuant to the Note Purchase Agreement, the Warrant Holder has agreed to loan to the Company Two Million ($2,000,000) Dollars (the "Loan Amount"), subject to the issuance by the Company of a convertible secured promissory note (the "Note"), and the Company has agreed to issue to the Warrant Holder warrants (the "Warrants") to purchase 1,733,703 shares of the Company's common stock, par value $.0025 per share (the "Common Stock"), which equals the Loan Amount divided by eighty (80%) percent of the Exercise Price (as defined in Section 1 hereof), subject to the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. WARRANTS. The Company hereby grants to the Warrant Holder, subject to the terms set forth herein, the right to purchase from the Company at any time and from time to time after the date hereof until 5:00 p.m., New York City local time, on November 9, 2011 (the "Expiration Date"), up to 1,733,703 fully paid and non-assessable shares of Common Stock, subject to adjustment pursuant to Section 3 hereof (the "Shares"), which number of Shares equals the Loan Amount divided by eighty (80%) percent of the Exercise Price. For purposes of this Agreement, the "Exercise Price" shall initially be $1.4420, which is equal to the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the date hereof, subject to the adjustments pursuant to Section 3 hereof. 2. EXERCISE OF WARRANTS. 2.1 EXERCISE. The Warrants may be exercised by the Warrant Holder, in whole or in part, by delivering the Notice of Exercise purchase form, attached as EXHIBIT A hereto, duly executed by the Warrant Holder to the Company at its principal office, or at such other office as the Company may designate, accompanied by payment, in cash or by wire transfer or check payable to the order of the Company, of the amount obtained by multiplying the number of Shares designated in the Notice of Exercise by the Exercise Price (the "Purchase Price"). The Purchase Price may also be paid, in whole or in part, by delivery of such purchase form and of shares of Common Stock owned by the Warrant Holder having a Fair Market Value (as defined in Section 2.3 hereof) on the last trading day ending the day immediately preceding the Exercise Date (as defined below) equal to the portion of the Purchase Price being paid in such shares. In addition, the Warrants may be exercised, pursuant to a cashless exercise except as set forth in Section 3.3(4) below, by providing irrevocable instructions to the Company, through delivery of the aforesaid purchase form with an appropriate reference to this Section 2.1 to issue the number of shares of the Common Stock equal to the product of (a) the number of shares as to which the Warrants are being exercised multiplied by (b) a fraction, the numerator of which is the Fair Market Value of a share of the Common Stock on the last business day preceding the Exercise Date less the Exercise Price therefor and the denominator of which is such Fair Market Value. For purposes hereof, "Exercise Date" shall mean the date on which all deliveries required to be made to the Company upon exercise of Warrants pursuant to this Section 2.1 shall have been made. 2.2 ISSUANCE OF CERTIFICATES. As soon as practicable after the exercise of the Warrants (in whole or in part) in accordance with Section 2.1 hereof, the Company, at its expense, shall cause to be issued in the name of and delivered to the Warrant Holder (i) a certificate or certificates for the number of fully paid and non-assessable Shares to which the Warrant Holder shall be entitled upon such exercise and (if applicable) (ii) a new warrant agreement of like tenor to purchase all of the Shares that may be purchased pursuant to the portion, if any, of the Warrants not exercised by the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have become the holder of record of such Shares on the date on which the Notice of Exercise and payment of the Purchase Price in accordance with Section 2.1 hereof were delivered and made, respectively, irrespective of the date of delivery of such certificate or certificates, except that if the date of such delivery, notice and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of record of such Shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.3 FAIR MARKET VALUE. The "Fair Market Value" of a share of Common Stock on any day means: (a) if the principal market for the Common Stock is The Nasdaq National Market or any other national securities exchange, the last sales price of the Common Stock on such day as reported by such exchange or market, or on a consolidated tape reflecting transactions on such exchange or market, or (b) if the principal market for the Common Stock is not a national securities exchange or The Nasdaq National Market and the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the closing bid and the closing asked prices for the Common Stock on such day as quoted on such System, or (c) if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the highest bid and lowest asked prices for the Common Stock on such day as reported by Pink Sheets LLC; PROVIDED, HOWEVER, that if none of (a), (b) or (c) above is applicable, or if no trades have been made or no quotes are available for such day, the Fair Market Value of the Common Stock shall be reasonably determined, in good faith, by the Board of Directors of the Company (the "Board of Directors"). 3. ADJUSTMENTS. 3.1 STOCK SPLITS, STOCK DIVIDENDS AND COMBINATIONS. If the Company at any time subdivides the outstanding shares of the Common Stock or issues a stock dividend (in Common Stock) on the outstanding shares of the Common Stock, the Exercise Price in effect immediately prior to such subdivision or the issuance of such stock dividend shall be proportionately decreased, and the 2 number of Shares subject hereto shall be proportionately increased, and if the Company at any time combines (by reverse stock split or otherwise) the outstanding shares of Common Stock, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of Shares subject hereto shall be proportionately decreased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. 3.2 MERGER OR CONSOLIDATION. In the case of any consolidation of the Company with, or merger of the Company with or into another entity (other than a consolidation or merger which does not result in any reclassification or change of the outstanding capital stock of the Company), the entity formed by such consolidation or merger shall execute and deliver to the Warrant Holder a supplemental warrant agreement providing that the Warrant Holder of the Warrants then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrants) to receive, upon exercise of such Warrants, the kind and amount of shares of capital stock and other securities and property receivable upon such consolidation or merger by a holder of the number of Shares for which such Warrants might have been exercised immediately prior to such consolidation or merger. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 3.1 hereof and to the provisions of Section 10 hereof. This Section 3.2 shall similarly apply to successive consolidations or mergers. 3.3 The Exercise Price shall also be subject to adjustment as follows: (1) SPECIAL DEFINITIONS. For purposes of this Section 3.3, the following definitions shall apply: (A) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date of this Agreement. (C) "Convertible Securities" shall mean any evidence of indebtedness, shares of capital stock (other than Common Stock) or other securities convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company on or after the Original Issue Date, other than shares of Common Stock issued at any time: (i) upon exercise of the Warrants (including any additional warrants issued to Buyer in accordance with the terms and provisions of the Note Purchase Agreement); (ii) pursuant to the exercise of options, warrants or other Common Stock purchase rights issued (or to be issued) to employees, officers or directors of, or consultants or advisors to, or any strategic ally of, the Company pursuant to any stock purchase or stock option plan or other arrangement approved by the Board of Directors; 3 (iii) pursuant to the exercise of options, warrants or Convertible Securities outstanding as of the Original Issue Date; or (iv) in connection with the acquisition of all or part of another entity by stock acquisition, merger, consolidation or other reorganization, or by the purchase of all or part of the assets of such other entity (including securities issued to persons formerly employed by such other entity and subsequently hired by the Company and to any brokers or finders in connection therewith) where the Company or its stockholders own more than fifty (50%) percent of the voting power of the acquired, surviving, combined or successor company. (2) ISSUANCE OF OPTIONS AND CONVERTIBLE SECURITIES. Subject to Section 3.3(1)(D) hereof, in the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities, then the number of shares of Common Stock actually issued upon the exercise of such Options or, in the case of Convertible Securities, the actual conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock. (3) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Company, after the Original Issue Date, shall issue Additional Shares of Common Stock without consideration or for a consideration per share less than the then-applicable Exercise Price, then and in such event, such Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the then-applicable Exercise Price by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding (on a fully-diluted basis) immediately prior to such issuance plus the quotient obtained by dividing (x) the aggregate consideration received by the Company for the total number of Additional Shares of Common Stock so issued by (y) the Conversion Price, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding (on a fully-diluted basis) immediately prior to such issuance plus the number of Additional Shares of Common Stock so issued. Upon each such adjustment of the then-applicable Exercise Price pursuant to the provisions of this Section 3.3(3), the number of Warrant Shares purchasable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (4) ADJUSTMENT OF EXERCISE PRICE UPON ADVERSE MARKET CONDITIONS. Notwithstanding anything to the contrary contained herein, if at any time after the Original Issue Date, the average of the closing bid prices of the Common Stock for any ten (10) consecutive trading days (the "Ten-Day Average") shall be less than the product obtained by multiplying (x) seventy-five (75%) percent times (y) the Exercise Price otherwise then in effect (the "Adverse Market Price"), then such Ten-Day Average may, subject to the terms of this Section 3.3(4), become and constitute the adjusted Exercise Price (the "Adjusted Exercise Price"), and the Warrants may be exercised, in whole or in part, by the Warrant Holder at the Adjusted Exercise Price. To exercise all or any portion of the Warrants at the Adjusted Exercise Price, the Warrant Holder shall (i) deliver written notice (the "Adverse Market Price Notice") of such intent to the Company during such time as the Ten-Day Average shall remain equal to or below the Adverse Market Price and (ii) provide payment by cash or wire transfer of 4 immediately available funds in respect of such Warrants to be exercised to the Company within five (5) trading days after delivery of the Adverse Market Price Notice. The Ten-Day Average based on the ten (10) consecutive trading days ending on the date that the Adverse Market Price Notice shall have been delivered by the Warrant Holder shall be the Adjusted Exercise Price, unless (A) the Warrant Holder shall not deliver the applicable payment by cash or wire transfer within the five (5) trading days following delivery of the Adverse Market Price Notice or (B) the Warrant Holder shall have provided a new Adverse Market Price Notice during such five (5) trading days period, in which case the Adjusted Exercise Price shall be adjusted based on the Ten-Day Average preceding such new Adverse Market Price Notice. The provisions of this Section 3.3(4) shall continue until all of the Warrants shall have been exercised. The number of Warrant Shares shall not be adjusted as a result of any adjustment of the then-applicable Exercise Price pursuant to the provisions of this Section 3.3(4). (5) DETERMINATION OF CONSIDERATION. For purposes of this Section 3, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) CASH AND PROPERTY. Such consideration shall: (i) insofar as it consists of cash, be computed at the net amount of cash received by the Company excluding expenses, discounts and commissions payable by the Company in connection with such issuance or sale and amounts paid or payable for accrued interest. (ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as reasonably determined in good faith by the Board of Directors net of expenses as set forth in clause (i) above; and (iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration that covers both cash and property other than cash, the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, shall be as reasonably determined in good faith by the Board of Directors. (B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Company for Additional Shares of Common Stock issued pursuant to Section 3.3(2), relating to Options and Convertible Securities, shall be determined by dividing: (i) the total amount, if any, received by the Company as consideration for the issuance of such Options or Convertible Securities, plus the aggregate amount of additional consideration paid to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities (subject to any adjustments in the exercise price thereof), by (ii) the number of shares of Common Stock issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, 5 the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. 3.4 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 3, the Company, at its expense, shall promptly compute such adjustment or readjustment of the Exercise Price in accordance with the terms hereof and furnish to each Holder of Warrants a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or deemed to have been issued, (ii) the Exercise Price in effect immediately prior to such adjustment or readjustment, (iii) the number of Additional Shares of Common Stock issued or deemed to have been issued and (iv) the number of shares of Common Stock and the amount, if any, of other securities or property that at the time would be received upon the exercise of the Warrants. The Company shall, upon the written request at any time of any Holder of Warrants, furnish or cause to be furnished to such Holder a like certificate setting forth (x) all adjustments and readjustments of the Exercise Price since the Original Issue Date and (y) the Exercise Price then in effect. 3.5 ASSURANCES WITH RESPECT TO EXERCISE RIGHTS. The Company shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times, in good faith, assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the exercise rights of the Warrant Holder against impairment or dilution. 4. TRANSFERS. 4.1 UNREGISTERED SECURITIES. The Warrant Holder hereby acknowledges and agrees that the Warrants and the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are "restricted securities" under the Securities Act inasmuch as they are being acquired in a transaction not involving a public offering, and the Warrant Holder agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of the Warrants or any Shares issued upon exercise of the Warrants in the absence of (a) an effective registration statement under the Act as to the Warrants or such Shares and registration and/or qualification of the Warrants or such Shares under any applicable Federal or state securities law then in effect or (b) an opinion of counsel, reasonably satisfactory to the Company, that such registration and qualification are not required. 4.2 TRANSFERABILITY. Subject to the provisions of Section 4.1 hereof, the rights under this Agreement are freely transferable, in whole or in part, by the Warrant Holder, and such transferee shall have the same rights hereunder as the Warrant Holder. 4.3 WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Warrant Holders of the Warrants. Until any transfer of Warrants in accordance with this Agreement is reflected in the warrant register, the Company may treat the Warrant Holder as the absolute owner hereof for all purposes. Any Warrant Holder may change such Warrant Holder's 6 address as shown on the warrant register by written notice to the Company requesting such change. 5. NO FRACTIONAL SHARES. Any adjustment in the number of Shares purchasable hereunder shall be rounded to the nearest whole share. 6. INVESTMENT REPRESENTATIONS. The Warrant Holder agrees and acknowledges that it is acquiring the Warrants and will be acquiring the Shares for its own account and not with a view to any resale or distribution other than in accordance with Federal and state securities laws. The Warrant Holder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act. 7. COVENANTS AS TO THE SHARES. The Company covenants and agrees that, subject to Section 6.2(c) of the Note Purchase Agreement, the shares of Common Stock issuable upon exercise of the Warrants, will, upon issuance in accordance with the terms hereof, be duly and validly issued and outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and free from all taxes, liens and charges with respect to the issuance thereof imposed by or through the Company; PROVIDED, HOWEVER, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificates in respect of such shares in a name other than that of the Warrant Holder and the Company shall not be required to issue or deliver such certificates unless or until the person(s) requesting the issuance thereof shall have paid to the Company the amount of such tax or it shall be established to the satisfaction of the Company that such tax has been paid. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights imposed by or through the Company, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented under this Agreement. 8. LEGEND. Any certificate evidencing the Shares issuable upon exercise hereof will bear a legend indicating that such securities have not been registered under the Securities Act or under any state securities laws and may not be sold or offered for sale in the absence of an effective registration statement as to the securities under the Securities Act and any applicable state securities law or an opinion of counsel reasonably satisfactory to the Company that such registration is not required. 9. RIGHTS APPLICABLE TO THE WARRANT SHARES. The parties hereby acknowledge and agree that the Shares, when issued in accordance with the terms hereof, shall be entitled to all of the same rights and privileges provided to the Company's capital stock issued upon conversion of the Note, as set forth in the Note Purchase Agreement. 10. DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company shall, at any time prior to the exercise of all Warrants, declare a dividend (other than a dividend consisting solely of shares of Common Stock) or otherwise distribute to its stockholders any assets, properties, rights, evidence of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another, or any other thing of value, the Warrant Holder shall 7 thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that the Warrant Holder would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make (and maintain) appropriate reserves to ensure the timely performance of the provisions of this Section 10. 11. MISCELLANEOUS. 11.1 WAIVERS AND AMENDMENTS. This Agreement or any provisions hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the Company and by the Warrant Holder. 11.2 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 11.3 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: The Immune Response Corporation 5935 Darwin Court Carlsbad, CA 92008 Attention: President Facsimile: (760) 431-8636 With a copy (which copy shall not constitute notice) to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Attention: Thomas E. Sparks, Esq. Facsimile: (415) 983-7396 (ii) If to Buyer: Kevin Kimberlin Partners, L.P. 535 Madison Avenue New York, NY 10022 Attention: Kevin Kimberlin and Bruno Lerer, Esq. Facsimile: (212) 486-7392 8 With a copy (which copy shall not constitute notice) to: Kirkpatrick & Lockhart LLP 1251 Avenue of the Americas, 45th Floor New York, NY 10020-1104 Attention: Stephen R. Connoni, Esq. Facsimile: (212) 536-3901 11.4 HEADINGS. The headings in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the terms hereof. 11.5 CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any Shares issued or issuable upon the exercise of the Warrants in a manner that interferes with the timely exercise of the Warrants. 11.6 NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. Subject to Section 6.2(a) of the Note Purchase Agreement, this Agreement shall not entitle the Warrant Holder hereof to any voting rights or other rights as a stockholder of the Company with respect to the Shares prior to the exercise of the Warrants. No provision of this Agreement, in the absence of affirmative action by the Warrant Holder to purchase the Shares, and no mere enumeration herein of the rights or privileges of the Warrant Holder, shall give rise to any liability of such Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 11.7 SUCCESSORS. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and transferees. 11.8 SEVERABILITY. If any provision of this Agreement shall be held to be invalid and unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. [SIGNATURE PAGE FOLLOWS] 9 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above. THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson --------------------------------------- Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer KEVIN KIMBERLIN PARTNERS, L.P. By: /s/ Kevin Kimberlin --------------------------------------- Name: Kevin Kimberlin Title: Member Manager 10 EXHIBIT A NOTICE OF EXERCISE (To be signed only on exercise of any of the Warrants) Dated: ------------------------- To: The Immune Response Corporation The undersigned, pursuant to the provisions set forth in the attached Warrant Agreement, hereby irrevocably elects to (check one of the following): /_/ purchase ____________ shares of Common Stock covered by such Warrant Agreement and herewith makes a cash payment of $_____________, representing the full purchase price for such shares at the price per share provided for in such Warrant Agreement. /_/ purchase ____________ shares of Common Stock covered by such Warrant Agreement and herewith delivers ___________ shares of Common Stock having a Fair Market Value (as defined in such Warrant Agreement) as of the last trading day preceding the date hereof, of $______, representing the full purchase price for such shares at the price per share provided for in such Warrant Agreement. /_/ acquire in a cashless exercise _____ shares of Common Stock pursuant to the terms of Section 2.1 of such Warrant Agreement. Please issue a certificate or certificates representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below. Signature: --------------------------- Name (print): ------------------------ Title (if applicable): ---------------- Company (if applicable): ---------------- EX-99 6 exhibit4.txt EXHIBIT 99.4 EXHIBIT 4 --------- INTELLECTUAL PROPERTY SECURITY AGREEMENT ---------------------------------------- INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"), dated as of November 9, 2001, by and between The Immune Response Corporation, a Delaware corporation (the "Borrower"), and Kevin Kimberlin Partners, L.P., a Delaware limited partnership (the "Lender"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Borrower and the Lender are parties to that certain Note Purchase Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Note Purchase Agreement"); and WHEREAS, the Lender is willing to loan money to the Borrower as provided for in the Note Purchase Agreement, but only upon the condition, among others, that the Borrower shall have executed and delivered this Agreement, in order to secure the timely payment, performance and satisfaction of the obligations of the Borrower under the Notes, the Warrants, the Note Purchase Agreement and this Agreement (collectively, the "Obligations"). NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Defined Terms. (a) Capitalized terms used herein shall have the meanings ascribed to such terms in the Note Purchase Agreement unless otherwise defined or limited herein. (b) The words "hereof," "herein" and "hereunder" and words of like import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. (c) All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and vice versa, unless otherwise specified herein. (d) Any reference to the word "Borrower" in Sections 4, 5, 6 and 9 hereof shall be deemed to include any affiliate or subsidiary of the Borrower. 2. INCORPORATION of Premises. The premises set forth above are incorporated into this Agreement by this reference thereto and are made a part hereof. 3. INCORPORATION OF THE NOTE PURCHASE AGREEMENT. The Note Purchase Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto. 4. GRANT OF SECURITY INTEREST IN TRADEMARKS. To secure the complete and timely payment, performance and satisfaction of all of the Obligations, the Borrower hereby grants to the Lender a security interest in, as and by way of a first mortgage and security interest having priority over all other security interests, with power of sale to the fullest extent permitted by applicable law, all of the Borrower's now owned or otherwise existing and hereafter acquired or arising: (i) trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including, without limitation, the trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications listed on Schedule 4.8 attached to the Note Purchase Agreement and made a part hereof ("SCHEDULE 4.8"), and (a) all renewals thereof, (b) all income, royalties, damages and payments now and hereafter due and/or payable under and with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (c) the right to sue for past, present and future infringements and dilutions thereof, (d) the goodwill of the Borrower's business symbolized by the foregoing and connected therewith and (e) all of the Borrower's rights corresponding thereto throughout the world (all of the foregoing trademarks, trade names, registered trademarks and trademark applications, service marks, registered service marks and service mark applications, together with the items described in clauses (a)-(e) in this Section 4, are hereinafter individually and/or collectively referred to as the "Trademarks"); and (ii) all proceeds of any and all of the foregoing, including, without limitation, license royalties and proceeds of infringement suits. 5. GRANT OF SECURITY INTEREST IN PATENTS. To secure the complete and timely payment, performance and satisfaction of all of the Obligations, the Borrower hereby grants to the Lender a security interest, as and by way of a first mortgage and security interest having priority over all other security interests, with power of sale to the fullest extent permitted by applicable law, in all of the Borrower's right, title and interest in and to the Borrower's now owned or otherwise existing and hereafter acquired or arising: (i) patents and patent applications, including, without limitation, the patents and patent applications listed on SCHEDULE 4.8, and (a) all renewals, continuances and modifications thereof, (b) all income, royalties, damages and payments now and hereafter due and/or payable under and with respect thereto, including, without limitation, payments under all licenses entered into in connection therewith and damages and payments for past or future infringements, (c) the right to sue for past, present and future infringements, (d) the goodwill of the Borrower's business symbolized by the foregoing and connected therewith and (e) all of the Borrower's rights corresponding thereto throughout the world (all of the foregoing patents and patent applications, together with the items described in clauses (a)-(e) in this Section 5, are hereinafter individually and/or collectively referred to as the "Patents"); and (ii) all proceeds of any and all of the foregoing, including, without limitation, license royalties and proceeds of infringement suits. 6. GRANT OF SECURITY INTEREST IN TRADEMARK AND PATENT LICENSES. To secure the complete and timely payment, performance and satisfaction of all of the Obligations, the Borrower hereby grants to the Lender a security interest, as and by way of a first mortgage and security interest having priority over all other security interests, with power of sale to the fullest extent permitted by applicable law, in all of the Borrower's right, title and interest in and to the Borrower's now owned or otherwise existing and hereafter acquired or arising rights under or interest in any license agreements with any other party, whether the Borrower is a licensee or licensor under any such license agreement, including, without limitation, license agreements listed on Schedule 4.8, and the right to use the foregoing in connection with the enforcement of the Lender's rights under the Note Purchase Agreement, including, without limitation, the right to prepare for sale and sell any and all inventory now or hereafter owned by the Borrower and now or hereafter covered by such licenses (all of the foregoing are hereinafter referred to collectively as the "Licenses"). Notwithstanding the foregoing provisions of this Section 6, the Licenses shall not include any license agreement in effect as of the date hereof that by its terms expressly prohibits the grant of the security contemplated by this Agreement; provided, however, that upon the termination of such prohibitions for any reason whatsoever, the provisions of this Section 6 shall be deemed to apply thereto automatically. 7. POWER AND AUTHORITY. The Borrower has the requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. This Agreement has been duly executed and delivered by the Borrower and is the valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, moratorium, insolvency, reorganization or other similar laws now or hereafter in effect generally affecting the enforcement of creditors' rights, specific performance, injunctive or other equitable remedies. 8. TITLE; OTHER LIENS. Except for the security interests granted to the Lender pursuant to this Agreement, the Borrower owns each of the Trademarks, Patents and Licenses free and clear of any and all liens, claims or security or adverse interests thereon. No security agreement, financing statement or other public notice with respect to all or any of the Trademarks, Patents and Licenses is on file or of record in any public office, except as such as have been filed in favor of the Lender pursuant to this Agreement and the Note Purchase Agreement. 9. NEW TRADEMARKS, PATENTS AND LICENSES. The Borrower represents warrants that (a) the Trademarks listed on SCHEDULE 4.8 hereto include all of the trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications now owned or held by the Borrower, (b) the Patents listed on SCHEDULE 4.8 hereto include all of the patents and patent applications now owned or held by the Borrower, (c) the Licenses listed on SCHEDULE 4.8 hereto include all of the license agreements under which the Borrower is the licensee or licensor and (d) no liens, claims or security or adverse interests in such Trademarks, Patents or Licenses have been granted by the Borrower to any person or entity other than the Lender. If, prior to the termination of this Agreement, the Borrower shall (i) obtain rights to or become entitled to the benefit of any new trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks or service mark applications, (ii) obtain rights to or become entitled to the benefit of any patent or patent application or any reissue, division, continuation, renewal, extension or continuation-in-part of any Patent or any improvement on any Patent, (iii) obtain rights to or become entitled to the benefit of any new license agreements, whether as licensee or licensor, or license renewals or (iv) enter into any new or amended license agreement, the provisions of Sections 4, 5 and 6 above shall automatically apply thereto (to the extent permitted by licensors under agreements in connection with the granting of such licenses). The Borrower shall give to the Lender prompt written notice of events described in clauses (i), (ii), (iii) and (iv) of the preceding sentence, and in any event within thirty (30) days, after the occurrence thereof. The Borrower hereby authorizes the Lender to modify this Agreement unilaterally (i) by amending SCHEDULE 4.8 hereto to include any future trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications that are Trademarks under Section 4 above or under this Section 9, (ii) by amending SCHEDULE 4.8 hereto to include any future patents and patent applications, that are Patents under Section above or under this Section 9, (iii) by amending SCHEDULE 4.8 hereto to include any future license agreements that are Licenses under Section 6 above or under this Section 9 and (iv) by filing, in addition to and not in substitution for this Agreement, a duplicate original of this Agreement containing on SCHEDULE 4.8 thereto, as the case may be, such future trademarks, tradenames, registered trademarks, trademark applications, service marks, registered service marks and service mark applications and containing on SCHEDULE 4.8 thereto, as the case may be, such future patents and patent applications and containing on SCHEDULE 4.8 thereto, as the case may be, such future license agreements. 10. RESTRICTIONS ON FUTURE AGREEMENTS. The Borrower will not enter into any agreement, including, without limitation, any license agreement, that is inconsistent with this Agreement or that would be reasonably likely to have a material adverse effect on the security interests held by the Lender pursuant to this Agreement, and the Borrower further agrees that it will not take any action, and will use its best efforts not to permit any action to be taken by others subject to its control, including, without limitation, licensees, or fail to take any action, that could be reasonably expected to, in any material respect, affect the validity or enforcement of the rights transferred to the Lender under this Agreement or the rights associated with the Trademarks, the Patents or the License. 11. ROYALTIES. The Borrower hereby agrees that the use by the Lender of the Trademarks, Patents and Licenses as authorized hereunder in connection with the Lender's exercise of its rights and remedies under Section 20 hereof or pursuant to the Note Purchase Agreement or any of the documents contemplated thereby (collectively, the "Loan Documents") shall be coextensive with the Borrower's rights thereunder and with respect thereto and without any liability for royalties or other related charges from the Lender to the Borrower. 12. RIGHT TO INSPECT; FURTHER ASSIGNMENTS AND SECURITY INTEREST; FUTURE INDEBTEDNESS. The Lender may from time to time hereafter (at the Borrower's expense, but not more than once per calendar year absent an Event of Default or Nonpayment of Maintenance Fees (as defined in Section 14 hereof)) have access to, examine, audit, make copies and extracts from and inspect the Borrower's premises and examine the Borrower's books, records and operations relating to the Trademarks, Patents and Licenses. The Borrower agrees (i) not to sell or assign any of its interests in, or grant any license under the Trademarks or the Patents without the prior and express written consent of the Lender and/or (ii) not to sell or assign its respective interests in the Licenses without the prior and express written consent of the Lender. Without the prior and express written consent of the Lender, which consent shall not be unreasonably withheld, the Borrower hereby agrees that it shall not, while any of the Obligations are outstanding, incur, create or assume any indebtedness that is senior to the indebtedness evidenced by any of the Notes or grant any further security interest in the Trademarks, Patents and Licenses, and any modifications thereto pursuant to Section 9 hereof (the "Collateral"), even if such interest shall be junior to that of the Lender. 13. NATURE AND CONTINUATION OF THE LENDER'S SECURITY INTEREST; TERMINATION OF THE LENDER'S SECURITY INTEREST. This Agreement is made for collateral security purposes only. This Agreement shall create a continuing security interest in the Trademarks, Patents and Licenses and shall terminate only when the Obligations have been paid or performed in full and the Note Purchase Agreement has been terminated in accordance with its terms. When this Agreement has terminated, the Lender shall promptly execute and deliver to the Borrower, at the Borrower's expense, all termination statements and other instruments as may be necessary or proper to terminate the Lender's security interest in the Trademarks, Patents and Licenses, subject to any disposition thereof that may have been made by the Lender pursuant to this Agreement. 14. DUTIES OF THE BORROWER. The Borrower shall (a) prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (b) prosecute diligently any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement and (c) take all reasonable and necessary action to preserve and maintain all of the Borrower's rights in the Trademarks, the Patents and the Licenses, including, without limitation, the commencement of legal action for any infringement thereof by a third party that materially impairs the value of the Collateral; PROVIDED, HOWEVER, that the Borrower shall not be obligated to take any of the foregoing actions unless the failure to take such actions would be reasonably likely to have a material adverse effect on either (x) the business, operations or condition of the Borrower or (y) the security interests of the Lender held pursuant to this Agreement. The Borrower further agrees (i) not to abandon any Trademark, Patent or License without the prior written consent of the Lender and (ii) to use its best efforts to maintain in full force and effect the Trademarks, Patents and Licenses, including, without limitation, the timely payment of any maintenance fees for the Patents and/or the Trademarks; PROVIDED, HOWEVER, that the Borrower shall not be obligated to take any of the foregoing actions unless the failure to take such actions would be reasonably likely to have a material adverse effect on either (x) the business, operations or condition of the Borrower or (y) the security interests of the Lender held pursuant to this Agreement.. Any expenses incurred in connection with the foregoing shall be borne by the Borrower. The Lender shall not have any duty with respect to the Trademarks, the Patents or the Licenses. Without limiting the generality of the foregoing, the Lender shall not be under any obligation to take any steps necessary to preserve rights in the Trademarks, the Patents or the Licenses against any other parties, but the Lender may do so, at its option, (x) if the Lender does not receive written confirmation of the payment of maintenance fees for the Patents and/or the Trademarks at least twenty (20) days prior to the due date for such payments, in which event the Lender may pay such fees ("Nonpayment of Maintenance Fees") or (y) from and after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection with clauses (x) and (y) of this Section 14 (including, without limitation, reasonable fees and expenses, including legal fees, of the Lender) shall be for the sole account of the Borrower and shall be added to the Obligations secured hereby. 15. INDEMNIFICATION BY THE BORROWER. The Borrower hereby agrees to indemnify and hold harmless and pay or reimburse the Lender for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable attorneys' fees) of any kind whatsoever that may be imposed on, incurred by or asserted against the Lender in connection with, or in any way arising out of, any suits, proceedings or other actions, relating to any or all of the Trademarks, the Patents or the Licenses (including, without limitation, whether brought by the Borrower or any other Person, suits, proceedings or other actions in which an allegation of liability, strict or otherwise, is or may be made by any Person who alleges or may allege having suffered damages as a consequence of alleged improper, imprudent, reckless, negligent, willful, faulty, defective or substandard design, testing, specification, manufacturing supervision, manufacturing defect, manufacturing deficiency, publicity or advertisement or improper use, howsoever arising or by whomsoever caused, of any inventions disclosed and claimed in the Patents or any of them); unless with respect to any of the above, the Lender is judicially determined to have acted or failed to act with gross negligence or willful misconduct. The indemnification provisions in this Section 15 shall survive the termination of this Agreement. 16. THE LENDER'S RIGHT TO SUE. From and after the occurrence and during the continuance of an Event of Default, the Lender shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Trademarks, the Patents and the Licenses and, if the Lender shall commence any such suit, the Borrower shall, at the request of the Lender, do any and all lawful acts and execute any and all proper documents reasonably required by the Lender in aid of such enforcement. The Borrower shall, upon demand, promptly reimburse the Lender for all costs and expenses incurred by the Lender in the exercise of its rights under this Section 16 (including, without limitation, reasonable fees and expenses, including legal fees, of the Lender). 17. WAIVERS. The Lender's failure, at any time or times hereafter, to require strict performance by the Borrower of any provision of this Agreement shall not waive, affect or diminish any right of the Lender thereafter to demand strict compliance and performance therewith nor shall any course of dealing between the Borrower and the Lender have such effect. No single or partial exercise of any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. None of the undertakings, agreements, warranties, covenants and representations of the Borrower contained in this Agreement shall be deemed to have been suspended or waived by the Lender unless such suspension or waiver is in writing signed by an officer of the Lender and directed to the Borrower and specifying such suspension or waiver. 18. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but the provisions of this Agreement are severable and, if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part hereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 19. MODIFICATION. Neither this Agreement nor any provision hereof may be altered, amended or modified in any way, except as specifically provided in Section 9 hereof or in a written instrument signed by the parties hereto. 20. POWER OF ATTORNEY; CUMULATIVE REMEDIES. (a) The Borrower hereby irrevocably designates, constitutes and appoints the Lender (and all officers and agents of the Lender designated by the Lender in its sole and absolute discretion) as the Borrower's true and lawful attorney-in-fact, and authorizes the Lender and any of the Lender's designees, in the Borrower's or the Lender's name, upon the occurrence and during the continuation of an Event of Default to take any action and execute any instrument necessary or reasonably advisable to accomplish the purposes of this Agreement, including, without limitation, to (i) endorse the Borrower's name on all applications, documents, papers and instruments necessary or desirable for the Lender in the use of the Trademarks, the Patents or the Licenses, (ii) assign, pledge, convey or otherwise transfer title in or dispose of the Trademarks, the Patents or the Licenses to anyone, (iii) grant or issue any exclusive or nonexclusive license or sublicense under the Trademarks, the Patents or the Licenses to anyone and (iv) take any other actions with respect to the Trademarks, the Patents or the Licenses as the Lender deems in its best interest for the payment of the Obligations. The Borrower hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated. The Borrower acknowledges and agrees that this Agreement is not intended to limit or restrict in any way the rights and remedies of the Lender under the Note Purchase Agreement or any of the other Loan Documents, but rather is intended to facilitate the exercise of such rights and remedies. (b) The Lender shall have, in addition to all other rights and remedies given it by the terms of this Agreement, all rights and remedies allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code ("UCC") as enacted in any jurisdiction in which the Trademarks, the Patents or the Licenses may be located or deemed located. Upon the occurrence and during the continuance of an Event of Default and the election by the Lender to exercise any of its remedies under Section 9-504 or Section 9-505 of the UCC, or the equivalent remedy provisions under revised Article 9 of the UCC, as enacted in the governing jurisdiction, with respect to the Trademarks, the Patents or the Licenses, the Borrower agrees to assign, convey and otherwise transfer title in and to the Trademarks, the Patents and the Licenses, to the Lender or any transferee of the Lender and to execute and deliver to the Lender or any such transferee all such agreements, documents and instruments as may be necessary, in the Lender's sole discretion, to effect such assignment, conveyance and transfer. All of the Lender's rights and remedies with respect to the Trademarks, the Patents and the Licenses, whether established hereby, by the Note Purchase Agreement or by any other agreements or by law, shall be cumulative and may be exercised separately or concurrently. Notwithstanding anything set forth herein to the contrary, it is hereby expressly agreed that upon the occurrence and during the continuance of an Event of Default, the Lender may exercise any of the rights and remedies provided in this Agreement, the Note Purchase Agreement or any of the other Loan Documents. To the extent permitted by applicable law, the Borrower agrees that any notification of intended disposition of any of the Trademarks, the Patents or the Licenses required by law shall be deemed reasonably and properly given if given at least ten (10) days, if such notice is given by facsimile or twelve (12) days, if such notice is given by mail, before such disposition; provided, however, that the Lender may give any shorter notice that is commercially reasonable under the circumstances. 21. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Borrower and its successors and permitted assigns, and shall inure to the benefit of the Lender and its nominees, successors and assigns. The Borrower's successors and assigns shall include, without limitation, a receiver or a trustee of the Borrower; PROVIDED, HOWEVER, that the Borrower shall not voluntarily assign or transfer its rights or obligations hereunder without the Lender's prior written consent. 22. GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the internal laws of the State of New York applicable to agreements made and to be wholly performed in New York. 23. NOTICES. All notices or other communications hereunder shall be given in the manner and to the addresses set forth in the Note Purchase Agreement. 24. SECTION HEADINGS. The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. 25. MERGER. This Agreement, together with the other Loan Documents, represents the final agreement of the Borrower and the Lender with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or subsequent oral agreements between the Borrower and the Lender. 26. EFFECTIVENESS. This Agreement shall become effective on the date of the Note Purchase Agreement. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. THE IMMUNE RESPONSE CORPORATION, a Delaware corporation By: /s/ Howard Sampson ---------------------- Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer KEVIN KIMBERLIN PARTNERS, L.P., a Delaware limited partnership By: /s/ Kevin Kimberlin ----------------------------- Name: Kevin Kimberlin ------------------------------ Title: Member Manager ------------------------------ EX-99 7 exhibit5.txt EXHIBIT 99.5 Exhibit 5 --------- AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT ------------------------------------------ This AMENDMENT NO. 1 is made as of the 14th day of February, 2002 (the "Amendment") by and between Kevin Kimberlin Partners, L.P., a Delaware limited partnership ("KKP"), The Immune Response Corporation, a Delaware corporation ("Seller") and Oshkim Limited Partnership ("Oshkim"). WHEREAS, the Seller and the KKP entered into that certain Note Purchase Agreement dated as of November 9, 2001 (the "Agreement"). WHEREAS, the Seller proposes to issue and sell Additional Securities to Oshkim and Oshkim wishes to purchase Additional Securities from Seller. WHEREAS, the parties desire to amend the Agreement to add Oshkim as a party and in certain other respects as set forth below. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties hereby amend the Agreement and agree as follows: 1. Effective as of the date of this Amendment, the Agreement is hereby amended as follows: a. Oshkim shall be a party to the Agreement. b. All references in the Agreement to "Buyer" for all purposes related to Additional Securities shall be deemed to refer to Oshkim, and for all purposes related to the Securities shall be deemed to refer to KKP. c. The third recital on page one is hereby amended to add a new last sentence which shall read in its entirety as follows: "Notwithstanding the foregoing, the Additional Note issued on February 14, 2002 shall have an initial Conversion Price equal to the product of (i) one hundred twelve and one-half (112.5%) percent multiplied by (ii) the average of the closing bid prices of the Common Stock for the five (5) consecutive trading days immediately preceding the issuance date of such Additional Note, and the Additional Warrant issued on February 14, 2002 shall be to purchase, pursuant to an additional warrant agreement, that number of shares of the Common Stock equal to the principal loan amount of such corresponding Additional Note divided by one hundred twelve and one-half (112.5%) percent of the exercise price per share of such Additional Warrant, which exercise price shall be equal to the average of the closing bid prices of the Common Stock for the five (5) consecutive trading days immediately preceding the issuance date of such Additional Warrant, determined and adjusted in accordance with, and subject to the same terms and conditions provided in, the Warrant Agreement, but shall only be exercisable to the extent that such shares issuable on exercise of such Additional Warrant, when aggregated with shares issuable on conversion of the Initial Note, Initial Warrant and Additional Note, would not exceed 19.99% of the Seller's outstanding shares on November 9, 2001 in order to be in compliance with NASD Rule 4350(i)(1)(D) until the required shareholder approval of the issuance of the Notes and -1- Warrants for purposes of NASD Rule 4350(i) has been obtained." d. Section 3.2 is hereby amended to read in its entirety as follows: "3.2 MATURITY. Unless otherwise converted into the Conversion Shares (as defined in Section 3.4 hereof) in accordance with the provisions hereof or unless extended in writing by Buyer in its sole discretion, the Initial Note shall mature on May 5, 2002; provided however that if the Seller shall receive shareholder approval of the issuance of the Initial Note and Initial Warrant for purposes of NASD Rule 4350(i) the Initial Note shall mature on the three-year anniversary date of the date of issuance of such Initial Note. The Additional Notes shall mature on the three-year anniversary date of the date of issuance of such Additional Note. The maturity dates for the Initial Note and for any Additional Note each to be referred to as a "Note Maturity Date." On the applicable Note Maturity Date of any of the Notes, unless converted into the Conversion Shares in accordance with the provisions hereof, all outstanding principal and any accrued and unpaid interest due and owing on such Note shall be immediately paid by Seller." e. Section 3.4(a) is hereby amended to read in its entirety as follows: "3.4 CONVERSION; VOLUNTARY PREPAYMENT. (a) Subject to Section 3.5 hereof, Buyer may convert the principal and/or any accrued and unpaid interest of any of the Notes, in whole or part, into shares (the "Conversion Shares") of Common Stock at the Conversion Price (as defined below) at any time and from time to time on or after the date of issuance of such Note. For purposes hereof, "Conversion Price" (which shall be hereafter subject to adjustment as provided in Sections 3.7 and 3.8 hereof) for the Notes shall mean the product of (i) 0.8 multiplied by (ii) the average of the closing bid prices of the Common Stock for the ten (10) consecutive trading days immediately preceding the issuance date of such Note, except that for the Additional Note issued on February 14, 2002 the Conversion Price shall mean the product of (i) 1.125 multiplied by (ii) the average of the closing bid prices of the Common Stock for the five consecutive trading days immediately preceding the issuance date of such Additional Note. The Conversion Price for the Initial Note, as of November 9, 2001, shall be $1.1536, subject to adjustment as set forth in Sections 3.7 and 3.8 hereof. Upon conversion, Buyer shall receive the number of shares of Common Stock calculated by dividing the principal amount of, and (at Buyer's election) any interest on, such Note being converted by the Conversion Price. No fractional shares of Common Stock shall be issued upon conversion. In lieu of any fractional shares to which Buyer would otherwise be entitled, Seller shall pay cash in an amount equal to such fraction multiplied by the Conversion Price. None of the Notes shall be subject to automatic conversion or to conversion at the option of Seller." f. Section 3.7(a)(iii) is hereby amended to read in its entirety as follows: "(iii) In the event that Seller shall issue Additional Shares of Common Stock (as defined in the Warrant Agreement) without consideration or for a consideration per share less than the then-applicable Conversion Price, then and in such event, such Conversion Price shall be adjusted in the same manner (and in accordance with the adjustment provisions set forth in the Warrant Agreement) that the Exercise Price (as defined in the Warrant Agreement) shall be adjusted in the event that Seller shall issue Additional Shares of Common Stock without consideration or for a consideration per share less than the then-applicable Exercise Price. Notwithstanding the foregoing, the Conversion Price shall be adjusted only to the extent such adjustment will be in compliance with NASD Rule 4350(i)." g. Section 3.7(a) is hereby amended to add a new subsection (iv) which shall read in its entirety as follows: "(iv) CARRYOVER. Notwithstanding the provisions of subsection 3.7(a)(iii) above, any adjustments to the Conversion Price which would have been made but for the receipt of shareholder approval of the issuance of the Notes and Warrants for purposes of NASD Rule 4350(i), shall be carried forward and, upon receipt of any required shareholder approval of the issuance of the Note and Warrant for purposes of NASD Rule 4350(i), shall be made at such time." h. The language in the second to last sentence in Section 9(iv) beginning with "(y) if such event . . ." and ending with "due and payable." is hereby amended to read in its entirety as follows: "(y) if such event is any other Event of Default, Buyer may, by written notice to Seller, immediately declare all, or less than all, of the Notes (with all accrued and unpaid interest thereon) and all other amounts owing under this Agreement and any of the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable." i. Section 6.2(c)(i) is hereby amended to read in its entirety as follows: "(i) If, as a result of a Conversion Price adjustment pursuant to Section 3.7 hereof and/or an Exercise Price adjustment pursuant to Section 3.3 of the Warrant Agreement, the Securities or Additional Securities could be converted or exercised, as applicable, into a number of shares of Common Stock in excess of which Seller is permitted to issue (i.e., nineteen and 99/100 (19.99%) percent of the then-outstanding shares of Seller's capital stock (the "Nasdaq Threshold")) under the rules or regulations (the "Trading Regulations") of the NNM, or any stock exchange or other self-regulatory organization to which Seller or its securities is subject (collectively, "Nasdaq"), Seller shall (x) promptly thereupon call and hold a meeting of its stockholders in respect thereof and (y) use its best efforts to (A) obtain the necessary approval of its stockholders, (B) obtain an appropriate order from Nasdaq that there is an applicable exemption from the Trading Regulations or (C) obtain a written opinion from Seller's legal counsel that such approval is otherwise not required, which opinion shall be reasonably satisfactory to Buyer (each, a "Nasdaq Consent")." 2. Except as specifically provided herein, the Agreement, as originally executed by the parties thereto and as amended hereby, shall remain in full force and effect. 3. Any defined terms not defined herein shall have the respective meanings set forth in the Agreement. 4. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5. This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such jurisdiction. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. KEVIN KIMBERLIN PARTNERS, L.P. By: /s/ Kevin Kimberlin ------------------------------ Name: Kevin Kimberlin Title: Member Manager OSHKIM LIMITED PARTNERSHIP By: /s/ Kevin Kimberlin ------------------------------- Name:Kevin Kimberlin Title: General Partner THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson ------------------------------- Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer EX-99 8 exhibit6.txt EXHIBIT 99.6 EXHIBIT 6 --------- THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE IMMUNE RESPONSE CORPORATION 8% CONVERTIBLE SECURED PROMISSORY NOTE -------------------------------------- $2,000,000 New York, New York February 14, 2002 FOR VALUE RECEIVED, the undersigned, The Immune Response Corporation, a Delaware corporation (the "Issuer"), hereby unconditionally promises to pay on the Note Maturity Date (as defined in that certain Note Purchase Agreement, dated November 9, 2001, by and between the Purchaser (as defined below), Kevin Kimberlin Partners, L.P. and the Issuer, as amended by Amendment No. 1 dated as of February 14, 2002 (the "Note Purchase Agreement")) to the order of Oshkim Limited Partnership a Delaware limited partnership (the "Purchaser"), at the office of the Purchaser located at 535 Madison Avenue, 18th Floor, New York, New York 10022, or such other address designated by the Purchaser, in lawful money of the United States of America and in immediately available funds, the principal amount of (a) Two Million Dollars ($2,000,000) or (b) if less as a result of any voluntary conversion(s) of this Note in part in accordance with Section 3.4 of the Note Purchase Agreement, the aggregate unpaid principal amount of this Note. Subject to Section 3.4 of the Note Purchase Agreement, the Issuer further agrees to pay interest on the unpaid principal amount outstanding hereunder from time to time, from the date hereof, in like money, at the rate of eight (8%) percent per annum, as and at the dates specified in Section 3.3 of the Note Purchase Agreement. This Note is the promissory note referred to in the Note Purchase Agreement, and is entitled to the benefits thereof, is secured as provided therein (and as provided in that certain Intellectual Property Security Agreement, dated November 9, 2001, executed by the Issuer) and is subject to conversion as set forth therein. In the event of any conflict between the Note Purchase Agreement and this Note, the terms and provisions of the Note Purchase Agreement shall govern. Upon the occurrence of any one or more of the Events of Default specified in the Note Purchase Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Note Purchase Agreement. Subject to the provisions of the legend above, this Note is freely transferable, in whole or in part, by the Purchaser, and such transferee shall have the same rights hereunder as the Purchaser. The Issuer may not assign or delegate any of its obligations under this Note without the prior written consent of the Purchaser (or its successor, transferee or assignee). All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Subject to Section 3.3 of the Note Purchase Agreement, the Issuer agrees to pay all of the Purchaser's expenses, including reasonable attorneys' costs and fees, incurred in collecting sums due under this Note. This Note shall be subject to prepayment only in accordance with the terms of the Note Purchase Agreement. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson ------------------------------ Name: Howard Sampson Title: Vice President, Finance Chief Financial Officer, Treasurer -2- EX-99 9 exhibit7.txt EXHIBIT 99.7 Exhibit 7 WARRANT AGREEMENT WARRANT AGREEMENT (this "Agreement"), dated as of February 14, 2002, by and between The Immune Response Corporation, a Delaware corporation (the "Company"), and Oshkim Limited Partnership, a Delaware limited partnership (the "Warrant Holder"). W I T N E S S E T H WHEREAS, the parties have entered into that certain Note Purchase Agreement, dated as of November 9, 2001, by and between the Company and Kevin Kimberlin Partners, L.P., as amended by Amendment No. 1 dated as of February 14, 2002 by and between the Company, Kevin Kimberlin Partners, L.P. and the Warrant Holder (the "Note Purchase Agreement"); and WHEREAS, pursuant to the Note Purchase Agreement, the Warrant Holder has agreed to loan to the Company Two Million ($2,000,000) Dollars (the "Loan Amount"), subject to the issuance by the Company of a convertible secured promissory note (the "Additional Note"), and the Company has agreed to issue to the Warrant Holder warrants (the "Warrants") to purchase 1,716,001 shares of the Company's common stock, par value $.0025 per share (the "Common Stock"), which equals the Loan Amount divided by one hundred twelve and a half (112.5%) percent of the Exercise Price (as defined in Section 1 hereof), subject to the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. WARRANTS. The Company hereby grants to the Warrant Holder, subject to the terms set forth herein, the right to purchase from the Company at any time and from time to time after the date hereof until 5:00 p.m., New York City local time, on February 14, 2012 (the "Expiration Date"), up to 1,716,001 fully paid and non-assessable shares of Common Stock, subject to adjustment pursuant to Section 3 hereof (the "Shares"), which number of Shares equals the Loan Amount divided by one hundred twelve and a half (112.5%) percent of the Exercise Price. Notwithstanding the foregoing, this Warrant shall only be exercisable to the extent that shares issuable on exercise of this Warrant, when aggregated with shares issuable on conversion of the Initial Note, Initial Warrant and Additional Note, would not exceed 19.99% of the Company's outstanding shares on November 9, 2001 in order to be in compliance with NASD Rule 4350(i)(1)(D). For purposes of this Agreement, the "Exercise Price" shall initially be $1.036, which is equal to the average of the closing bid prices of the Common Stock for the five (5) consecutive trading days immediately preceding the date hereof, subject to the adjustments pursuant to Section 3 hereof. 2. EXERCISE OF WARRANTS. 2.1 EXERCISE. The Warrants may be exercised by the Warrant Holder, in whole or in part, by delivering the Notice of Exercise purchase form, attached as Exhibit A hereto, duly executed by the Warrant Holder to the Company at its principal office, or at such other office as the Company may designate, accompanied by payment, in cash or by wire transfer or check payable to the order of the Company, of the amount obtained by multiplying the number of Shares designated in the Notice of Exercise by the Exercise Price (the "Purchase Price"). The Purchase Price may also be paid, in whole or in part, by delivery of such purchase form and of shares of Common Stock owned by the Warrant Holder having a Fair Market Value (as defined in Section 2.3 hereof) on the last trading day ending the day immediately preceding the Exercise Date (as defined below) equal to the portion of the Purchase Price being paid in such shares. In addition, the Warrants may be exercised, pursuant to a cashless exercise except as set forth in Section 3.3(4) below, by providing irrevocable instructions to the Company, through delivery of the aforesaid purchase form with an appropriate reference to this Section 2.1 to issue the number of shares of the Common Stock equal to the product of (a) the number of shares as to which the Warrants are being exercised multiplied by (b) a fraction, the numerator of which is the Fair Market Value of a share of the Common Stock on the last business day preceding the Exercise Date less the Exercise Price therefor and the denominator of which is such Fair Market Value. For purposes hereof, "Exercise Date" shall mean the date on which all deliveries required to be made to the Company upon exercise of Warrants pursuant to this Section 2.1 shall have been made. 2.2 ISSUANCE OF CERTIFICATES. As soon as practicable after the exercise of the Warrants (in whole or in part) in accordance with Section 2.1 hereof, the Company, at its expense, shall cause to be issued in the name of and delivered to the Warrant Holder (i) a certificate or certificates for the number of fully paid and non-assessable Shares to which the Warrant Holder shall be entitled upon such exercise and (if applicable) (ii) a new warrant agreement of like tenor to purchase all of the Shares that may be purchased pursuant to the portion, if any, of the Warrants not exercised by the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have become the holder of record of such Shares on the date on which the Notice of Exercise and payment of the Purchase Price in accordance with Section 2.1 hereof were delivered and made, respectively, irrespective of the date of delivery of such certificate or certificates, except that if the date of such delivery, notice and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of record of such Shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.3 FAIR MARKET VALUE. The "Fair Market Value" of a share of Common Stock on any day means: (a) if the principal market for the Common Stock is The Nasdaq National Market or any other national securities exchange, the last sales price of the Common Stock on such day as reported by such exchange or market, or on a consolidated tape reflecting transactions on such exchange or market, or (b) if the principal market for the Common Stock is not a national securities exchange or The Nasdaq National Market and the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the closing bid and the closing asked prices for the Common Stock on such day as quoted on such System, or (c) if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotations System, the mean between the highest bid and lowest asked prices for the Common Stock on such day as reported by Pink Sheets LLC; provided, however, that if none of (a), (b) or (c) above is applicable, or if no trades have been made or no quotes are available for such day, the Fair Market Value of the Common Stock shall be reasonably determined, in good faith, by the Board of Directors of the Company (the "Board of Directors"). 2 3. Adjustments. 3.1 STOCK SPLITS, STOCK DIVIDENDS AND COMBINATIONS. If the Company at any time subdivides the outstanding shares of the Common Stock or issues a stock dividend (in Common Stock) on the outstanding shares of the Common Stock, the Exercise Price in effect immediately prior to such subdivision or the issuance of such stock dividend shall be proportionately decreased, and the number of Shares subject hereto shall be proportionately increased, and if the Company at any time combines (by reverse stock split or otherwise) the outstanding shares of Common Stock, the Exercise Price in effect immediately prior to such combination shall be proportionately increased, and the number of Shares subject hereto shall be proportionately decreased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be. 3.2 MERGER OR CONSOLIDATION. In the case of any consolidation of the Company with, or merger of the Company with or into another entity (other than a consolidation or merger which does not result in any reclassification or change of the outstanding capital stock of the Company), the entity formed by such consolidation or merger shall execute and deliver to the Warrant Holder a supplemental warrant agreement providing that the Warrant Holder of the Warrants then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrants) to receive, upon exercise of such Warrants, the kind and amount of shares of capital stock and other securities and property receivable upon such consolidation or merger by a holder of the number of Shares for which such Warrants might have been exercised immediately prior to such consolidation or merger. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 3.1 hereof and to the provisions of Section 10 hereof. This Section 3.2 shall similarly apply to successive consolidations or mergers. 3.3 The Exercise Price shall also be subject to adjustment, to the extent such adjustment will be in compliance with NASD Rule 4350(i), as follows: (1) Special Definitions. For purposes of this Section 3.3, the following definitions shall apply: (A) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date of this Agreement. (C) "Convertible Securities" shall mean any evidence of indebtedness, shares of capital stock (other than Common Stock) or other securities convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company on or after the Original Issue Date, other than shares of Common Stock issued at any time: 3 (i) upon exercise of the Warrants (including any additional warrants issued to Buyer in accordance with the terms and provisions of the Note Purchase Agreement); (ii) pursuant to the exercise of options, warrants or other Common Stock purchase rights issued (or to be issued) to employees, officers or directors of, or consultants or advisors to, or any strategic ally of, the Company pursuant to any stock purchase or stock option plan or other arrangement approved by the Board of Directors; (iii) pursuant to the exercise of options, warrants or Convertible Securities outstanding as of the Original Issue Date; or (iv) in connection with the acquisition of all or part of another entity by stock acquisition, merger, consolidation or other reorganization, or by the purchase of all or part of the assets of such other entity (including securities issued to persons formerly employed by such other entity and subsequently hired by the Company and to any brokers or finders in connection therewith) where the Company or its stockholders own more than fifty (50%) percent of the voting power of the acquired, surviving, combined or successor company. (2) ISSUANCE OF OPTIONS AND CONVERTIBLE SECURITIES. Subject to Section 3.3(1)(D) hereof, in the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities, then the number of shares of Common Stock actually issued upon the exercise of such Options or, in the case of Convertible Securities, the actual conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock. (3) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Company, after the Original Issue Date, shall issue Additional Shares of Common Stock without consideration or for a consideration per share less than the then-applicable Exercise Price, then and in such event, such Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the then-applicable Exercise Price by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding (on a fully-diluted basis) immediately prior to such issuance plus the quotient obtained by dividing (x) the aggregate consideration received by the Company for the total number of Additional Shares of Common Stock so issued by (y) the Conversion Price, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding (on a fully-diluted basis) immediately prior to such issuance plus the number of Additional Shares of Common Stock so issued. Upon each such adjustment of the then-applicable Exercise Price pursuant to the provisions of this Section 3.3(3), the number of Warrant Shares purchasable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (4) ADJUSTMENT OF EXERCISE PRICE UPON ADVERSE MARKET CONDITIONS. Notwithstanding anything to the contrary contained herein, if at any 4 time after the Original Issue Date, the average of the closing bid prices of the Common Stock for any ten (10) consecutive trading days (the "Ten-Day Average") shall be less than the product obtained by multiplying (x) seventy-five (75%) percent times (y) the Exercise Price otherwise then in effect (the "Adverse Market Price"), then such Ten-Day Average may, subject to the terms of this Section 3.3(4), become and constitute the adjusted Exercise Price (the "Adjusted Exercise Price"), and the Warrants may be exercised, in whole or in part, by the Warrant Holder at the Adjusted Exercise Price. To exercise all or any portion of the Warrants at the Adjusted Exercise Price, the Warrant Holder shall (i) deliver written notice (the "Adverse Market Price Notice") of such intent to the Company during such time as the Ten-Day Average shall remain equal to or below the Adverse Market Price and (ii) provide payment by cash or wire transfer of immediately available funds in respect of such Warrants to be exercised to the Company within five (5) trading days after delivery of the Adverse Market Price Notice. The Ten-Day Average based on the ten (10) consecutive trading days ending on the date that the Adverse Market Price Notice shall have been delivered by the Warrant Holder shall be the Adjusted Exercise Price, unless (A) the Warrant Holder shall not deliver the applicable payment by cash or wire transfer within the five (5) trading days following delivery of the Adverse Market Price Notice or (B) the Warrant Holder shall have provided a new Adverse Market Price Notice during such five (5) trading days period, in which case the Adjusted Exercise Price shall be adjusted based on the Ten-Day Average preceding such new Adverse Market Price Notice. The provisions of this Section 3.3(4) shall continue until all of the Warrants shall have been exercised. The number of Warrant Shares shall not be adjusted as a result of any adjustment of the then-applicable Exercise Price pursuant to the provisions of this Section 3.3(4). (5) Determination of Consideration. For purposes of this Section 3, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: (i) insofar as it consists of cash, be computed at the net amount of cash received by the Company excluding expenses, discounts and commissions payable by the Company in connection with such issuance or sale and amounts paid or payable for accrued interest. (ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as reasonably determined in good faith by the Board of Directors net of expenses as set forth in clause (i) above; and (iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration that covers both cash and property other than cash, the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, shall be as reasonably determined in good faith by the Board of Directors. (B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Company for Additional Shares of Common Stock issued pursuant to Section 3.3(2), relating to Options and Convertible Securities, shall be determined by dividing: (i) the total amount, if any, received by the Company as consideration for the issuance of such Options or Convertible Securities, plus the aggregate amount of additional consideration paid to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities (subject to any adjustments in the exercise price thereof), by (ii) the number of shares of Common Stock issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. (6) CARRYOVER. Notwithstanding the provisions of Subsections 3.3(1) through 3.3(5), any adjustments to the Exercise Price which would have been made but for the absence of any required shareholder approval of the issuance of the Notes and Warrants for purposes of NASD Rule 4350(i), shall be carried forward and, immediately upon receipt of the required shareholder approval of the issuance of the Notes and Warrants for purposes of NASD Rule 4350(i), shall be made at such time. 3.4 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 3, the Company, at its expense, shall promptly compute such adjustment or readjustment of the Exercise Price in accordance with the terms hereof and furnish to each Holder of Warrants a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or deemed to have been issued, (ii) the Exercise Price in effect immediately prior to such adjustment or readjustment, (iii) the number of Additional Shares of Common Stock issued or deemed to have been issued and (iv) the number of shares of Common Stock and the amount, if any, of other securities or property that at the time would be received upon the exercise of the Warrants. The Company shall, upon the written request at any time of any Holder of Warrants, furnish or cause to be furnished to such Holder a like certificate setting forth (x) all adjustments and readjustments of the Exercise Price since the Original Issue Date and (y) the Exercise Price then in effect. 3.5 ASSURANCES WITH RESPECT TO EXERCISE RIGHTS. The Company shall not, by amendment of its Certificate of Incorporation or By-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times, in good faith, assist in the carrying out of all the provisions of this Agreement and in taking of all such actions as may be necessary or appropriate in order to protect the exercise rights of the Warrant Holder against impairment or dilution. 4. TRANSFERS. 4.1 UNREGISTERED SECURITIES. The Warrant Holder hereby acknowledges and agrees that the Warrants and the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are "restricted 6 securities" under the Securities Act inasmuch as they are being acquired in a transaction not involving a public offering, and the Warrant Holder agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of the Warrants or any Shares issued upon exercise of the Warrants in the absence of (a) an effective registration statement under the Act as to the Warrants or such Shares and registration and/or qualification of the Warrants or such Shares under any applicable Federal or state securities law then in effect or (b) an opinion of counsel, reasonably satisfactory to the Company, that such registration and qualification are not required. 4.2 TRANSFERABILITY. Subject to the provisions of Section 4.1 hereof, the rights under this Agreement are freely transferable, in whole or in part, by the Warrant Holder, and such transferee shall have the same rights hereunder as the Warrant Holder. 4.3 WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Warrant Holders of the Warrants. Until any transfer of Warrants in accordance with this Agreement is reflected in the warrant register, the Company may treat the Warrant Holder as the absolute owner hereof for all purposes. Any Warrant Holder may change such Warrant Holder's address as shown on the warrant register by written notice to the Company requesting such change. 5. NO FRACTIONAL SHARES. Any adjustment in the number of Shares purchasable hereunder shall be rounded to the nearest whole share. 6. INVESTMENT REPRESENTATIONS. The Warrant Holder agrees and acknowledges that it is acquiring the Warrants and will be acquiring the Shares for its own account and not with a view to any resale or distribution other than in accordance with Federal and state securities laws. The Warrant Holder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act. 7. COVENANTS AS TO THE SHARES. The Company covenants and agrees that, subject to Section 6.2(c) of the Note Purchase Agreement, the shares of Common Stock issuable upon exercise of the Warrants, will, upon issuance in accordance with the terms hereof, be duly and validly issued and outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof, and free from all taxes, liens and charges with respect to the issuance thereof imposed by or through the Company; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificates in respect of such shares in a name other than that of the Warrant Holder and the Company shall not be required to issue or deliver such certificates unless or until the person(s) requesting the issuance thereof shall have paid to the Company the amount of such tax or it shall be established to the satisfaction of the Company that such tax has been paid. The Company further covenants and agrees that the Company will at all times have authorized and reserved, free from preemptive rights imposed by or through the Company, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented under this Agreement. 8. LEGEND. Any certificate evidencing the Shares issuable upon exercise hereof will bear a legend indicating that such securities have not been registered under the Securities Act or under any state securities laws and may 7 not be sold or offered for sale in the absence of an effective registration statement as to the securities under the Securities Act and any applicable state securities law or an opinion of counsel reasonably satisfactory to the Company that such registration is not required. 9. RIGHTS APPLICABLE TO THE WARRANT SHARES. The parties hereby acknowledge and agree that the Shares, when issued in accordance with the terms hereof, shall be entitled to all of the same rights and privileges provided to the Company's capital stock issued upon conversion of the Additional Note, as set forth in the Note Purchase Agreement. 10. DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company shall, at any time prior to the exercise of all Warrants, declare a dividend (other than a dividend consisting solely of shares of Common Stock) or otherwise distribute to its stockholders any assets, properties, rights, evidence of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another, or any other thing of value, the Warrant Holder shall thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that the Warrant Holder would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make (and maintain) appropriate reserves to ensure the timely performance of the provisions of this Section 10. 11. MISCELLANEOUS. 11.1 WAIVERS AND AMENDMENTS. This Agreement or any provisions hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the Company and by the Warrant Holder. 11.2 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York. 11.3 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by facsimile transmission, when telexed, or upon receipt when mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to Seller: The Immune Response Corporation 5935 Darwin Court Carlsbad, CA 92008 Attention: President Facsimile: (760) 431-8636 With a copy (which copy shall not constitute notice) to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Attention: Thomas E. Sparks, Esq. Facsimile: (415) 983-7396 (ii) If to Buyer: Oshkim Limited Partnership 535 Madison Avenue New York, NY 10022 Attention: Kevin Kimberlin and Bruno Lerer, Esq. Facsimile: (212) 486-7392 With a copy (which copy shall not constitute notice) to: Kirkpatrick & Lockhart LLP 1251 Avenue of the Americas, 45th Floor New York, NY 10020-1104 Attention: Stephen R. Connoni, Esq. Facsimile: (212) 536-3901 11.4 HEADINGS. The headings in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the terms hereof. 11.5 CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any Shares issued or issuable upon the exercise of the Warrants in a manner that interferes with the timely exercise of the Warrants. 11.6 NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. Subject to Section 6.2(a) of the Note Purchase Agreement, this Agreement shall not entitle the Warrant Holder hereof to any voting rights or other rights as a stockholder of the Company with respect to the Shares prior to the exercise of the Warrants. No provision of this Agreement, in the absence of affirmative action by the Warrant Holder to purchase the Shares, and no mere enumeration herein of the rights or privileges of the Warrant Holder, shall give rise to any liability of such Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 11.7 SUCCESSORS. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and transferees. 11.8 SEVERABILITY. If any provision of this Agreement shall be held to be invalid and unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. [SIGNATURE PAGE FOLLOWS] 9 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above. THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson ----------------------------------- Name: Howard Sampson ---------------------------- Title: Vice President, Finance Chief Financial Officer, Treasurer OSHKIM LIMITED PARTNERSHIP By: /s/ Kevin Kimberlin ------------------------------------ Name: Kevin Kimberlin ----------------------------- Title: General Partner ---------------------------- 10 EXHIBIT A NOTICE OF EXERCISE (To be signed only on exercise of any of the Warrants) Dated:________________________ To: The Immune Response Corporation The undersigned, pursuant to the provisions set forth in the attached Warrant Agreement, hereby irrevocably elects to (check one of the following): / / purchase ____________ shares of Common Stock covered by such Warrant Agreement and herewith makes a cash payment of $_____________, representing the full purchase price for such shares at the price per share provided for in such Warrant Agreement. / / purchase ____________ shares of Common Stock covered by such Warrant Agreement and herewith delivers ___________ shares of Common Stock having a Fair Market Value (as defined in such Warrant Agreement) as of the last trading day preceding the date hereof, of $______, representing the full purchase price for such shares at the price per share provided for in such Warrant Agreement. / / acquire in a cashless exercise _____ shares of Common Stock pursuant to the terms of Section 2.1 of such Warrant Agreement. Please issue a certificate or certificates representing such shares of Common Stock in the name of the undersigned or in such other name as is specified below. Signature: -------------------------------- ----------------------------- Title (if applicable): ----------------------------------- Company (if applicable): ------------------------ EX-99 10 exhibit8.txt EXHIBIT 99.8 Exhibit 8 --------- AMENDMENT NO. 1 TO INTELLECTUAL PROPERTY AGREEMENT -------------------------------------------------- This AMENDMENT NO. 1 is made as of the 14th day of February, 2002 (the "Amendment") by and between Kevin Kimberlin Partners, L.P., a Delaware limited partnership ("KKP"), The Immune Response Corporation, a Delaware corporation ("Seller") and Oshkim Limited Partnership ("Oshkim"). WHEREAS, the Seller and the KKP entered into that certain Intellectual Property Agreement dated as of November 9, 2001 (the "IP Agreement"). WHEREAS, the Seller proposes to issue and sell Additional Securities to Oshkim and Oshkim wishes to purchase Additional Securities from Seller. WHEREAS, the parties desire to amend the IP Agreement to add Oshkim as a party and in certain other respects as set forth below. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties hereby amend the IP Agreement and agree as follows: 1. Effective as of the date of this Amendment, the IP Agreement is hereby amended as follows: a. Oshkim shall be a party to the IP Agreement. b. All references in the IP Agreement to "Lender" shall be deemed to refer to both Oshkim and KKP. 2. Except as specifically provided herein, the IP Agreement, as originally executed by the parties thereto and as amended hereby, shall remain in full force and effect. 3. Any defined terms not defined herein shall have the respective meanings set forth in the IP Agreement. 4. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5. This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such jurisdiction. -1- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. KEVIN KIMBERLIN PARTNERS, L.P. By: /s/ Kevin Kimberlin -------------------------------------- Name: Kevin Kimberlin ---------------------------- Title: Member Manager --------------------------- OSHKIM LIMITED PARTNERSHIP By: /s/ Kevin Kimberlin -------------------------------------- Name: Kevin Kimberlin ---------------------------- Title: General Partner --------------------------- THE IMMUNE RESPONSE CORPORATION By: /s/ Howard Sampson -------------------------------------- Name: Howard Sampson ---------------------------- Title: Vice President, Finance Chief Financial Officer, Treasurer -----END PRIVACY-ENHANCED MESSAGE-----