**Exhibit 10.142**

 

**PURCHASE AGREEMENT**

 

PURCHASEAGREEMENT (this “Agreement”) is made as of the 23rd day of June 2003, byand between The Immune Response Corporation, a corporation organized under thelaws of the State of Delaware (the “Company”), with its principaloffices at 5931 Darwin Court, Carlsbad, California 92008, and individuals andentities listed on Exhibit A (the “Purchasers”) who becomeparties to this Agreement by executing and delivering a financing signaturepage in the form attached hereto as Exhibit B (the “FinancingSignature Page”).

 

W I T N E S S E T H :

 

WHEREAS, theCompany and each Purchaser are executing and delivering this Agreement inreliance upon the exemption from securities registration afforded by theprovisions of Regulation D (“Regulation D”), as promulgated by theUnited States Securities and Exchange Commission (the “SEC”) under theSecurities Act of 1933, as amended (the “Securities Act”) and Section4(2) of the Securities Act; and

 

WHEREAS,****the Company desires to issue and sell to thePurchasers and the Purchasers desire to purchase, severally and not jointly,12% promissory notes in the aggregate principal amount of One Million Dollars($1,000,000), substantially in the form attached to this Agreement as ExhibitC (“Note(s)”) and 166,665 shares of the Company’s common stock (“CommonStock”), par value $0.0025 per share (“Shares”).  The amount of Notes and Shares purchased byeach Purchaser is set forth on Exhibit A;

 

WHEREAS, contemporaneous with the execution and deliveryof this Agreement, the Company and the Purchasers are executing and deliveringa Registration Rights Agreement, in the form attached hereto as Exhibit D(the “Registration Rights Agreement”), pursuant to which the Company hasagreed to provide certain “piggyback” registration rights for the Shares andContingent Shares (as hereinafter defined) under the Securities Act and therules and regulations promulgated thereunder, and applicable state securitieslaws; and

 

WHEREAS,contemporaneous with the execution and delivery of this Agreement, the Companyshall execute an Escrow Agreement, in the form attached hereto as Exhibit E(the “Escrow Agreement”), pursuant to which the Company shall deposit166,665 shares of its Common Stock representing the number of Pre-PaymentPenalty Shares (as hereinafter defined) which may be issued to Purchasers inaccordance with the terms of this Agreement.

 

NOW,THEREFORE, in consideration ofthe mutual covenants and agreements set forth in this Agreement, and for othergood and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties do hereby agree as follows:

 

**SECTION 1. *Purchase andSale of Notes and Shares***

 

1.01                           Issuance and Sale of the Notes and Shares.  Subjectto the terms and conditions of this Agreement, the Purchasers agree to purchaseat the Closing (as hereafter defined), and the Company agrees to issue and sellto the Purchasers at the Closing, the Notes and 166,665 Shares,

 

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in the aggregate, of Common Stock for anaggregate purchase price of One Million Dollars ($1,000,000) (the “PurchasePrice”).

 

1.02                           Termsof the Notes.  The principal of eachNote shall bear interest at a rate of twelve (12%) percent per annum (the“Principal Amount”).  The PrincipalAmount and any accrued but unpaid interest shall become due and payable in oneequal payment upon the earlier of: (i) September 30, 2003 or (ii) upon theclosing of a sale (or series of related sales) by the Company of its equitysecurities or warrant exercise resulting in net proceeds to the Company of notless than One Million Three Hundred Thousand Dollars ($1,300,000)****(“Maturity Date”).  Interest on the Notes shall be paidmonthly.  The Company shall have theright to pre-pay the Principal Amount and any accrued and unpaid interestthereon at any time.  In the event theNotes and any accrued and unpaid interest thereon are not pre-paid on or beforeJuly 31, 2003, an additional 166,665 shares, in the aggregate, of Common Stockshall be issued and delivered to the Purchasers on a pro rata basis (“Pre-PaymentPenalty Shares”).  If the PrincipalAmount and/or the interest on the Notes is not paid by the Maturity Date, thenthe Principal Amount shall bear interest at the annual rate of 18% and allpayments of the Principal Amount, accrued interest thereon, and other amountspayable under the Notes, shall be immediately due and payable.  Furthermore, upon such default, anadditional 333,330 shares, in the aggregate, of Common Stock shall be issuedand delivered to the Purchasers, on a pro rata basis, on the date of default(“Default Shares,” and together with the Pre-Payment Penalty Shares, the“Contingent Shares”).

 

**SECTION 2****.*    Closing****.     *At theClosing (as defined in Section 3 hereof), the Company will sell to thePurchasers, and the Purchasers will purchase from the Company, upon the termsand conditions hereinafter set forth, the Notes in the Principal Amounts andthe number of Shares set forth on Exhibit A.  The issuance, sale and purchase of the Notes and Shares shalloccur at a closing (the “Closing”) to be held at the offices of Littman KrooksLLP, 655 Third Avenue, New York, New York 10016, at such time as may bemutually agreed upon by the Company and the Purchasers, but no later than June23, 2003.  The date of Closing is hereinafterreferred to as the “Closing Date.”

 

**SECTION 3.*    Deliveryof the Notes and Shares at the Closing****.* On the Closing Date, the Company shallissue and sell to each Purchaser, and each Purchaser severally (but notjointly) agrees to purchase from the Company, such Notes and Shares for thePurchase Price.  Each Purchaser’sobligation to purchase a Note and Shares hereunder is distinct and separatefrom each other Purchaser’s obligation to purchase, and no Purchaser shall berequired to purchase hereunder more than the amount set forth opposite suchPurchaser’s name on Exhibit A hereto, notwithstanding any failure by anyother Purchaser to purchase Notes and Shares hereunder, nor shall any Purchaserhave any liability by reason of any such failure by any other Purchaser.

 

At theClosing, the Company shall deliver to each Purchasers one or more stockcertificates and a Note registered in the name of such Purchaser, or in suchnominee name(s) as designated by such Purchaser in writing, representing the numberof Shares and Principal Amount of the Note set forth opposite such Purchaser’sname on Exhibit A hereto and each bearing an appropriate legendindicating that the Notes and Shares were sold in reliance upon the exemptionsfrom registration under the Securities provided by Section 4(2) thereofand Rule 506 thereunder.  Thename(s) in which the certificates are to be registered are set forth in theStock

 

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Certificate Questionnaireattached hereto as part of Appendix I. The Company’s obligation to complete the sale of the Notes and Sharesand deliver such stock certificate(s) and Notes to the Purchasers at theClosing shall be subject to the following conditions only, any one or more ofwhich may be waived in writing by the Company: (a) the receipt by theCompany of same-day funds in the full amount of the purchase price for theNotes and Shares being purchased hereunder and (b) the accuracy of therepresentations and warranties made herein by the Purchasers as of the datehereof and the fulfillment of the undertakings of the Purchasers set forth inthis Agreement to be fulfilled by them prior to the Closing.  The Purchaser’s obligation to acceptdelivery of such stock and certificate(s) and Notes and to pay for the Notesand Shares evidenced thereby shall be subject to the following conditions only:(a) the accuracy of the representations and warranties made herein by theCompany as of the date hereof and as of the Closing Date as if made on suchdate and (b) the fulfillment of the undertakings of the Company set forthin this Agreement to be fulfilled by it prior to Closing.

 

**SECTION 4.  *Representations, Warranties and Covenants of theCompany****.*  The Company hereby represents and warrantsto, and covenants with, the Purchasers as follows that, except as disclosed orincorporated by reference in, (i) the SEC Reports (as defined in Section 4.014hereof) or (ii) the Disclosure Schedule to be delivered by the Companyprior to the execution and delivery of this Agreement (the “DisclosureSchedule”):

 

4.01                           *Organization and Qualification.*                The Company is acorporation duly incorporated, validly existing and in good standing under thelaws of the State of Delaware.  TheCompany is qualified to do business as a foreign corporation in eachjurisdiction in which qualification is required, except where failure to soqualify could not reasonably be expected to have a material adverse effect uponthe business, financial condition, properties or operations of the Company takenas a whole (a “Material Adverse Effect”).  The only subsidiaries of the Company are as set forth on Section 4.01of the Disclosure Schedule.

 

Section 4.01 of the Disclosure Schedulediscloses all Special Purpose Entities (as defined below) owned directly orindirectly, in whole or in part, by the Company or any of its affiliates or inor with respect to which the Company or its affiliates have a direct orindirect business relationship or interest of any kind, in whole or in part,including any equity interest, any leasing relationship, any loan or otherfinancing relationship, any other contractual relationship or any othereconomic interest, relationship or arrangement of any kind, where such interestor interests are directly or indirectly related to, or part of, the business orthe assets owned by or the liabilities of the Company.  Section 4.01 of the DisclosureSchedule hereto separately discloses any guarantees by the Company, itssubsidiaries or other affiliates of the liabilities of or with respect to anySpecial Purpose Entities.  “SpecialPurpose Entities” has the meaning given that term under U.S. accounting rulesgoverning consolidation, including proposed rules and interpretations of theFASB, such as those contained in guidance (as proposed or as finally adopted)interpreting Statement of Financial Accounting Standard 94, *Consolidation of all Majority-Owned Subsidiaries*and Accounting Research Bulletin No. 51, *ConsolidatedFinancial Statements*.

 

4.02                           *Authorized CapitalStock.     *The capitalization of theCompany as of March 31, 2003, including the authorized capital stock, thenumber of shares issued and outstanding, the number of shares issuable andreserved for issuance pursuant to stock option plans, the number

 

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of shares issuable and reservedfor issuance pursuant to securities exercisable for, or convertible into orexchangeable for any shares of capital stock, is set forth in Section 4.02of the Disclosure Schedule.  All of suchoutstanding shares of capital stock have been, or upon issuance will be,validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptiverights or any other similar rights of the stockholders of the Company or anyliens or encumbrances, pursuant to the Company’s Certificate of Incorporationor bylaws or any agreement to which the Company is a party.  Except as set forth in Section 4.02of the Disclosure Schedule, as of the date of this Agreement, (i) there are nooutstanding options, warrants, scrip, rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities or rightsconvertible into or exercisable or exchangeable for, any shares of capitalstock of the Company or any of its subsidiaries, or arrangements by which theCompany or any of its subsidiaries is or may become bound to issue additionalshares of capital stock of the Company or any of its subsidiaries, and (ii)there are no agreements or arrangements under which the Company or any of itssubsidiaries is obligated to register the sale of any of its or theirsecurities under the Securities Act (except the Registration RightsAgreement).  There are no securities orinstruments containing anti-dilution or similar provisions that will betriggered by the issuance of the Shares and/or Contingent Shares, ifapplicable, in accordance with the terms of this Agreement.  The Company has furnished to each Purchaseror made available to each Purchaser true and correct copies of the Company’sCertificate of Incorporation as in effect on the date hereof, the Company’sBy-laws as in effect on the date hereof, and all other instruments andagreements governing securities convertible into or exercisable or exchangeablefor capital stock of the Company.  As ofthe date hereof, **166,665** shares ofCommon Stock representing the Pre-Payment Penalty Shares shall have beendeposited into and held in an escrow account and subject to and in accordancewith the terms of that certain Escrow Agreement.  The Pre-Payment Penalty Shares have been duly authorized and,upon release from the escrow account in accordance with the terms of the EscrowAgreement, shall be validly issued, fully paid and nonassessable.

 

4.03                           *No Other Registration Rights.*                              Except (a) as setforth in Section 4.03 of the Disclosure Schedule and (b) ascontemplated by Registration Rights Agreement, no holder of any security of theCompany has any demand, “piggy-back” or other right to require the Company toregister the sale of any security owned by such holder under the Securities Actor any right to join or participate in any such registration of the Company’ssecurities (including such registrations contemplated by the RegistrationRights Agreement).

 

4.04                           *Authority.*                                         The Companyhas all requisite corporate power and authority and has all necessaryapprovals, licenses, permits and authorizations to own, operate or lease itsproperties and to carry its business as now conducted, except where the failureto have any such approval, license, permit or authorization could notreasonably be expected to have a Material Adverse Effect.

 

4.05                           *Due Execution, Delivery and Performance ofAgreements.*                          TheCompany has all requisite corporate power and authority to enter into thisAgreement and the Notes, the Registration Rights Agreement and the EscrowAgreement (hereinafter collectively referred to as the “Transaction Documents”)and to perform the transactions contemplated hereby and thereby.  As of the date hereof, this Agreement andthe Transaction Documents have been duly authorized, executed and delivered bythe Company.  The execution, deliveryand performance of this

 

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Agreement and the TransactionDocuments by the Company and the consummation of the transactions contemplatedhereby and thereby will not (i) violate any provision of theorganizational documents of the Company or (ii) result in the creation ofany lien, charge, security interest, adverse claim or encumbrance upon any assetsor properties of the Company pursuant to the terms or provisions of, orconflict with, result in the breach or violation of, or constitute, either byitself or upon notice or the passage of time or both, a default under(A) any material agreement, mortgage, deed of trust, lease, franchise,license, indenture, permit or other material instrument to which the Company isa party or by which the Company or any of its assets or properties may beotherwise bound or affected or (B) any statute or any judgment, decree,order, rule or regulation of any court or any regulatory body, administrativeagency or other governmental body applicable to the Company or any of itsproperties.  No material consent,approval, authorization or other order of any court, regulatory body, administrativeagency or other governmental body is required for the execution and delivery ofthis Agreement or the Transaction Documents or the consummation of thetransactions contemplated by this Agreement or the Transaction Documents,except for compliance with the “blue sky” laws and Federal securities lawsapplicable to the (i) Offering, (ii) resale of the Shares and(iii) the issuance of the Contingency Shares.  Upon the execution and delivery by the Company of this Agreementand the Transaction Documents, and assuming the valid execution and deliverythereof by the Purchasers, this Agreement and the Transaction Documentsconstitute valid and binding obligations of the Company, enforceable inaccordance with their respective terms, except as enforceability may be limitedby applicable bankruptcy, insolvency, reorganization, moratorium or similarlaws affecting creditors’ and contracting parties’ rights generally and exceptas enforceability may be subject to general principles of equity (regardless ofwhether such enforceability is considered in a proceeding in equity or at law)and except as the indemnification agreements of the Company in Section 7.02hereof may be held violative of public policy and therefore legallyunenforceable.

 

4.06                           *Accountants.*                         BDO Seidman, LLP, theCompany’s independent accountants, are independent accountants as required bythe Securities Act and the rules and regulations promulgated thereunder (the“Rules and Regulations”).

 

4.07                           *No Defaults.*                             Except as set forth in Section 4.07of the Disclosure Schedule, the Company is not in violation or default of anyprovision of its Certificate of Incorporation or any provision of its bylaws,and, except for defaults, violations and breaches which, individually or in theaggregate, could not reasonably be expected to have a Material Adverse Effect,it is not in breach of or default with respect to any provision of anyagreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,license, indenture, permit or other instrument to which it is a party or bywhich it or any of its assets or properties are bound; and there does not existany state of fact known to the Company which, with notice or lapse of time orboth, would constitute an event of default or breach on the part of the Companyas provided in such documents, except such defaults which, individually or inthe aggregate, could not reasonably be expected to have a Material AdverseEffect.

 

4.08                           *No Actions.*                                 Except as set forth inSection 4.08 of the Disclosure Schedule, there are no legal orgovernmental actions, suits or proceedings pending or threatened in writing towhich the Company is a party or of which any property owned or leased by theCompany is the subject, which actions, suits or proceedings, individually or inthe aggregate, prevent or could

 

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reasonably be expected tomaterially and adversely affect the transactions contemplated by this Agreementor the Transaction Documents or to have a Material Adverse Effect; no materiallabor disturbance by the employees of the Company exists or, to the bestknowledge of the Company, is imminent; and the Company is not party to orsubject to the provisions of any material injunction, judgment, decree or orderof any court, regulatory body, administrative agency or other governmentalbody.

 

4.09                           *No Material Change.*                            Except as set forth on Section 4.09of the Disclosure Schedule, since March 31, 2003, (i) the Company has notincurred any known material liabilities or obligations, indirect or contingent,or entered into any material verbal or written agreement or other transactionwhich was not in the ordinary course of business or which could reasonably beexpected to have a Material Adverse Effect; (ii) the Company has not sustainedany material loss or interference with its businesses or properties from fire,flood, windstorm, accident or other calamity not covered by insurance;(iii) the Company has not paid, made or declared any dividends or otherdistribution with respect to its capital stock; (iv) there has not beenany change in the capital stock of the Company or increase in indebtednessmaterial to the Company; and (v) the Company has not incurred or sustainedany other event or change that could reasonably be expected to have a MaterialAdverse Effect.

 

4.010                     *Intellectual Property.*

 

(a)                                  Exceptas set forth on Section 4.010 of the Disclosure Schedule, theCompany has ownership, license or legal right to use all material patent,copyright, trade secret and trademark rights necessary to the conduct of thebusiness of the Company as now conducted (collectively, “IntellectualProperty”), other than intellectual property generally available on commercialterms from other sources.

 

(b)                                 Allmaterial licenses or other material agreements under which (i) the Companyis granted rights in Intellectual Property, other than intellectual propertygenerally available on commercial terms from other sources, or (ii) theCompany has granted rights to others in Intellectual Property owned or licensedby the Company, are in full force and effect and there is no material defaultor breach thereof by the Company or, to the best knowledge of the Company, anyother party thereto.

 

(c)                                  TheCompany has taken all steps reasonably required in accordance with soundbusiness practice and business judgment to establish and preserve its ownershipof all material patent, copyright, trade secret and other proprietary rightswith respect to its operations, product developments, projects and technology.

 

(d)                                 Thebusiness, activities and products of the Company do not materially infringe anyintellectual property of any other person. The Company is not, to its bestknowledge, making unauthorized use of any confidential information or tradesecrets of any other person. The activities of the Company and, to its bestknowledge, any of its employees on behalf of the Company do not violate anymaterial agreements or material arrangements which the Company has with otherpersons.

 

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(e)                                  Thereis not pending or, to the Company’s best knowledge, threatened any claim, suitor action against the Company contesting or challenging the rights of theCompany in or to any Intellectual Property or the validity of any of theIntellectual Property.

 

(f)                                    Tothe Company’s best knowledge, there is no infringement upon or unauthorized useby any third party of any of the Intellectual Property.

 

4.011                     *Compliance.*                           The Company is in compliancein all material respects with all applicable laws, rules and regulations of thejurisdictions in which it is conducting its business. Except as set forth in Section 4.011of the Disclosure Schedule, the business, activities and operations of theCompany are in compliance in all material respects with the Good ManufacturingPractice regulations issued by the United States Food and Drug Administration.

 

4.012                     *Transaction Documents.*            The Company has notdistributed and will not distribute prior to the Closing Date any material inconnection with the sale of the Notes and Shares.  The Company has not in the past nor will it hereafter take anyaction to sell, offer for sale or solicit offers to buy any securities of theCompany which cause the offer, issuance or sale of the Notes or Shares, ascontemplated by this Agreement and the Transaction Documents to fail to qualifyfor the exemptions of Section 4 of the Securities Act.

 

4.013                     *Contributions.*                The Company has not at any time,directly or indirectly, (i) made any unlawful contribution to anycandidate for public office or made and/or failed to disclose any contributionin violation of law or (ii) made any payment to any Federal or Stategovernmental officer or official, or other person charged with similar publicor quasi-public duties, other than payments required or permitted by the lawsof the United States or any jurisdiction thereof or any foreign country.

 

4.014                     *SEC Reports; Financial Statements*.   The Company has filed all reports required tobe filed by it under the Exchange Act, including pursuant to Section 13(a) or15(d) thereof, for the two years preceding the date hereof (or such shorterperiod as the Company was required by law to file such material) (the foregoingmaterials being collectively referred to herein as the “SEC Reports” and,together with the Disclosure Schedule the “Disclosure Materials”) on a timelybasis or has received a valid extension of such time of filing and has filedany such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reportscomplied in all material respects with the requirements of the Securities Actand the Exchange Act and the rules and regulations of the Commissionpromulgated thereunder, and none of the SEC Reports, when filed, contained anyuntrue statement of a material fact or omitted to state a material factrequired to be stated therein or necessary in order to make the statementstherein, in light of the circumstances under which they were made, notmisleading.  All material agreements towhich the Company is a party or to which the property or assets of the Companyare subject have been filed as exhibits to the SEC Reports to the extentrequired.  The financial statements ofthe Company included in the SEC Reports comply in all material respects withapplicable accounting requirements and the rules and regulations of theCommission with respect thereto as in effect at the time of filing.  Such financial statements have been preparedin accordance with generally accepted accounting principles applied on aconsistent basis during the periods involved (“GAAP”), except as may beotherwise specified in such financial statements or the notes thereto, andfairly present in all material respects the financial position of

 

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the Company and its consolidated subsidiariesas of and for the dates thereof and the results of operations and cash flowsfor the periods then ended, subject, in the case of unaudited statements, tonormal, immaterial, year-end audit adjustments.  Except as set forth on Disclosure Schedule or except asspecifically disclosed in the SEC Reports, since March 31, 2003 (a) therehas been no event, occurrence or development that has had or that couldreasonably be expected to have or result in a Material Adverse Effect, (b) theCompany has not incurred any liabilities (contingent or otherwise) other than(x) liabilities incurred in the ordinary course of business consistent withpast practice and (y) liabilities not required to be reflected in the Company’sfinancial statements pursuant to GAAP or required to be disclosed in filingsmade with the Commission, (c) the Company has not altered its method ofaccounting or the identity of its auditors and (d) the Company has not declaredor made any payment or distribution of cash or other property to itsstockholders or officers or directors (other than in compliance with existingCompany stock or stock option plans) with respect to its capital stock, orpurchased, redeemed (or made any agreements to purchase or redeem) any sharesof its capital stock.

 

4.015                     *Legal Opinion.*              The Company shall have used its bestefforts to deliver to the Purchasers a signed opinion of counsel to theCompany, dated as of the Closing Date, in form and substance reasonablysatisfactory to the Lenders.

 

4.016                     *Certificate.*                                   At the Closing, theCompany will deliver to the Purchasers a certificate executed by the Chairmanof the Board or President and the chief financial or accounting officer of theCompany (solely in their respective capacities as such), dated the ClosingDate, in form and substance reasonably satisfactory to the Purchasers, to theeffect that the representations and warranties of the Company set forth in thisSection 4 were true and correct in all material respects (otherthan representations and warranties that contain materiality or knowledgestandards or qualifications, which representations and warranties shall be trueand correct in all respects), as of the date of this Agreement and that theCompany has complied in all material respects with all the agreements andsatisfied all the conditions herein on its part to be performed or satisfied onor prior to such Closing Date.

 

4.017                     *Escrow Agreement.*                                         At theClosing, the Company shall have executed and delivered the Escrow Agreement andmade a copy thereof available to the Purchaser.

 

4.018                     *No Material, Non-public Information.*                                   Atthe time of the announcement of the transaction contemplated by the TransactionDocuments, as it may be amended will include no material non-public informationwith respect to the Company.

 

**SECTION 5.    *Representations, Warranties and Covenants of thePurchasers.***

 

(a)                                  EachPurchaser represents and warrants to, and covenants with, the Company that:(i) such Purchaser is knowledgeable, sophisticated and experienced inmaking, and is qualified to make, decisions with respect to investmentsrepresenting an investment decision like that involved in the purchase of theNotes and Shares and has requested, received, reviewed and considered allinformation it deems relevant in making an informed decision to purchase theNotes and Shares; (ii) such Purchaser is acquiring the Notes and Shares asset forth in Section 2 above in the ordinary course of its businessand for its own account for investment only and with no present intention ofdistributing any Notes or Shares or any arrangement or understanding

 

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with any other persons regarding thedistribution of such Notes and Shares (this representation and warranty notlimiting each Purchaser’s right to resell pursuant to the RegistrationStatement or, other than with respect to any claims arising out of a breach ofthis representation and warranty, such Purchaser’s right to indemnificationunder Section 7.02 hereof); (iii) each Purchaser will not,directly or indirectly, offer, sell, pledge, sell short, transfer or otherwisedispose of (or solicit any offers to buy, purchase or otherwise acquire or takea pledge of) any of the Shares or Contingent Shares, if applicable, except incompliance with each of the Securities Act, the Exchange Act, the Rules andRegulations and the provisions hereof and all other applicable laws;(iv) each Purchaser has completed or caused to be completed theRegistration Statement Questionnaire attached hereto as part of Appendix Ifor use in preparation of the Registration Statement, and the answers theretoare true and correct as of the date hereof and will be true and correct as ofthe effective date of the Registration Statement and the Purchasers will notifythe Company immediately of any material change in any such information providedin the Registration Statement Questionnaire occurring prior to the sale by itof all of the Shares and/or Contingent Shares, if any; and (v) each Purchaserhas, in connection with its decision to purchase the Notes and Shares as setforth in Section 2 above, relied solely upon the representationsand warranties of the Company contained herein.

 

(b)                                 EachPurchaser understands that the Shares are being offered and sold to it inreliance upon specific exemptions from the registration requirements of theSecurities Act, the Rules and Regulations and state securities laws and thatthe Company is relying upon the truth and accuracy of, and each Purchaser’scompliance with, the representations, warranties, agreements, acknowledgmentsand agreements of the Purchaser set forth herein in order to determine theavailability of such exemptions and the eligibility of the Purchaser to acquirethe Shares.

 

(c)                                  Untilthe Company publicly announces that this Agreement and the TransactionDocuments have been entered into, each Purchaser agrees with the Company tokeep strictly confidential all information concerning this Agreement, theTransaction Documents and the transactions contemplated hereby andthereby.  Each Purchaser understandsthat the information contained in the Transaction Documents is strictlyconfidential and proprietary to the Company and has been prepared, in largepart, from the Company’s publicly available documents and other information andis being submitted to each Purchaser solely for such Purchaser’s confidentialuse.  Each Purchaser hereby acknowledgesthat it is prohibited from reproducing and/or distributing the TransactionDocuments, or any other offering materials or other information provided by theCompany in connection with such Purchaser’s consideration of its investment inthe Company, in whole or in part, or divulging or discussing any of theircontents to third parties.  Further,each Purchaser understands that the existence and nature of all conversationsand presentations, if any, regarding the Company and the Transaction Documentsmust be kept strictly confidential. Each Purchaser understands that Federal securities laws imposerestrictions on trading based on information regarding the transactionscontemplated by the Transaction Documents. In particular, each Purchaser hereby acknowledges that disclosure ofinformation regarding the transaction contemplated in the Transaction Documentsmay cause the Company to violate Regulation FD and agrees not to engage in anysuch unauthorized disclosure.  Therestrictions in this subsection shall cease upon the Company’s publicannouncement that the Transaction Documents have been entered into.

 

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(d)                                 EachPurchaser understands that its investment in the Notes and Shares involves asignificant degree of risk and uncertainty and that the market price of theCommon Stock has been and may continue to be volatile and that norepresentation or warranty is being made as to the future value or tradingvolume of the Common Stock.  Inaddition, each Purchaser understands that there is no assurance that theCompany will satisfy the criteria for continued quotation of the Common Stockon The Nasdaq Stock Market.  EachPurchaser has the knowledge and experience in financial and business matters asto be capable of evaluating the merits and risks of an investment in the Notesand Shares and has the ability to bear the full economic risks of an investmentin the Notes and Shares.  Each Purchaseris not relying on the Company or any of its employees, representatives oragents with respect to the legal, tax, economic and related considerations asto an investment in the Notes and Shares, and each Purchaser has relied on theadvice of, or has consulted with, only its own advisors.

 

(e)                                  EachPurchaser understands that no United States Federal or state agency or anyother governmental agency has passed upon or made any recommendation orendorsement of any of the Notes, Shares and/or Contingent Shares, if any.

 

(f)                                    EachPurchaser understands that, until such time as a Registration Statement (asdefined in the Registration Rights Agreement) has been declared effective orthe Shares and/or Contingent Shares, if any, may be sold pursuant toRule 144(k) under the Securities Act without any restriction as to thenumber of securities as of a particular date that can then be immediatelyresold, the Shares and/or Contingent Shares, if any, shall bear a restrictivelegend in substantially the following form (and a stop-transfer order may beplaced against transfer of the certificates for the securities comprising theShares and/or Contingent Shares, if applicable):

 

THE SECURITIES REPRESENTED BYTHIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCEOF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR ANOPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THECOMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLDPURSUANT TO RULE 144(K) UNDER SAID ACT.

 

The Purchasersalso understand that, until such time as the shares of Common Stock comprisingthe Shares and/or Contingent Shares, if any, may be sold in accordance with Section 5(h)below, such shares of Common Stock also shall bear an additional restrictivelegend in substantially the following form (and a stop-transfer order may beplaced against transfer of the certificates for the shares of Common Stockcomprising the Shares and/or Contingent Shares, if any):

 

THE TRANSFER OR SALE OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE ISSUBJECT TO THE TERMS OF A PURCHASE AGREEMENT, INCLUDING SECTION 5(H) THEREOF,DATED AS OF JUNE 23, 2003, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THECOMPANY.

 

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(g)                                 EachPurchaser’s principal executive office or residence is in the jurisdiction set forthimmediately below such Purchaser’s name on the signature page hereto.

 

(h)                                 EachPurchaser hereby covenants with the Company not to make any resale or otherdisposition of any of the Shares and/or Contingent Shares, if any, withoutcomplying with the provisions of this Agreement and the Transaction Documentsand without effectively causing any prospectus delivery requirement under theSecurities Act to be satisfied, and each Purchaser acknowledges and agrees thatsuch Shares and/or Contingent Shares, if any, are not transferable on the booksof the Company unless the certificate submitted to the transfer agentevidencing the Shares and or Contingent Shares, if applicable, is accompaniedby a separate Purchaser’s Certificate of Subsequent Sale: (i) in the formof Appendix III hereto, (ii) executed by each Purchaser (if anatural person) or, if not, by an officer of, or other authorized personexpressly designated by, such Purchaser and (iii) to the effect that(A) the Shares and/or Contingent Shares, if any, have been sold inaccordance with the Registration Statement or a valid exemption fromregistration under the Securities Act and any applicable State securities or“blue sky” laws and (B), if applicable, the requirement of delivering a currentprospectus has been satisfied.

 

Subject, andin addition, to the preceding paragraph, each Purchaser hereby covenants withthe Company not to make any resale or other disposition of any Shares and/orContingent Shares, if any, prior to such time that a Registration Statement maybecome effective under the Securities Act unless (i) such sale is madepursuant to a valid exemption from registration under the Securities Act,(ii) the transferee or assignee thereof shall agree in writing also to bebound by all of the provisions of this Agreement, (iii) each Purchaseragrees in writing with the transferee or assignee to assign its rights underthis Agreement and copies of such agreements are furnished to the Company aftersuch assignment, (iv) the Company is furnished with written notice of thename and address of such transferee or assignee, (v) the certificatesubmitted to the transfer agent evidencing the Shares and/or Contingent Shares,if any, is accompanied by a separate Purchaser’s Certificate of Subsequent Sale:(a) in the form of Appendix III hereto, (b) executed bysuch Purchaser (if a natural person) or, if not, by an officer of, or otherauthorized person expressly designated by, such Purchaser and (c) to theeffect that the Shares and/or Contingent Shares, if any, have been sold inaccordance with a valid exemption from registration under the Securities Actand any applicable State securities or “blue sky” laws, (vi) eachPurchaser shall have complied with all applicable provisions of this Agreementand Transaction Documents relating to any resale of any Shares and/orContingent Shares, if any, (vii) following such transfer or assignment,the further disposition of such securities by the transferee or assignee isrestricted under the Securities Act and applicable state securities laws and(viii) if reasonably requested by the Company, each Purchaser shall havefurnished the Company with an opinion of counsel, reasonably satisfactory tothe Company, that such disposition will not require registration of the Sharesand/or Contingent Shares, if applicable, under the Securities Act.

 

Each Purchaseracknowledges that there may occasionally be times when the Company must suspendthe use of the prospectus forming a part of either of the RegistrationStatement (a “Suspension”) until such time as an amendment to theRegistration Statement has been filed by the Company and declared effective bythe Commission, or until such time as the Company has filed an appropriatereport with the Commission pursuant to the Exchange Act or appropriatelysupplemented the prospectus forming a part of the Registration Statement. EachPurchaser

 

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hereby covenants that it willnot sell any Shares and/or Contingent Share, if any, pursuant to saidprospectus during the period commencing at the time at which the Company giveseach Purchaser written notice of the Suspension of the use of said prospectusand ending at the time the Company gives the Purchaser written notice that thePurchaser may thereafter effect sales pursuant to said prospectus, except aspermitted in Section 7.02(c) hereof; provided, however, that thePurchaser shall be in compliance with the provisions contained in Section 7.02(b)hereof, and providedfurther that the Company will use itscommercially reasonable efforts to cause the prospectus so suspended to bepromptly resumed.

 

(i)                                     EachPurchaser further represents and warrants to, and covenants with, the Companythat (i) each Purchaser has full right, power, authority and capacity toenter into this Agreement and to consummate the transactions contemplatedhereby and thereby and has taken all necessary action to authorize theexecution, delivery and performance of this Agreement and the TransactionDocuments, and (ii) upon the execution and delivery by each Purchaser ofthis Agreement, this Agreement shall constitute legal, valid and bindingobligations of each Purchaser, enforceable in accordance with their respectiveterms, except as enforceability may be limited by applicable bankruptcy,insolvency, reorganization, moratorium or similar laws affecting creditors’ andcontracting parties’ rights generally and except as enforceability may besubject to general principles of equity (regardless of whether suchenforceability is considered in a proceeding in equity or at law) and except asthe indemnification agreements of such Purchaser contained in Section 7.03hereof may be held violative of public policy and legally unenforceable.

 

(j) EachPurchaser: (i) if a natural person, represents that such Purchaser hasreached the age of 21 and has full power and authority to execute and deliverthis Agreement and all other related agreements or certificates and to carryout the provisions hereof and thereof; (ii) if a corporation, partnership,limited liability company or partnership, association, joint stock company,trust, unincorporated organization or other entity, represents that such entitywas not formed for the specific purpose of acquiring the Notes and Shares, suchentity is duly organized, validly existing and in good standing under the lawsof the state of its organization, the consummation of the transactionscontemplated hereby is authorized by, and will not result in a violation ofstate law or its charter or other organizational documents, such entity hasfull power and authority to execute and deliver this Agreement and all otherrelated agreements or certificates and to carry out the provisions hereof andthereof and to purchase and hold the securities constituting the Notes andShares, the execution and delivery of this Agreement has been duly authorizedby all necessary action, this Agreement has been duly executed and delivered onbehalf of such entity and is a legal, valid and binding obligation of suchentity; or (iii) if executing this Agreement in a representative orfiduciary capacity, represents that it has full power and authority to executeand deliver this Agreement in such capacity and on behalf of the subscribingindividual, ward, partnership, trust, estate, corporation, limited liabilitycompany or limited liability partnership, or other entity for whom thePurchaser is executing this Agreement, which execution shall not result in aviolation of any document creating Purchaser’s representative or fiduciary capacity,and such individual, ward, partnership, trust, estate, corporation, limitedliability company or partnership, or other entity has full right and power toperform pursuant to this Agreement and make an investment in the Company, andthat this Agreement constitutes a legal, valid and binding obligation of suchentity. The execution, delivery and performance of this Agreement will notviolate or be in conflict with any order,

 

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judgment, injunction, law,rule, regulation, agreement or controlling document to which each Purchaser isa party or by which it is otherwise bound.

 

(j)                                     SuchPurchaser is unaware of, is no way relying on, and did not become aware of theinvestment contemplated by the Notes or the Agreement through or as a resultof, any form of general solicitation or general advertising including, withoutlimitation, any article, notice, advertisement or other communication publishedin any newspaper, magazine or similar media or broadcast over television orradio, in connection with the investment contemplated by the notes or theAgreement and is not purchasing the Notes, Shares or Contingency Shares, anddid not become aware of the investment contemplated by the notes or theAgreement, through or as a result of any seminar or meeting to which thePurchaser was invited by, or any solicitation of a subscription by, a personnot previously known to the Purchaser in connection with investments insecurities generally.

 

(k)                                SuchPurchaser is not an affiliate (as such term is defined in Rule 12(b)(ii) underthe Exchange Act) of any director or officer of the Company for purposes ofRule 4350(i)(1)(A) of the NASD, Inc. Marketplace Rules.

 

**SECTION 6.**                            ***Survival of Representations,Warranties and Agreements.*****Notwithstandingany investigation made by any party to this Agreement, all covenants,agreements, representations and warranties made by the Company and thePurchaser herein and in the certificates delivered pursuant hereto shallsurvive the Closing, the delivery to the Purchaser of the Notes and Sharesbeing purchased and the payment therefor; provided, however, thatthe representations and warranties of the Company contained in Section 4hereof (other than Section 4.012, which shall survive indefinitely) shallterminate on June 23, 2004.

 

**SECTION 7.**                            ***Registration of the Shares and/orContingent Shares; Compliance with the Securities Act****.*The Purchasers are entitled to certain“piggy-back” registration rights for the Shares and/or Contingent Shares, ifapplicable, which are more fully set forth in that certain registration rightsagreement between the Company and the Purchasers of even date herewith (the“Registration Rights Agreement”).

 

7.01                         *Transfer of Shares and/or Contingent Shares Beforeand After Effectiveness of a Registration Statement.*

 

(a)                                  EachPurchaser agrees that it will not effect any resale or other disposition of anyShares or Contingent Shares, if applicable, or its right to purchase Sharesand/or Contingent Shares, if any, that would constitute a sale within themeaning of the Securities Act unless the Purchaser effects such resale or otherdisposition in accordance with Section 5(h) hereof.  If each Purchaser continues to hold any ofthe Shares and/or Contingent Shares, if any, after a Registration Statementshall become effective, such Purchaser will promptly notify the Company inwriting of any changes or additions to the information set forth in suchRegistration Statement regarding such Purchaser or its plan of distribution ordisposition.  The foregoing obligationshall cease when for each Purchaser when such Purchaser shall have disposed ofall of its Shares and/or Contingent Shares, if any.

 

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(b)  Notwithstanding any other provisions of this Agreement,the Purchasers shall not be prohibited from selling securities under theRegistration Statement as a result of Suspensions on more than two occasions ofnot more than 20 days each in any 12-month period, unless, in the goodfaith judgment of the Company’s Board of Directors, upon advice of counsel, thesale of Shares and/or Contingent Shares, if any, under the RegistrationStatement in reliance on this paragraph would be likely to cause a violation ofthe Securities Act or the Exchange Act and result in liability to the Company.

 

7.02                           *Indemnification.*For the purpose of thisSection 7.02:

 

(i)                                   theterm “Purchaser/Affiliate” shall mean any affiliate of the Purchasers and anyperson who controls any Purchaser or any affiliate of any Purchaser within themeaning of Section 15 of the Securities Act or Section 20 of theExchange Act; and

 

(ii)                                theterm “Registration Statement” shall include any final prospectus, exhibit,supplement or amendment included in or relating to, and any document incorporatedby reference in, the Registration Statement.

 

(a)                                  TheCompany agrees to indemnify and hold harmless, and pay and/or reimburse, eachof the Purchasers and each Purchaser/Affiliate, against any losses, claims,damages, liabilities or expenses, to which such Purchasers or suchPurchaser/Affiliates may become subject, under the Securities Act, the ExchangeAct, or any other Federal or state law or regulation, at common law orotherwise (including in settlement of any claims or litigation, if such settlementis effected with the written consent of the Company), insofar as such losses,claims, damages, liabilities or expenses (or actions in respect thereof ascontemplated below) arise out of or are based upon any untrue statement oralleged untrue statement of any material fact contained in either of theRegistration Statement, as amended at the time of effectiveness of theRegistration Statement, including any information deemed to be a part thereofas of the time of effectiveness pursuant to paragraph (b) ofRule 430A, or pursuant to Rule 434, of the Rules and Regulations, orthe prospectus, in the form first filed with the Commission pursuant toRule 424(b) of the Rules and Regulations, or filed as part of either ofthe Registration Statement at the time of effectiveness if no Rule 424(b)filing is required (the “Prospectus”), or any amendment or supplement thereto,or arise out of or are based upon the omission or alleged omission to state inany of them a material fact required to be stated therein or necessary to makethe statements in the Registration Statement or any amendment or supplementthereto not misleading or in the Prospectus or any amendment or supplementthereto not misleading in the light of the circumstances under which they weremade, or arise out of or are based in whole or in part on any materialinaccuracy in the representations and warranties of the Company contained inthis Agreement or the Transaction Documents, or any failure of the Company toperform in all material respects its obligations hereunder or under law, andwill reimburse each Purchaser and each such Purchaser/Affiliate for any legaland other expenses as such expenses are reasonably incurred by such Purchaseror such Purchaser/Affiliate in connection with investigating, defending,settling, compromising or paying any such loss, claim, damage, liability,expense or action; provided, however, that the Company will not be liable inany such case to the extent that any such loss, claim, damage, liability orexpense arises out of or is based upon (i) an untrue statement or allegeduntrue statement or omission or alleged omission made in the RegistrationStatement, the Prospectus or any amendment or supplement thereto in reliance

 

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upon and in conformity with writteninformation furnished to the Company by or on behalf of the Purchaser expresslyfor use therein, (ii) the failure of such Purchaser to comply with thecovenants and agreements contained in this Agreement (including, withoutlimitation, Section 5(h) hereof and the Registration Rights Agreementhereof in respect of the resale of Shares and/or Contingent Shares, if any) orto perform its obligations under law, (iii) the inaccuracy of anyrepresentations or warranties made by such Purchaser in this Agreement or(iv) any statement or omission in any Prospectus or any amendment orsupplement thereto that is corrected in any subsequent Prospectus or anyamendment or supplement thereto that was delivered to the Purchaser reasonablyprior to the pertinent sale or sales by the Purchaser.

 

(b)                                 EachPurchaser will severally, but not jointly, indemnify and hold harmless, and payand/or reimburse, the Company, each of its directors, each of its officers whosigned a Registration Statement and each person, if any, who controls theCompany within the meaning of Section 15 of the Securities Act orSection 20 of the Exchange Act, against any losses, claims, damages,liabilities or expenses to which the Company, each of its directors, each ofits officers who signed a Registration Statement or controlling person maybecome subject, under the Securities Act, the Exchange Act, or any otherFederal or state law or regulation, at common law or otherwise (including insettlement of any claim or litigation, if such settlement is effected with thewritten consent of such Purchaser), insofar as such losses, claims, damages,liabilities or expenses (or actions in respect thereof as contemplated below)arise out of or are based upon (i) any failure by the Purchaser to complywith the covenants and agreements contained in this Agreement (including Section5(h) hereof in respect of the resale of Shares and/or Contingent Shares, ifany) or the Registration Rights Agreement or to perform its obligations underlaw, (ii) the inaccuracy of any representations or warranties made by suchPurchaser herein or (iii) any untrue or alleged untrue statement of anymaterial fact contained in a Registration Statement, the Prospectus, or anyamendment or supplement thereto, or arise out of or are based upon the omissionor alleged omission to state therein a material fact required to be statedtherein or necessary to make the statements in a Registration Statement or anyamendment or supplement thereto not misleading or in the Prospectus or anyamendment or supplement thereto not misleading in the light of thecircumstances under which they were made, in each case to the extent, but onlyto the extent, that such untrue statement or alleged untrue statement oromission or alleged omission was made in a Registration Statement, theProspectus, or any amendment or supplement thereto, in reliance upon and inconformity with written information furnished to the Company by the Purchaserexpressly for use therein, and will reimburse the Company, each of itsdirectors, each of its officers who signed a Registration Statement orcontrolling person for any legal and other expense reasonably incurred by theCompany, each of its directors, each of its officers who signed the RegistrationStatement or controlling person in connection with investigating, defending,settling, compromising or paying any such loss, claim, damage, liability,expense or action. Notwithstanding any other provisions of this Section 7.02(b),no Purchaser shall be required to indemnify any party in excess of the grossproceeds paid by such Purchaser for Notes and Shares purchased pursuant to itsrespective Agreement or if the Purchaser shall resell Shares and/or ContingentShares, if any, pursuant to a Registration Statement, if greater, the netproceeds received by the Purchaser from those resales.

 

(c)  Promptlyafter receipt by an indemnified party under this Section 7.02 ofnotice of the threat or commencement of any action, such indemnified partywill, if a claim in respect thereof is to be made against an indemnifying partyunder this Section 7.02, promptly notify the

 

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indemnifying party in writingthereof; however, the failure to notify the indemnifying party will not relieveit from any liability which it may have to any indemnified party forcontribution or otherwise under this Section 7.02 to the extent theindemnifying party is not prejudiced as a result of such failure. In case anysuch action is brought against any indemnified party and such indemnified partyseeks or intends to seek indemnity from an indemnifying party, the indemnifyingparty will be entitled to participate in, and, to the extent that it may wish,jointly with all other indemnifying parties similarly notified, to assume thedefense thereof with counsel reasonably satisfactory to such indemnified partyand, after notice from the Indemnifying Party to the Indemnified Party of itselection to assume the defense thereof, the Indemnifying Party shall not beliable to such Indemnified Party for any fees of counsel or any other expenses,in each case subsequently incurred by such Indemnified Party in connection withthe defense thereof; provided, however, if the defendants in any such action includeboth the indemnified party and the indemnifying party and, based upon theadvice of such indemnified party’s counsel, the indemnified party shall havereasonably concluded that there may be a conflict of interest between thepositions of the indemnifying party and the indemnified party in conducting thedefense of any such action or that there may be legal defenses available to itand/or other indemnified parties which are different from or additional tothose available to the indemnifying party, the indemnified party or partiesshall have the right to select separate counsel to assume such legal defensesand to otherwise participate in the defense of such action on behalf of suchindemnified party or parties.

 

If theindemnifying party elects to compromise or defend an asserted liability, itshall promptly, but in any event within ten (10) days (or sooner, if thenature of the asserted liability so requires), notify the indemnified party ofits intent to do so, and the indemnified party shall reasonably cooperate, atthe request and reasonable expense of the indemnifying party, in the compromiseof, or defense against, such asserted liability. The indemnifying party willnot be released from any obligation to indemnify the indemnified partyhereunder with respect to a claim without the prior written consent of theindemnified party, unless the indemnifying party delivers to the indemnifiedparty a duly executed agreement settling or compromising such claim with nomonetary liability to or injunctive relief against the indemnified party and acomplete release of the indemnified party with respect thereto. Theindemnifying party shall have the right, except as provided below in thissubsection, to conduct and control the defense of any third-party claim madefor which it has been provided notice hereunder. Upon receipt of written noticefrom the indemnifying party to such indemnified party of its election so toassume the defense of such action and reasonable approval by the indemnifiedparty of counsel, the indemnifying party will not be liable to such indemnifiedparty under this Section 7.02 for any legal or other expensessubsequently incurred by such indemnified party in connection with the defensethereof unless (i) the indemnified party shall have employed such counselin connection with the assumption of legal defenses in accordance with theproviso to the preceding sentence (it being understood, however, that theindemnifying party shall not be liable for the expenses of more than oneseparate counsel, representing the indemnified parties who are parties to suchaction, plus local counsel, if appropriate) or (ii) the indemnifying partyshall not have employed counsel reasonably satisfactory to the indemnifiedparty to represent the indemnified party within a reasonable time after noticeof commencement of action, in each of which cases the reasonable fees andexpenses of counsel shall be at the expense of the indemnifying party.

 

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(d)                                 Ifthe indemnification provided for in this Section 7.02 is requiredby its terms but is for any reason held to be unavailable to or otherwiseinsufficient to hold harmless an indemnified party under subsections(a) or (b) of this Section 7.02 in respect of any losses,claims, damages, liabilities or expenses referred to herein, then eachapplicable indemnifying party shall contribute to the amount paid or payable bysuch indemnified party as a result of any losses, claims, damages, liabilitiesor expenses referred to herein (i) in such proportion as is appropriate toreflect the relative economic benefits received by the Company and thePurchaser from the placement of the Notes and Shares contemplated by thisAgreement or (ii) if the allocation provided by clause (i) above isnot permitted by applicable law, in such proportion as is appropriate toreflect not only the relative benefits referred to in clause (i) above butthe relative fault of the Company and the Purchaser in connection with thestatements or omissions or inaccuracies in the representations and warrantiesin this Agreement or the Transaction Documents that resulted in such losses,claims, damages, liabilities or expenses, as well as any other relevantequitable considerations.  The relativebenefits received by the Company, on the one hand, and each Purchaser, on theother, shall be deemed to be in the same proportion as the amount paid by suchPurchaser to the Company pursuant to this Agreement for the Shares purchased bysuch Purchasers that are resold pursuant to the Registration Statement bears tothe difference (the “Difference”), if any, between the amount such Purchaserpaid for the Shares, that are sold pursuant to a Registration Statement and theamount received by such Purchaser from such resale.  The relative fault of the Company, on the one hand, and eachPurchaser, on the other, shall be determined by reference to, among otherthings, whether the untrue or alleged statement of a material fact or theomission or alleged omission to state a material fact or the inaccurate or thealleged inaccurate representation and/or warranty relates to informationsupplied by the Company or by such Purchaser and the parties’ relative intent,knowledge, access to information and opportunity to correct or prevent such statementor omission and/or its distribution. The amount paid or payable by a party as aresult of the losses, claims, damages, liabilities and expenses referred toabove shall be deemed to include, subject to the limitations set forth insubsection (c) of this Section 7.02, any legal or other feesor expenses reasonably incurred by such party in connection with investigatingor defending any action or claim. The provisions set forth in subsection(c) of this Section 7.02 with respect to the notice of the threator commencement of any action shall apply if a claim for contribution is to bemade under this subsection (d); provided, however, that no additional noticeshall be required with respect to any threat or action for which notice hasbeen given under subsection (c) for purposes of indemnification. TheCompany and the Purchaser agree that it would not be just and equitable ifcontribution pursuant to this Section 7.02 were determined solelyby pro rata allocation (even if the Purchaser were treated as one entity forsuch purpose) or by any other method of allocation which does not take accountof the equitable considerations referred to in this paragraph. Notwithstandingthe provisions of this Section 7.02, no Purchaser shall be requiredto contribute any amount in excess of the amount by which the Differenceexceeds the amount of any damages that such Purchaser has otherwise beenrequired to pay by reason of such untrue or alleged untrue statement oromission or alleged omission. No person guilty of fraudulent misrepresentation(within the meaning of Section 11(f) of the Securities Act) shall beentitled to contribution from any person who was not guilty of such fraudulentmisrepresentation. The Purchasers’ obligations to contribute pursuant to this Section 7.02are several and not joint.

 

7.03                           *Termination of Conditions andObligations.    *The restrictions imposed by Section 5(h)hereof and this Section 7 upon the transferability of the Sharesand/or Contingent

 

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Shares, if any, shall cease andterminate as to any particular number of the Shares and/or Contingent Shares,if any, upon (i) the passage of two (2) years from the date of theirissuances, (ii) such time as they become eligible for sale pursuant toRule 144(k) under the Securities Act or another similar exemption under theSecurities Act or (iii) or at such time as an opinion of counselreasonably satisfactory in form and substance to the Company shall have beenrendered to the effect that such conditions are not necessary in order tocomply with the Securities Act.

 

7.04                           *Information Available.*                     So long as a RegistrationStatement is effective covering the resale of Shares and/or Contingent Shares,if any, owned by the Purchaser, the Company will furnish or otherwise makeavailable to the Purchasers:

 

(a)                                  assoon as practicable after available one copy of (i) its Annual Report toStockholders (which Annual Report shall contain financial statements audited inaccordance with U.S. generally accepted accounting principles by a nationalfirm of certified public accountants), (ii) if not included in substancein the Annual Report to Stockholders, upon the request of the Purchaser, itsAnnual Report on Form 10-K, (iii) upon the request of the Purchaser,its Quarterly Reports on Form 10-Q, (iv) upon the request of thePurchaser, its Current Reports on Form 8-K, (v) upon the request ofthe Purchaser, its Notice of Annual Meeting of Shareholders and proxy statementfor the Company’s annual meeting and (vi) a full copy of the particularRegistration Statement covering the Shares and/or Contingent Shares, if any,(the foregoing, in each case, excluding exhibits);

 

(b)                                 uponthe request of the Purchaser, all exhibits in the form filed with theCommission excluded by the parenthetical to Section 7.04(a)(vi);and

 

(c)                                  uponthe request of the Purchaser, a reasonable number of copies of the prospectusesto supply to any other party requiring such prospectuses;

 

and the Company, upon thereasonable request of the Purchaser, will meet with the Purchaser or arepresentative thereof at the Company’s headquarters to discuss informationrelevant for disclosure in such Registration Statement covering the Sharesand/or Contingent Shares, if any, and will otherwise reasonably cooperate withany Purchaser conducting an investigation for the purpose of reducing suchPurchaser’s exposure to liability under the Securities Act, including thereasonable production of information at the Company’s headquarters duringnormal business hours, subject to appropriate confidentiality limitations.

 

7.5                                 *Compliance with the Sarbanes-Oxley Act of 2002.*                  The Companyshall comply with all applicable requirements and prohibitions under theSarbanes-Oxley Act of 2002.

 

**SECTION 8**.                                                           TheCompany and the Purchasers appoint Computershare Trust Company, Inc. to act asthe as their escrow agent to hold and to release the Pre-Payment Penalty Shareson the terms and conditions set forth in the Escrow Agreement.

 

**SECTION 9.   *Notices.      ***Allnotices, requests, consents and other communications hereunder shall be inwriting, shall be mailed by first-class registered or certified mail, confirmedfacsimile or nationally recognized overnight express courier postage prepaid,and shall be deemed given when so mailed and shall be delivered as addressed asfollows:

 

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|   | if to the  Company, to:                                                                                                                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)    |                                                                                                                                             |
|   | The Immune  Response Corporation  5931 Darwin Court  Carlsbad, California 92008  Attention: President  Facsimile: (760) 431-8636            |
|   |                                                                                                                                             |
|   | with a copy  to:                                                                                                                                 |
|   |                                                                                                                                             |
|   | Pillsbury  Winthrop LLP  50 Fremont Street  San Francisco, CA 94105-2228  Attention: Thomas E. Sparks, Jr., Esq.  Facsimile: (415) 983-1200 |

 

or to such other person at suchother place as the Company shall designate to the Purchasers in writing; and

 

(b)                                 ifto the Purchasers, at addresses as set forth at the end of this Agreement, orat such other address or addresses as may have been furnished to the Company inwriting.

 

**SECTION 10.**                     ***Changes****.*                                             ThisAgreement may not be modified or amended except pursuant to an instrument inwriting signed by the Company and holders of a majority in interest of theoutstanding Notes.

 

**SECTION 11.**                     ***Headings****.*                                        Theheadings of the various sections of this Agreement have been inserted forconvenience of reference only and shall not be deemed to be part of thisAgreement.

 

**SECTION 12.**                     ***Severability****.*                           Incase any provision contained in this Agreement should be invalid, illegal orunenforceable in any respect, the validity, legality and enforceability of theremaining provisions contained herein shall not in any way be affected orimpaired thereby.

 

**SECTION 13.**                     ***Governing Law****.*        ThisAgreement shall be governed by and construed in accordance with the laws of theState of New York.

 

**SECTION 14.**                     ***Counterparts****.*                    This Agreement may be executed intwo or more counterparts, each of which shall constitute an original, and allof which, when taken together, shall constitute one instrument, and shallbecome effective when one or more counterparts have been signed by each partyhereto and delivered to the other parties. Facsimile signatures shall be deemedoriginal signatures.

 

**SECTION 15.**                     ***Entire Agreement****.*                                           ThisAgreement and the instruments referenced herein contain the entireunderstanding of the parties with respect to the matters covered herein andtherein and, except as specifically set forth herein or therein, neither the

 

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Company nor the Purchaser makesany representation, warranty, covenant or undertaking with respect to any suchmatters.

 

**SECTION 16.**                     ***Third Party Beneficiaries****.*                                                 Subjectto Section 7.03 hereof, this Agreement is intended for the benefitof 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, anyother person.

 

**SECTION 17.**                     ***Interpretation****. *Theuse herein of the masculine, feminine or neuter forms shall also denote theother forms, as in each case the context may require.

 

**SECTION 18.**                     ***Confidential Disclosure Agreement****.* Notwithstanding any provision of this Agreement to the contrary, anyconfidential disclosure agreement previously executed by the Company and thePurchaser in connection with the transactions contemplated by this Agreementshall remain in full force and effect in accordance with its terms followingthe execution of this Agreement and the consummation of the transactionscontemplated hereby.

 

**SECTION 19.**                     ***Assignment****.*                             ThisAgreement and rights of the Purchaser hereunder may be assigned by thePurchaser only with the prior written consent of the Company except suchconsent shall not be required in cases of assignments (x) by operation ofthe law; (y) by the Purchaser to a wholly-owned subsidiary; or (z) byan investment adviser to a fund for which it is the adviser or by or amongfunds that are under common control; *provided,*that, in any such case, such assignee agrees in writing to be bound by theterms of this Agreement.

 

**SECTION 20.**                     ***Publicity.***                                           TheCompany will not issue any public statement, press release or any other publicdisclosure, that includes the Purchasers’ names, without the Purchasers’ priorwritten consent, subject to the next sentence. If the Company is required by anapplicable law, resolution, or Exchange Act rule to disclose the Purchasers’names, the Company will give the Purchasers reasonable notice of the requireddisclosure.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESSWHEREOF, the parties hereto have caused this Agreement to be executed by theirduly authorized representatives as of the day and year first above written.

 
|   | THE IMMUNE  RESPONSE CORPORATION |
|--------|----------------------------------|
|   |                             |
|   | By:                              |   |
|   |                             |   |
|   |                             | Name: |
|   |                             | Title: |

 

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**EXHIBIT A**

 

**LIST OF PURCHASERS AND NOTES AND SHARESPURCHASED**

 
| **Name and Address  of Initial Purchasers**                                                                              |   | **No. of  Shares of  Common Stock** |   | **Principal  Amount of  Notes** |      | **Aggregate  Purchase Price** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------|-----------|-------------------------------|--------|
| Capital Growth Equity Fund I, LLC  225 NE Mizner Boulevard  Suite 750  Boca Raton, Florida 33432  Attn: Monique MacLaren |   | 50,000                              |   | $                               | 300,000   |                          | $      | 300,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Edward A. Haymes  7108 Queenferry Circle  Boca Raton, Florida 33496                                                      |   | 6,000                               |   | $                               | 36,000    |                          | $      | 36,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Gerald & Seena Sperling  17899 Aberdeen Way  Boca Raton, Florida 33496                                               |   | 8,333                               |   | $                               | 50,000    |                          | $      | 50,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Steve Oliveira  18 Fieldstone Court  New City, New York 10956                                                            |   | 58,333                              |   | $                               | 350,000   |                          | $      | 350,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Lincoln Associates LLC  535 Madison Avenue  New York, New York 10022  Attn: William P. Dioguardi                         |   | 9,500                               |   | $                               | 57,000    |                          | $      | 57,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Garfield Associates LLC  535 Madison Avenue  New York, New York 10022  Attn: William P. Dioguardi                        |   | 9,500                               |   | $                               | 57,000    |                          | $      | 57,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Alex Tringas  29 Eigin Parkway  Ft. Walton Beach, Florida 32548                                                          |   | 8,333                               |   | $                               | 50,000    |                          | $      | 50,000 |   |
|                                                                                                                     |   |                                |   |                            |      |                          |   |
| Ark Venture Capital, Inc.  6400 NW 6th Way  Suite 300 Ft. Lauderdale, Florida 33309  Attn: Robert D. Keyser, Jr.         |   | 16,666                              |   | $                               | 100,000   |                          | $      | 100,000 |   |
| Total                                                                                                                    |   | 166,665                             |   | $                               | 1,000,000 |                          | $      | 1,000,000 |   |

 

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**EXHIBITB**

 

**FINANCING SIGNATURE PAGE**

 

By execution and delivery of this signaturepage, the undersigned hereby agrees to become a Purchaser, as defined in thatcertain Purchase Agreement (the “Purchase Agreement”) by and among The ImmuneResponse Corporation, a Delaware corporation (the “Company”), and thePurchasers (as defined in the Purchase Agreement), dated as of the Closing Date(as defined in the Purchase Agreement), acknowledges having read therepresentations in the Purchase Agreement section entitled “Representations ofthe Purchasers,” and hereby represents that the statements contained thereinare complete and accurate with respect to the undersigned as a Purchaser.  The undersigned further hereby agrees to bebound by the terms and conditions of (i) the Purchase Agreement as a“Purchaser” thereunder and (ii) the Registration Rights Agreement (as definedin the Purchase Agreement) as a “Purchaser” thereunder, and authorizes thissignature page to be attached to the Purchase Agreement and the RegistrationRights Agreement, or counterparts thereof.

 

Executed, in counterpart, as of the date set forth below.

 
|   | PURCHASER:       |               |
|--------|------------------|--------------------|
|   |             |               |
|   |             |               |
|   | By:              |               |   |
|   |             | Name of  Purchaser |   |
|   |             |               |
|   |             |               |
|   | By:              |               |   |
|   |             |               |
|   | Title:           |               |   |
|   |             |               |
|   | Date:            |               |   |
|   |             |               |
|   | Contact  Person: |               |   |
|   |             |               |
|   | Telephone  No.:  |               |   |
|   |             |               |
|   | Fax No.:         |               |   |
|   |             |               |
|   | E-mail Address:  |               |   |
|        |                  |                    |  |  |  |  |  |  |  |  |  |

 

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APPENDIX I

 

THE IMMUNE RESPONSE CORPORATION

 

*STOCK CERTIFICATE QUESTIONNAIRE*

Pursuant toSection 3 of the Agreement, please provide us with the followinginformation: 

 
| 1.     | The exact  name that your Notes, Shares and/or Contingent Shares, if applicable, are to  be registered in (this is the name that will appear on your stock  certificate(s)). You may use a nominee name if appropriate: |   |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
| 2.     | The  relationship between the Purchaser of the Notes, Shares and/or Contingent  Shares, if applicable and the Registered Holder listed in response to  item 1 above:                                               |   |   |
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
| 3.     | The mailing  address of the Registered Holder listed in response to item 1 above:                                                                                                                                  |   |   |
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
|   |                                                                                                                                                                                                                    |   |   |
| 4.     | The Social  Security Number or Tax Identification Number of the Registered Holder listed  in response to item 1 above:                                                                                             |   |   |
|   |                                                                                                                                                                                                                    |   |   |

 

 

24

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Appendix I-1

 

THE IMMUNE RESPONSE CORPORATION

 

*REGISTRATION STATEMENT QUESTIONNAIRE*

 

In connectionwith the preparation of the Registration Statement, please provide us with thefollowing information:

 

1.                                     Inconnection with the Registration Statement, please state your or yourorganization’s name exactly as it should appear in the Registration Statement:

 
|   |
|--------|

 

2.                                     Pleaseprovide the number of Shares that you or your organization will own immediatelyafter Closing, including those Shares purchased by you or your organizationpursuant to this Purchase Agreement and those shares purchased by you or yourorganization through other transactions:

 
|   |
|--------|

 

3. Have you or your organization had any position, office or othermaterial relationship within the past three years with the Company or itsaffiliates?

 

oYes     o No

 

If yes, pleaseindicate the nature of any such relationships below:

 
|   |
|--------|
|   |
|   |
|   |
|   |
|   |

 

4.                                     Areyou (i) an NASD Member (see definition below), (ii) a Controlling(see definition below) shareholder of an NASD Member, (iii) a PersonAssociated with a Member of the NASD (see definition below), or (iv) anUnderwriter or a Related Person (see definition below) with respect to theproposed Offering; or (b) do you own any shares or other securities of anyNASD Member not purchased in the open market; or (c) have you made anyoutstanding subordinated loans to any NASD Member?

 

oYes     o No

 

If “yes,”please below:

 
|   |
|--------|
|   |
|   |
|   |
|   |
|   |

 

 

 

25

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Appendix I-2

 

*THE IMMUNE RESPONSE CORPORATION*

 

*GLOSSARY OF TERMS*

*NASD Member.* Theterm “NASD member” means either any broker or dealer admitted to membership inthe National Association of Securities Dealers, Inc. (“NASD”). (NASDManual, By-laws Article I, Definitions)

*Control.* The term“control” (including the terms “controlling,” “controlled by” and “under commoncontrol with”) means the possession, direct or indirect, of the power, eitherindividually or with others, to direct or cause the direction of the managementand policies of a person, whether through the ownership of voting securities,by contract, or otherwise. (Rule 405 under the Securities Act of 1933, asamended)

*Person Associated with a member of the NASD.*The term “person associated with a member of the NASD” means every soleproprietor, partner, officer, director, branch manager or executiverepresentative of any NASD Member, or any natural person occupying a similarstatus or performing similar functions, or any natural person engaged in theinvestment banking or securities business who is directly or indirectlycontrolling or controlled by a NASD Member, whether or not such person isregistered or exempt from registration with the NASD pursuant to its bylaws.(NASD Manual, By-laws Article I, Definitions)

*Underwriter or a Related Person.*The term “underwriter or a related person” means, with respect to a proposed offering,underwriters, underwriters’ counsel, financial consultants and advisors,finders, members of the selling or distribution group, and any and all otherpersons associated with or related to any of such persons. (NASDInterpretation)

 

26

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APPENDIX II

 

Accredited InvestorCertificationInitial the appropriate item(s)

*The undersigned further represents andwarrants as indicated below by the undersigned’s initials:*

 

A.    *Individual investors:*    *(Please initial one or more of the following fivestatements)*

 

1.             I certify that I am an accredited investor because I have had individual income(exclusive of any income earned by my spouse) in excess of $200,000 in each ofthe most recent two years and I reasonably expect to have an individual incomein excess of $200,000 for the current year.

2.             I certify that I am an accredited investor because I have had joint income withmy spouse in excess of $300,000 in each of the most recent two years and Ireasonably expect to have joint income with my spouse in excess of $300,000 forthe current year.

3.             I certify that I am an accredited investor because I have an individual networth, or my spouse and I have a joint net worth, in excess of $1,000,000.

4.             I am a director or executive officer of The Immune Response Corporation

5.             I have individual net worth or my spouse and I have joint net worth of over$5,000,000.

 

B.    *Partnerships, corporations, trusts or other entities:*    *(Please initial one of the following sevenstatements). The undersigned hereby certifies that it is an accredited investorbecause it is:*

 

1.             an employee benefit plan whose total assets exceed $5,000,000;

2.             an employee benefit plan whose investments decisions are made by a planfiduciary which is either a bank, savings and loan association or an insurancecompany (as defined in Section 3(a) of the Securities Act) or aninvestment adviser registered as such under the Investment Advisers Act of1940;

3.             a self-directed employee benefit plan, including an Individual RetirementAccount, with investment decisions made solely by persons that are accreditedinvestors;

4.             an organization described in Section 501(c)(3) of the Internal RevenueCode of 1986, as amended, not formed for the specific purpose of acquiring theNotes and Shares, whose total assets are in excess of $5,000,000;

5.             a corporation, partnership or Massachusetts or similar business trust, withtotal assets in excess of $5,000,000, not formed for the specific purpose ofacquiring the Notes and Shares and whose purchase is directed by asophisticated person as described in Rule 506(b)(ii) of Regulation Dand who has such knowledge and experience in financial and business mattersthat he is capable of evaluating the risks and merits of an investment in theNotes and Shares;

6.             a trust, not formed for the specific purpose of acquiring the Notes and Shares,with total assets in excess of $5,000,000, whose purchase is directed by aperson who has such knowledge and experience in financial and business mattersthat he is capable of evaluating the merits and risks of an investment in theNotes and Shares; or

7.             an entity (including a revocable grantor trust but other than a conventionaltrust) in which each of the above equity owners qualifies as an accreditedinvestor under items A(1), (2) or (3) or item B(1) above.

 

Appendix II-1

 

27

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APPENDIX III

Attention:

 

PURCHASER’S CERTIFICATE OFSUBSEQUENT SALE

The undersigned, [an officerof, or other person duly authorized by] 

 

 
|                                                                                                                                                                                                                                                        |   | hereby  certifies |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|
| [fill in  official name of individual or institution]                                                                                                                                                                                                       |   |              |
| that he/she  [said institution] is the Purchaser of the shares or warrants evidenced by  the attached certificate,                                                                                                                                          |
| and as such,  sold such shares on                                                                                                                                                                                                                           |   |              | in  accordance with [Registration Statement |
|                                                                                                                                                                                                                                                        | [date] |              |   |
| number 333-                                                                                                                                                                                                                                                 |   |              | ] [a valid  exemption (*i.e.,* |   |   | ) from |
| registration  under the Securities Act of 1933, as amended, and any applicable State  securities or “blue sky” laws] and any requirement of delivering a current  prospectus by the Company has been complied with in connection with such  sale. |
|                                                                                                                                                                                                                                                             |        |                   |  |  |  |  |  |  |  |  |  |

*Print or Type:*

 
|   | Name of  Purchaser*(Individual or  Institution):*                      |   |   |
|--------|------------------------------------------------------------------------|--------|--------|
|   |                                                                   |   |   |
|   | Name of  Individual  Representing  Purchaser *(if  an Institution):*   |   |   |
|   |                                                                   |   |   |
|   | Title of  Individual  Representing  Purchaser *(if  an Institution):*  |   |   |
|   |                                                                   |   |   |
|   | Signature by  Individual  Purchaser, or  Representative  of Purchaser: |   |   |

 

 

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