**Exhibit 10.27**

 

**SECURITIES PURCHASE AGREEMENT**

 

This Securities Purchase Agreement (this“Agreement”) is dated as of February 25, 2003, among Hollis-Eden Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the purchasers identified on the signature pages hereto (each, including itssuccessors and assigns, a “Purchaser” and collectively the “Purchasers”). 

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, asamended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of theCompany as more fully described in this Agreement. 

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree asfollows: 

 

**ARTICLE I**

**DEFINITIONS**

 

1.1     Definitions.     In addition to the terms defined elsewhere in this Agreement: (a)capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debenture (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1: 

 

“Actual Minimum” means, asof any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrantsand Debentures, ignoring any conversion or exercise limits set forth therein, and assuming that any previously unconverted Debentures are held until the third anniversary of the Closing Date or, if earlier, until maturity, and all interest thereonis paid in shares of Common Stock assuming an Interest Conversion Rate equal to the Interest Conversion Rate as of such date of determination. 

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls oris controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basisby the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. 

 

“Capital Shares” shall mean the Common Stock and any shares of any other class of common stock whethernow or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. 

 

 

“Capital Shares Equivalents” shall mean any securities, rights, or obligations that are convertible into or exchangeable for or give any right to subscribe for or purchase, directly or indirectly, any Capital Sharesof the Company or any warrants, options or other rights to subscribe for or purchase, directly or indirectly, Capital Shares or any such convertible or exchangeable securities. 

 

“Closing” means the closing of the purchase and sale of the Securitiespursuant to Section 2.1. 

 

“Closing Date” means February 25, 2003. 

 

“Closing Price” means $5.70. 

 

“Commission” means the Securities and Exchange Commission. 

 

“Common Stock” means thecommon stock of the Company, par value $0.01 per share, and any securities into which such common stock shall hereinafter been reclassified into. 

 

“Company Counsel” means Cooley Godward LLP, outside counsel to the Company, with offices at 4401 EastgateMall, San Diego, California 92121. 

 

“Debentures” means the 7.5% Convertible Debentures due 36 months from their date of issuance, unless otherwise set forth therein, issued by the Company to the Purchasers hereunder, in the form of Exhibit A.

 

“DisclosureSchedules” shall have the meaning ascribed to such term in Section 3.1. 

 

“Effective Date” means the date that the Registration Statement is first declared effective by theCommission. 

 

“ExchangeAct” means the Securities Exchange Act of 1934, as amended. 

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h). 

 

“Liens” shall have the meaning ascribed to such term in Section 3.1(a). 

 

“Losses” means any and alllosses, claims, damages, liabilities, settlement costs and expenses, including without limitation costs of preparation and reasonable attorneys’ fees. 

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b). 

 

“Person” means an individualor corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 

 

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“Principal Market” shall initially mean the NASDAQ National Market and shall also include the American Stock Exchange, the New York Stock Exchange or the NASDAQ Small-Cap Market, whichever is at the time theprincipal trading exchange or market for the Common Stock, based upon share volume. 

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, aninvestigation or partial proceeding, such as a deposition), whether commenced or threatened. 

 

“Purchasers’ Counsel” means, for convenience of reference only, Feldman Weinstein LLP with officesat 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002, which has acted only as counsel to Midsummer Investment Ltd. 

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated the Closing Date, amongthe Company and the Purchasers, in the form of Exhibit B. 

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). 

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule maybe amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. 

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). 

 

“Securities” means theDebentures, the Warrants and the Underlying Shares. 

 

“Securities Act” means the Securities Act of 1933, as amended. 

 

“Subscription Amount” means as to each Purchaser, the principal amount of Debentures to be purchased atthe Closing as indicated on the signature pages hereto below such Purchaser’s address for notice. 

 

“Subsidiary” means any subsidiary of the Company that is required to be listed in Schedule 3.1(a).

 

“Trading Day”shall mean any day during which the Principal Market shall be open for business. 

 

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Registration RightsAgreement and any other documents or agreements executed in connection with the transactions contemplated hereunder. 

 

“Underlying Shares” means the shares of Common Stock issuable upon conversion of the Debentures and uponexercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures. 

 

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“Underlying Shares Registration Statement” or “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of theUnderlying Shares by the Purchasers as provided for in the Registration Rights Agreement. 

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a)if the Common Stock is then listed or quoted on a Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Principal Market on which the Common Stock is then listed or quotedas reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Principal Market and if prices for the Common Stock are then quoted onthe OTC Bulletin Board (or any successor market), the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board (or any successor market); (c) if the Common Stock is not then listed orquoted on the OTC Bulletin Board (or any successor market) and if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding toits functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by a nationally recognized-independent appraiserselected in good faith by Purchasers holding a majority of the principal amount of Debentures then outstanding and reasonably acceptable to the Company. 

 

“Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit Cdelivered to the Purchasers at the Closing in accordance with Section 2.2. 

 

**ARTICLE II**

**PURCHASE AND SALE**

 

2.1    Closing.     Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to the Purchasers, and the Purchasers shall, severally and not jointly, purchase from theCompany, an aggregate of up to $10,000,000 principal amount of Debentures, each equal to the Subscription Amount, and Warrants as set forth in Section 2.2(b)(ii). The Closing shall take place at the offices of Purchasers’ Counsel immediatelyfollowing the execution hereof, or at such other location or time as the parties may agree and in no event later than 3 Trading Days following the date hereof. 

 

2.2     Closing Conditions. 

 

(a) Upon satisfaction or waiver by the party sought to be benefited thereby, of theconditions set forth in this Section 2.2, the Closing shall occur. 

 

(b) At or prior to the Closing, the Company shall deliver or cause to be delivered to each Purchaser the following: 

 

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(i) Debentures in the Subscription Amount indicated below such Purchaser’s name on the signature page of this Agreement, registered in the name of such Purchaser; 

 

(ii) a Warrant to purchase up to a number of shares of Common Stock equal to 20% of theshares underlying the Debentures purchased by such Investor with a term of 4 years and an exercise price per Warrant Share equal to $6.17, subject to adjustment therein; and a Warrant to purchase up to a number of shares of Common Stock equal to 20%of the shares underlying the Debentures purchased by such Investor with a term of 4 years and an exercise price per Warrant Share equal to $6.71, subject to adjustment therein. 

 

(iii) the legal opinion of Company Counsel, in the form of Exhibit D attached hereto,addressed to the Purchasers; 

 

(iv) the Registration Rights Agreement duly executed by the Company; and 

 

(v) this Agreement duly executed by the Company. 

 

(c) At or prior to the Closing, each Purchaser shall deliver or cause to be delivered to theCompany the following: 

 

(i) theSubscription Amount in United States dollars and in immediately available funds, by wire transfer to the account of the Company pursuant to the instructions set forth on Annex 1 attached hereto; 

 

(ii) the Registration Rights Agreement dulyexecuted by such Purchaser; and 

 

(iii) this Agreement duly executed by such Purchaser. 

 

(d) All representations and warranties of the other party contained herein shall remain true and correct as of the Closing Date; 

 

(e) There shall have been no Material Adverse Effect (as defined in Section 3.1(b)) withrespect to the Company since the date hereof; and 

 

(f) From the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited duration agreed to by the Company, which suspensionshall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have beenestablished on securities whose trades are reported by such service, or on the Principal Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any materialoutbreak or escalation of hostilities or other national or 

 

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internationalcalamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Debentures at the Closing.

 

(g) The Company shall havereceived Purchase Agreements from Purchasers for an aggregate of all $10,000,000 of Debentures. 

 

**ARTICLE III**

**REPRESENTATIONS AND WARRANTIES**

 

3.1     Representations and Warrantiesof the Company.     Except as set forth under the corresponding section of the disclosure schedules delivered to each Purchaser concurrently herewith (the “Disclosure Schedules”) or as expressly disclosed asa readily identifiable item in one or more of the SEC Reports, the Company hereby makes the representations and warranties set forth below to each Purchaser. 

 

(a) Subsidiaries. The Company has no direct or indirect subsidiaries. The Company owns, directly or indirectly, allof the capital stock or other equity interests of each Subsidiary free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction (collectively, “Liens”), and all the issued andoutstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. If the Company has no subsidiaries, then references in the Transaction Documents to theSubsidiaries will be disregarded. 

 

(b) Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporationor organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions ofits respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entityin each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in theaggregate: (i) adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in or be reasonably likely to have or result in a material adverse effect on the results of operations, assets, prospects,business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s ability to perform fully on a timely basis its obligations under any of the Transaction Documents (anyof (i), (ii) or (iii), a “Material Adverse Effect”). 

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents andotherwise to carry out its obligations hereunder 

 

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orthereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby or thereby have been duly authorized by all necessary action on the part of the Company andno further consent or action is required by the Company other than Required Approvals. Each of the Transaction Documents has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, willconstitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affectingcreditors’ rights and remedies generally and general principles of equity. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, by-laws or otherorganizational or charter documents. 

 

(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not: (i) conflict with orviolate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the Required Approvals (as defined below), conflictwith, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both)of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or anySubsidiary is bound or affected, or (iii) result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority as currently in effect to which the Company or aSubsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not,individually or in the aggregate, have or result in a Material Adverse Effect. 

 

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing orregistration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filings requiredunder Section 4.9, (ii) the filing with the Commission of the Underlying Shares Registration Statement, (iii) the notice and/or application(s) to each applicable Principal Market for the issuance and sale of the Debentures and Warrants andthe listing of the Underlying Shares for trading thereon in the time and manner required thereby (including, without limitation, any required Shareholder Approval as described in Section 4(a)(ii)(B) of the Debenture), and (iv) the filing of Form Dwith the Commission and applicable Blue Sky filings (collectively, the “Required Approvals”). 

 

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(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free andclear of all Liens. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Actual Minimum on the date hereof. The Company has not, and to theknowledge of the Company, no Affiliate of the Company has sold, offered for sale or solicited offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer orsale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that would be integrated with the offer or sale of the Securities for purposes of the rules andregulations of any Principal Market. 

 

(g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company is set forth in the Disclosure Schedules. No securities of the Company are entitled to preemptive orsimilar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale ofthe Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Personany right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities orrights convertible or exchangeable into shares of Common Stock. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not resultin a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. 

 

(h) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under theSecurities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials beingcollectively referred to herein as the “SEC Reports” and, together with the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or has received a valid extension of such time of filing and hasfiled any such SEC Reports prior to the expiration of any such extension. The Company has identified and made available to the Purchasers a copy of all SEC Reports filed within the 10 days preceding the date hereof. As of their respective dates, theSEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untruestatement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statementsof the Company included in the SEC Reports 

 

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comply in allmaterial respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally acceptedaccounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects thefinancial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial,year-end audit adjustments. 

 

(i)Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports: (i) there has been no event, occurrence or development that has had or thatcould result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and(B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity ofits auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) theCompany has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option or similar plans. 

 

(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, tothe knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state,county, local or foreign) (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were anunfavorable decision, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect. Neither the Company nor any Subsidiary is or has been the subject of any Action involving a claim of violation of orliability under federal or state securities laws, and, to the knowledge of the Company, no current director or officer of the Company or any Subsidiary is or has been the subject of any Action involving a claim of violation of or liability underfederal or state securities laws or a claim of breach of fiduciary duty within the previous five years. The Company does not have pending before the Commission any request for confidential treatment of information. There has not been, and to theknowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company, and, to the knowledge of the Company, there has not been within the previous five years, and there is not pending orcontemplated, any investigation by the Commission involving any current director or officer of the Company. 

 

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(k) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default bythe Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to whichit is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of anystatute, rule or regulation of any governmental authority, except in the case of clause (i) and (ii) as could not, individually or in the aggregate, have or result in a Material Adverse Effect; or in the case of clause (iii), as could not reasonablybe expected to have a Material Adverse Effect. 

 

(l) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. 

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates,authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits couldnot, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to therevocation or modification of any Material Permit. 

 

(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good andmarketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and donot materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsistingand enforceable leases of which the Company and the Subsidiaries are in compliance. 

 

(o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patentapplications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports andwhich the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used bythe Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and, except as could not reasonably be expected to have or result in a MaterialAdverse Effect, 

 

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there is no existing infringement by another Person of any of the Intellectual PropertyRights. 

 

(p) Insurance.The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Alist of the Company’s insurance contracts and policies are set forth on the Disclosure Schedules. To the best of Company’s knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiaryhas any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significantincrease in cost. 

 

(q)Transactions With Affiliates and Employees. Except as set forth in SEC Reports, none of the executive officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to anytransaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real orpersonal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is anofficer, director, trustee or partner. 

 

(r) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance withmanagement’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii)access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is takenwith respect to any differences. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company, which could reasonablybe expected to delay the filing or processing of the Underlying Shares Registration Statement, and the Company is current with respect to any fees owed to its accountants and lawyers. The Company has established disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifyingofficers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of theCompany’s controls and procedures as of a date within 90 days prior to the filing date of the Form 10-Q for the quarter ended September 30, 2002 (such date, the “Evaluation Date”). The Company presented in the Form 10-Q for

 

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the quarterended September 30, 2002 the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significantchanges in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internalcontrols. 

 

(s)Solvency/Indebtedness. Based on the financial condition of the Company as of the Closing Date: (i) the fair market value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’sexisting debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and asproposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cashflow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt whensuch amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has noknowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth asof the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a)any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations, whether or not the same areor should be reflected in the Company’s balance sheet or the notes thereto, except guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and (c) the present value of any lease paymentsin excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness. 

 

(t) Certain Fees. No brokerage or finder’s fees or commissions are or will bepayable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, and the Company has not taken any action thatwould cause any Purchaser to be liable for any such fees or commissions. The Company agrees that the Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Person for fees of the typecontemplated by this Section with the transactions contemplated by this Agreement. 

 

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(u) Private Placement. Assuming the accuracy of the representations and warranties of the Purchasers set forth in Sections 3.2(b)-(f), the offer, issuance and sale of the Securities to the Purchasers as contemplated hereby areexempt from the registration requirements of the Securities Act. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Principal Market and no shareholder approval is required for the Company tofulfill its obligations under the Transaction Documents. 

 

(v) Listing and Maintenance Requirements. The Company has not, in the 12 months preceding the date hereof, received notice from any Principal Market on which the Common Stock is or has been listed or quoted to theeffect that the Company is not in compliance with the listing or maintenance requirements of such Principal Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all suchlisting and maintenance requirements. 

 

(w) Registration Rights. The Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission orany other governmental authority that have not been satisfied. 

 

(x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, businesscombination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporationthat is or could become applicable to any Purchaser or Purchasers as a result of the respective Purchasers and the Company fulfilling their respective obligations or exercising their respective rights under the Transaction Documents, includingwithout limitation as a result of the Company’s issuance of the Securities and the Purchasers’ several ownership of the Securities. 

 

(y) Seniority. As of the date of this Agreement, no indebtedness of the Company is senior to the Debentures inright of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capitallease obligations (which is senior only as to the property covered thereby).****

 

(z) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any ofthe Purchasers or their agents or counsel with any information that constitutes or might constitute material, nonpublic information. The Company understands and confirms that the Purchasers will rely on the foregoing representations in effectingtransactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Companywith respect to the representations and warranties made herein are 

 

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true andcorrect with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances underwhich they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth inSection 3.2. 

 

(aa)Form S-3 Eligibility. The Company is eligible to register the resale of the Underlying Shares for resale by the Purchaser on Form S-3 promulgated under the Securities Act. 

 

(bb) Tax Status. The Company and each of its Subsidiaries has made or filed allfederal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its booksprovisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports anddeclarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There areno unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute oflimitations relating to the assessment or collection of any foreign, federal, statue or local tax. None of the Company’s tax returns is presently being audited by any taxing authority. 

 

3.2    Representations and Warrantiesof each Purchaser.    Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants to the Company as follows: 

 

(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standingunder the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out itsobligations thereunder. The purchase by such Purchaser of the Securities hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement, and the Registration Rights Agreement has been duly executedby such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms. 

 

(b) Investment Intent. Such Purchaseris acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser’s right,subject to the provisions of this Agreement, at all times to sell 

 

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or otherwisedispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Nothingcontained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have anyagreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. 

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is,and on each date on which it exercises any Warrants or converts any Debentures, it will be an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Purchaser has not been formed solely for the purpose of acquiringthe Securities. Such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act. 

 

(d) Experience of such Purchaser. Such Purchaser, either alone or together with its representatives, has suchknowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. SuchPurchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. 

 

(f) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement,article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(h) Company Information.Such Purchaser has read the SEC Reports and has had an opportunity to discuss the Company’s business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review theCompany’s operations and facilities. Such Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. 

 

(i) Residence. If such Purchaser is anindividual, then such Purchaser resides in the state or province identified in the address of such Purchaser set forth on the signature page hereto; if such Purchaser is a partnership, corporation, limited liability company or other entity, then theoffice or offices of such Purchaser in which its investment decision was made is located at the address or addresses of such Purchaser set forth on the signature page hereto. 

 

(j) Rule 144. Such Purchaser acknowledges and agrees that the Securities are“restricted securities” as defined in Rule 144 promulgated under the Securities Act as in effect from time to time and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from suchregistration is available. 

 

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SuchPurchaser has been advised or is aware of the provisions of Rule 144, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability ofcertain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. 

 

**ARTICLE IV**

**OTHER AGREEMENTS OF THE PARTIES**

 

4.1     Transfer Restrictions. 

 

(a) The Securities may only be disposed of in compliance with state and federal securitieslaws. In connection with any transfer of Securities other than pursuant to an effective registration statement, to the Company or to an Affiliate of a Purchaser, the Company may require the transferor thereof to provide to the Company an opinion ofcounsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As acondition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. 

 

(b) Each Purchaser agrees to the imprinting,so long as is required by this Section 4.1(b), of the following legend on any certificate evidencing Securities: 

 

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE NOT BEEN REGISTERED WITHTHE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED ORSOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITHAPPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESESECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 

 

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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement or grant a security interest in some or all of the Securities and, if required under the terms of sucharrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. If required by the Company’s transfer agent in order to effect a pledge, the Company shall cause its counsel, at no cost to thePurchaser, to issue an opinion or letter of counsel to the Company’s transfer agent. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonabledocumentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of theSecurities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. 

 

(c) Certificates evidencing Underlying Shares shall not contain any legend (including the legend set forth in Section4.1(b)): (i) while a registration statement (including the Underlying Shares Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule144, or (iii) if such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff ofthe Commission); provided, however, in connection with the issuance of the Underlying Shares, each Purchaser, severally and not jointly with the other Purchasers, hereby agrees to adhere to and abide by all prospectus deliveryrequirements under the Securities Act and Commission Regulations. If all or any portion of a Debenture or Warrant is converted or exercised (as applicable) at a time when there is an effective registration statement to cover the resale of theUnderlying Shares, or if such Underlying Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations thereof) then such Underlying Sharesshall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaserto the Company or the Company’s transfer agent of a certificate representing Underlying Shares issued with a restrictive legend, deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from allrestrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. 

 

(d) In addition to such Purchaser’sother available remedies, the Company shall pay to a Purchaser, in cash, as liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to theCompany’s transfer agent) delivered for removal of the restrictive legend and subject to this Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 3 Trading Days after such damages have begun to accrue) for each Trading Dayafter such third Trading Day until such certificate is delivered without 

 

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a legend. Notwithstanding anything herein to the contrary, in the event a Purchaser isentitled to collect liquidated damages hereunder and liquidated damages pursuant to Sections 4(b)(ii) and/or (iii) of the Debenture, the Purchaser shall be limited to collect, at its option, of such remedies, only one such remedy on any givenoccasion. 

 

4.2    Acknowledgment of Dilution.    The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may besubstantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Underlying Shares pursuant to the Transaction Documents, areunconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim that the Company may have against any Purchaser or Purchasers. 

 

4.3    Furnishing ofInformation.    As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by theCompany after the date hereof pursuant to the Exchange Act. Upon the request of any Purchaser, the Company shall deliver to such Purchaser a written certification of a duly authorized officer as to whether it has complied with the precedingsentence. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to each Purchaser and make publicly available in accordance with Rule 144(c) such information as isrequired for each Purchaser to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable suchPerson to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 

 

4.4    Integration.    The Company shall not, and shall use its best efforts to ensure thatno Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in amanner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any PrincipalMarket. 

 

4.5    Reservation and Listing of Securities. 

 

(a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to theTransaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. 

 

(b) If, on any date, based on the Set Price on such date, the number of authorized but unissued (and otherwise unreserved)shares of Common Stock is less than 120% of (i) the Actual Minimum on such date, minus (ii) the number of shares of Common Stock previously issued pursuant to the Transaction Documents, then the Board of Directors of the Company shall usecommercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least 120% of the Actual Minimum at such 

 

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time (minusthe number of shares of Common Stock previously issued pursuant to the Transaction Documents), as soon as possible and in any event not later than the 75th day after such date, provided that the Company shall not be required at any time to authorizea number of shares of Common Stock greater than the maximum remaining number of shares that could be issued after such term pursuant to the Transaction Documents after giving effect to all potential anti-dilution adjustments. 

 

(c) The Company shall: (i) in the time andmanner required by the Principal Market, prepare and file with such Principal Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Actual Minimum on the date of such application, (ii) takeall steps necessary to cause such shares of Common Stock to be approved for listing on the Principal Market as soon as possible thereafter, (iii) provide to any Purchaser evidence of such listing upon request from such Purchaser, and (iv) maintainthe listing of such Common Stock on such Principal Market or another Principal Market. In addition, the Company shall, at its next regularly scheduled annual or special meeting of shareholders, but in no event later than June 30, 2003, include aproposal for shareholder approval which provides for soliciting Shareholder Approval (as defined in the Debenture), with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall solicitproxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. The Company representsand warrants to each Purchaser, as a material inducement to each Purchaser to purchase the Debentures and Warrants, that it has binding, irrevocable agreements from each of Richard Hollis, Paul Bagley, Sal Zizza, Eric Loumeau, Bob Marsella and BobWeber to vote all shares of Common Stock over which they have voting rights, respectively, in favor of such resolution. 

 

4.6    Conversion and Exercise Procedures.    The form of Election to Purchase included inthe Warrants and the form of Conversion Notice included in the Debentures set forth the totality of the procedures required of a Purchaser in order to exercise the Warrants or convert the Debentures. No additional legal opinion or other informationor instructions shall be required of a Purchaser to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with theterms, conditions and time periods set forth in the Transaction Documents. 

 

4.7    Future Financings.    From the date hereof until 30 days after the Effective Date, other than as contemplated by this Agreement or as consented toin writing by each Purchaser, neither the Company nor any Subsidiary (with respect to Capital Shares Equivalents) shall (i) incur, issue, create, guarantee, assume or otherwise become liable on account of any indebtedness, except in the ordinarycourse of business, or (ii) increase any amounts owing or to which such Person is liable under any existing obligations, except in the ordinary course of business, or (iii) issue or sell any Capital Shares or Capital Shares Equivalents or (iv) issueany Capital Shares or Capital Shares Equivalents in connection with an investment in the Company by, or a joint venture, merger, consolidation, acquisition, licensing arrangement or business 

 

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partnership except to (a)another Person or Persons, which such other Person(s) is commonly recognized to be a non-financial participant in the pharmaceutical industry or any sub-aspect thereof, including, without limitation, the conduct of clinical trials, or (b) to anotherPerson, in any event where from the legal documentation thereof or other publicly available information, it is manifest that the primary purpose of such transaction from the perspective of such other Person is other than to take an equity positionin the Company. Notwithstanding anything to the contrary herein, the Section 4.7 shall not preclude the Company from the issuance of Capital Shares or Capital Shares Equivalents (a) in connection with the granting or extension of existing options toemployees, officers and directors of the Company pursuant to any stock option plan duly adopted by the Company or to the issuance of Common Stock upon exercise of such options or (b) up to 150,000 shares of Common Stock or Capital SharesEquivalents, in the aggregate, to consultants or advisors to the Company for services to be rendered to the Company by such consultants or advisors, or (c) upon the conversion or exercise of the Debentures or the Warrants or the Cowen Warrants (asdefined in the Registration Rights Agreement), or (d) upon the exercise of or conversion of any Capital Share Equivalents, options or warrants issued and outstanding on the Original Issue Date (including the Warrants issued to the Holders and theCowen Warrants), (e) in connection with a leasing arrangement from a bank or similar financial institution approved by the Company’s Board of Directors or (f) at a price, or conversion or exercise price (as the case may be), that exceeds theinitial Set Price of the Debentures. In addition, until the earlier of the Maturity Date or the date that all of the Debentures have been converted (and all shares of Common Stock issuable upon such conversion have in fact been delivered to thepersons then entitled thereto), the Company shall not (I) issue or sell any Capital Shares Equivalents for which the conversion or exercise price of such securities is determined by the market price of the Company’s Common Stock at the time ofsuch conversion or exercise, or (II) grant or permit to be created nor allow or suffer any Subsidiary to grant or permit to be created any security interest in any assets of the Company or any Subsidiary in favor of any Person, other than (A)purchase money security interests secured only by the assets purchased directly in connection with the grant of such security interest, (B) security interests in the Company’s accounts receivable and/or inventory, (C) security interests in anyor all of the assets of the Company in connection with a loan or line of credit extended to the Company by a major national or international diversified pharmaceutical company or pharmaceutical products distributor, or (D) if the VWAP of the CommonStock has been at least 150% of the Set Price for at least 30 consecutive Trading Days and the Underlying Shares Registration Statement is then effective, a security interest in the Company’s Intellectual Property Rights; in each case exceptwith the prior written consent of the then-holders of any outstanding Debentures at the time such security interest is sought to be created. In addition, unless Shareholder Approval has been sought and voted on in accordance with Section 4.5(c), theCompany shall not make any issuance whatsoever of Capital Shares or Capital Shares Equivalents which would cause any adjustment of the Set Price (other than pursuant to Section 4(c)(ii) of the Debentures) or cause any adjustment of the WarrantExercise Price pursuant to Section 11(b) of the Warrants. For clarity, if a resolution for Shareholder Approval is presented in accordance with Section 4.5(c), voted on and rejected by the Company’s shareholders, then the Company shallthereafter be permitted to make an issuance of Capital Shares or Capital Shares Equivalents which would cause an adjustment of the Set Price or the Warrant Exercise Price without causing a breach of this Agreement or, in and of itself, constitutingan Event of Default under any Debenture. 

 

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4.8    Participation in Future Financing.    From the date hereof until the earlier of one year from the Closing Date or the date Debentures held by a Purchaser are no longeroutstanding, if the Company intends to effect a private placement of Capital Shares or Capital Shares Equivalents (a “Subsequent Financing”) the Company shall deliver to each such Purchaser a written notice (the “SubsequentFinancing Notice”) of its intention to effect such Subsequent Financing, which Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raisedthereunder, the Person with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto. Such Purchaser shall have the right to participate in such transaction pursuantto the terms set forth herein provided such Purchaser shall notify the Company by 4:30 p.m. (New York City time) on the fifth (5th) Trading Day after delivery to the Purchaser of the Subsequent Financing Notice of its agreement to provide (or tocause its designee to provide), subject to completion of mutually acceptable documentation substantially reflecting the terms described in the Subsequent Financing Notice, all or part of such Purchaser’s Pro-Rata Share (as defined below) of theParticipation Amount (defined below) on substantially the terms set forth in the Subsequent Financing Notice and such term sheet or similar document. For purposes of the foregoing, “Pro Rata Share” means a fraction, the numerator ofwhich is the principal amount of Debentures then owned by such Purchaser and the denominator of which is the total principal amount of Debentures then outstanding. “Participation Amount” means the lesser of (i) 25% of the dollaramount of such Subsequent Financing or (ii) such lesser percentage of such Subsequent Financing as is derived by multiplying 25% by a fraction the numerator of which is the principal amount of Debentures then outstanding and the denominator of whichis $10,000,000. To the extent an eligible Purchaser shall fail to so notify the Company of its agreement to participate in such Subsequent Financing as aforesaid, the Company may effect the remaining portion of such Subsequent Financing on the termsand to the Persons substantially as set forth in the Subsequent Financing Notice; provided that the Company must provide the eligible Purchasers with a second Subsequent Financing Notice, and each eligible Purchaser will again have the right offirst refusal set forth above in this Section 4.8, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Daysafter the date of the initial Subsequent Financing Notice with substantially the Persons identified in the Subsequent Financing Notice. A “Subsequent Financing” shall not in any event include any issuances of securities (a) pursuant to aprimary offering on a registration statement filed under the Securities Act (other than a primary offering of registered securities off a shelf registration filed on Form S-3), or (b) any issuance which is excepted from the restrictive provisions ofSection 4.7 by its terms. 

 

4.9    Securities Laws Disclosure; Publicity.    The Company shall, by 8:30 am Eastern Time on the Trading Day after the Closing Date, file a Current Report on Form 8-K disclosing allmaterial terms of the transactions contemplated hereby and attaching the Transaction Documents as exhibits. The Company will consult with each Purchaser prior to issuing any press releases with respect to the transactions contemplated hereby.Notwithstanding the foregoing, prior to the filing of the registration statement filed pursuant to the Registration Rights Agreement and filings related thereto, the Company shall not publicly disclose the name of any Purchaser, or include the nameof any Purchaser in any filing with the Commission or any regulatory agency or Principal Market, without the prior written consent of such Purchaser, 

 

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except to the extent suchdisclosure is required by law or Principal Market regulations, in which case the Company shall provide such Purchaser with prior notice of such disclosure. 

 

4.10    Non-Public Information.    The Company covenants and agrees that neither it nor anyother Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a writtenagreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 

 

4.11    Use ofProceeds.    The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of tradepayables, capital lease obligations, and accrued expenses in the ordinary course of the Company’s business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. Prior to thereceipt of Shareholder Approval, the Company shall not declare or pay any cash dividend on its shares of Common Stock while any Debenture remains outstanding. 

 

4.12    Reimbursement.    If any Purchaser becomes involved in any capacity in anyProceeding by or against any Person who is a stockholder of the Company, solely as a result of such Purchaser’s acquisition of the Securities under this Agreement and without causation by any other activity, obligation, condition or liabilitypertaining to such Purchaser and not to the transactions contemplated by this Agreement, the Company will reimburse such Purchaser, to the extent such reimbursement is not provided for in Section 4.13, for its reasonable legal and other expenses(including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to anyliability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of any Purchaser who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees andcontrolling persons (if any), as the case may be, of such Purchaser and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, each Purchaser and any suchAffiliate and any such Person. The Company also agrees that neither any Purchaser nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalfof or in right of the Company solely as a result of acquiring the Securities under this Agreement. 

 

4.13    Indemnification of Purchasers.    Subject to the provisions of this Section 4.13,the Company will indemnify and hold each Purchaser and their respective directors, officers, shareholders, partners, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations,claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of orrelating to any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents. If any action shall be brought against any Purchaser Party in respect of whichindemnity may be sought pursuant to this Agreement, 

 

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such Purchaser Party shallpromptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate inthe defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company hasfailed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Companyand the position of such Purchaser Party. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not beunreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made bythe Purchasers in this Agreement or in the other Transaction Documents. 

 

4.14    Shareholders Rights Plan.    No claim will be made or enforced by the Company or any other Person that any Purchaser is an “Acquiring Person” under theCompany’s Shareholder Rights Plan as presently in effect or as it may be amended or replaced in the future or in any way could be deemed to trigger the provisions of such plan solely by virtue of receiving Securities under the TransactionDocuments. 

 

**ARTICLE V**

**MISCELLANEOUS**

 

5.1    Termination.    This Agreement may be terminated by the Company or any Purchaser, bywritten notice to the other parties, if the Closing has not been consummated by the tenth business day following the date of this Agreement; provided that no such termination will affect the right of any party to sue for any breach by the otherparty (or parties). 

 

5.2    Fees and Expenses.    The Company has agreed to reimburse up to $30,000 to Midsummer Investment Ltd. (of which $15,000 has been received and the balance incurred will be paid bythe Company as directed by Midsummer Investment Ltd. at Closing) as reimbursement for its legal, administrative and due diligence fees and expenses incurred as lead investor in the transactions contemplated by the Transaction Documents. Except asexpressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation,preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of any Securities. 

 

5.3    EntireAgreement.    The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements andunderstandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 

 

23 

 

5.4    Notices.    Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective onthe earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified on the signature pages hereto prior to 4:00 p.m. (New York City time) on a Trading Day, (b) the next TradingDay after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 4:00 p.m. (New York City time) on any Trading Day, or(c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service. The addresses for such notices and communications are those set forth on the signature pages hereof, or such other address as may bedesignated in writing hereafter, in the same manner, by such Person. 

 

5.5    Amendments; Waivers.    No provision of this Agreement may be waived or amended as to any Purchaser except in a written instrument signed, in the case of an amendment, bythe Company and such Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to bea continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair theexercise of any such right. 

 

5.6    Construction.    The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.The language used in this Agreement will be deemed to be the language chosen by each party to express their mutual intent, and no rules of strict construction will be applied against any party. 

 

5.7    Successors andAssigns.    This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without theprior written consent of each Purchaser. Any Purchaser may assign its rights under this Agreement and the Registration Rights Agreement to any Person to whom such Purchaser assigns or transfers any Securities. 

 

5.8    No Third-PartyBeneficiaries.    This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any otherPerson, except as otherwise set forth in Sections 4.13. 

 

5.9    Governing Law; Venue; Waiver of Jury Trial.    All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by andconstrued and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courtssitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of theTransaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to 

 

24 

 

the jurisdiction of any suchcourt, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding bymailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficientservice of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence anaction or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation,preparation and prosecution of such action or proceeding. 

 

5.10    Survival.    The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities,as applicable. 

 

5.11    Execution.    This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall becomeeffective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, suchsignature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 

 

5.12    Severability.    If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisionsof this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substituteprovision in this Agreement. 

 

5.13    Rescission and Withdrawal Right.    Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever anyPurchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its solediscretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights, provided, however, in the case of a rescission of a conversion of aDebenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such conversion or exercise notice. 

 

5.14    Replacement of Securities.    If any certificate or instrument evidencing anySecurities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only uponreceipt of evidence reasonably 

 

25 

satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, ifrequested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 

 

5.15    Remedies.    In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will beentitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and herebyagrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. Without limiting the generality of the foregoing, the Company expressly agrees that its breach of the next-to-last lastsentence of Section 4.7 would cause each Purchaser irreparable harm, and consents to the granting of injunctive relief by any court having jurisdiction to preclude any such issuance of securities. 

 

5.16    Payment SetAside.    To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or theproceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to theCompany, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or partthereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 

 

5.17    Usury.    To the extent it may lawfully do so, theCompany hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, inconnection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it isexpressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “MaximumRate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under theTransaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequentto the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate of interest applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. Ifunder any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid

 

26 

 

principal balance of any suchindebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election. 

 

5.18    Independent Nature of Purchasers’ Obligations and Rights.    The obligationsof each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under anyTransaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind ofentity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independentlyprotect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in anyproceeding for such purpose. Each Purchaser was introduced to the Company by SG Cowen Securities Corporation, which has acted solely as agent for the Company and not for any Purchaser. Each Purchaser has been represented by its own separate legalcounsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through Purchaser’s Counsel.Purchaser’s Counsel does not represent all of the Purchasers but only Midsummer Investment, Ltd. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not becauseit was required or requested to do so by the Purchasers. 

 

27 

5.19    Liquidated Damages.    TheCompany’s obligations to pay any liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid liquidated damages and other amounts have been paidnotwithstanding the fact that the instrument or security pursuant to which such liquidated damages or other amounts are due and payable shall have been canceled. 

 

*********************** 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed bytheir respective authorized signatories as of the date first indicated above. 

 

 

 
  
**HOLLIS-EDEN PHARMACEUTICALS, INC.**
  
By:
 
/s/    Eric J.Loumeau            
    
Name: Eric J. Loumeau
    
Title: Vice President, General Counsel
              
Address for Notice:

4435 Eastgate Mall, Suite 400

San Diego, CA 92121

Attn: Daniel Burgess, C.F.O. and

Eric Loumeau, V.P. andGeneral Counsel

Tel: (858) 587-9333

Fax: (858) 558-6470
          
With a copy to:
   
Cooley Godward LLP
    
4401 Eastgate Mall
    
San Diego, California 92121
    
Attn: Thomas A. Coll, Esq.

Tel: (858) 550-6013

Fax: (858) 550-6420
     
Wire Instructions:
   
attached as Annex A

 

[REMAINDER OF PAGEINTENTIONALLY LEFT BLANK 

SIGNATURE PAGE FOR PURCHASER FOLLOWS] 

 

28 

 

PURCHASERSSIGNATURE PAGE 

 

IN WITNESS WHEREOF, theundersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. 

 

**MIDSUMMER INVESTMENT, LTD.**
   
Address for Notice:

C/o Midsummer Capital, LLC

By:
 
    /s/    Michel A. Amsalem

Michel A. Amsalem, Director
     
485 Madison Avenue, 23rd Floor

New York,New York 10022

Tel: (212) 584-2140

Fax: (212) 584-2142

Attn: Michel A. Amsalem
         
Subscription Amount: $ 1,200,000.00
               
With a copy to:
     
Feldman Weinstein LLP

420 Lexington Avenue

New York, New York 10170

Attn: Robert F. Charron

Tel: (212) 869-7000

Fax: (212) 401-4741
         
**ISLANDIA, L.P.**
   
Address for Notice:

c/o John Lang, Inc.

By:

 

Name:

Title:
 
    /s/    Richard Berner

Richard Berner

President of John Lang, Inc.,

    General Partner
     
485 Madison Avenue, 23rd Floor

New York,New York 10022

Tel: (212) 584-2100

Fax: (212) 584-2199
         
Subscription Amount: $ 800,016.00
      
 

continued

 

PURCHASERSSIGNATURE PAGE (CONT. . . ) 

 

**PORTSIDE GROWTH AND OPPORTUNITYFUND**

 

 

By:
 
/s/    Jeffrey M. Solomon        
  
Name: Jeffery M. Solomon
  
Title: Authorized Person

 

Address for Notice: 

C/o Ramius Capital Group, LLC 

666 Third Avenue, 26th Floor 

New York, NY 10017 

 

Fax: (212) 845-7999 

Subscription Amount: $ 500,000 

 

**CAPITAL VENTURES INTERNATIONAL**

**ByHEIGHTS CAPITAL MANGEMENT, its authorized agent**

 

 

By:
 
/s/    Martin Kobinger        
  
Martin Kobinger

Investment Manager

 

Address for Notice: 

 

425 California St., Suite 1100 

San Francisco, CA 94133 

 

Fax: (415) 403-6525 

Subscription Amount: $ 500,000 

 

continued 

 

PURCHASERSSIGNATURE PAGE (CONT. . . ) 

 

**OMICRON MASTER TRUST**

**By: Omicron Capital L.P. as subadvisor**

**By: Omicron Capital Inc., its general partner**

 

By:
 
    /s/  BruceBernstein            
  
    Name: Bruce Bernstein

    Title:  President

 

Addressfor Notices: 

c/o Omicron Capital L.P. 

153 E. 53rd Street, 48th Floor 

New York, NY 10022

Attn: Brian Daly 

Fax: 212-508-7028 

Subscription Amount: $ 2,000,016 

 

continued 

 

PURCHASERSSIGNATURE PAGE (CONT. . . ) 

 

**MID CAP VALUESERIES OF SECURITY EQUITY FUND**
   
Address for Notice:

Mid Cap Value Series

By:
 
    /s/    James P.Schier            

James P. Schier, Vice President
     
One Security Benefit Place

Topeka, Kansas 66636

Tel: (785) 438-3166

Fax: (785) 368-1409

Attn: James P. Schier
         
Subscription Amount: $ 1,000,008
               
With a copy to:
     
Mid Cap Value Series

One Security Benefit Place

Topeka, Kansas 66636

Attn: Amy J. Lee, Secretary

Tel: (785) 438-3226

Fax: (785) 438-3080
         
**SECURITY MID CAP GROWTH FUND**
   
Address for Notice:

Security Mid Cap Growth Fund

By:
 
    /s/    James P.Schier            

James P. Schier, Vice President
     
One Security Benefit Place

Topeka, Kansas 66636

Tel: (785) 438-3166

Fax: (785) 368-1409

Attn: James P. Schier
         
Subscription Amount: $ 1,000,008
               
With a copy to:
     
Security Mid Cap Growth Fund

One Security Benefit Place

Topeka, Kansas 66636

Attn: Amy J. Lee, Secretary

Tel: (785) 438-3226

Fax: (785) 438-3080

 

 

continued 

 

PURCHASERSSIGNATURE PAGE (CONT. . . ) 

 

**SERIES J OF SBL FUND**
   
Address for Notice:

Series J, SBL Fund

By:
 
    /s/    James P.Schier            

James P. Schier, Vice President
     
One Security Benefit Place

Topeka, Kansas 66636

Tel: (785) 438-3166

Fax: (785) 368-1409

Attn: James P. Schier
         
Subscription Amount: $ 2,000,016
               
With a copy to:
     
Series J, SBL Fund

One Security Benefit Place

Topeka, Kansas 66636

Attn: Amy J. Lee, Secretary

Tel: (785) 438-3226

Fax: (785) 438-3080
         
**SERIES V OF SBL FUND**
   
Address for Notice:

Series V, SBL Fund

By:
 
    /s/    James P.Schier            

James P. Schier, Vice President
     
One Security Benefit Place

Topeka, Kansas 66636

Tel: (785) 438-3166

Fax: (785) 368-1409

Attn: James P. Schier
         
Subscription Amount: $ 1,000,008
               
With a copy to:
     
Series V, SBL Fund

One Security Benefit Place

Topeka, Kansas 66636

Attn: Amy J. Lee, Secretary

Tel: (785) 438-3226

Fax: (785) 438-3080