-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Da4hiDvp5qfrjzP/aLJ03iIx4k9c9shAt6uLvMXN9UNcjr19cMiG1AvTsplSOdk7 YLQKUKmFwrSmwefcn61ZrQ== 0000899681-00-000088.txt : 20000327 0000899681-00-000088.hdr.sgml : 20000327 ACCESSION NUMBER: 0000899681-00-000088 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000736994 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 141644018 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-33242 FILM NUMBER: 578159 BUSINESS ADDRESS: STREET 1: 3040 SCIENCE PARK RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8584105200 MAIL ADDRESS: STREET 1: 3040 SCIENCE PARK ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOPHARM INC DATE OF NAME CHANGE: 19890310 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOTECH INC DATE OF NAME CHANGE: 19861216 S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2000 REGISTRATION STATEMENT NO. 333-_____ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ALLIANCE PHARMACEUTICAL CORP. (Exact name of registrant as specified in its charter) New York 14-1644018 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 3040 SCIENCE PARK ROAD SAN DIEGO, CA 92121 (858) 410-5200 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) DUANE J. ROTH CHIEF EXECUTIVE OFFICER Alliance Pharmaceutical Corp. 3040 Science Park Road San Diego, CA 92121 (858) 410-5200 (Name, address, including zip code, and telephone number, of agent for service of process) COPY TO: Melvin Epstein, Esq. Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, NY 10038 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------- Title of Each Proposed Proposed Class of Amount Maximum Maximum Amount of Securities To Be Offering Aggregate Registration To Be Registered(1) Price Offering Fee Registered Per Unit Price - -------------------------------------------------------------------------------------------------------- Common Stock $0.01 par value 4,588,483 $13.25(2) $60,797,400(2) $16,050.51 - ------------------------------------------------------------------------------------------------------- (1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, there are also being registered such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of 5% subordinated convertible debentures, 6% subordinated convertible notes, Series D Preferred Stock, and upon exercise of warrants to prevent dilution resulting from stock splits, stock dividends or similar transactions. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ALLIANCE PHARMACEUTICAL CORP. 4,588,483 SHARES OF COMMON STOCK This prospectus relates to the offer and sale of up to 4,588,483 shares of common stock of Alliance Pharmaceutical Corp. from time to time by the selling shareholders listed on page 11 this prospectus. Alliance will not receive any part of the proceeds from the sale of the shares of common stock covered by this prospectus, although it may receive proceeds for warrants with exercise prices ranging from $2.45 to $8.655 held by some of the selling shareholders. Alliance has agreed to bear the expenses of registration of the shares. The selling shareholders may offer the shares through brokers, dealers or agents or directly to purchasers. These transactions may be effected in the over-the-counter market or otherwise, at market prices prevailing at the time of sale or at privately negotiated prices. Our common stock is listed on the Nasdaq National Market under the symbol ALLP. On March 15, 2000, the closing price of the common stock as quoted on Nasdaq was $12.375 per share. WE URGE YOU TO READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A SPECIFIC DESCRIPTION OF RISKS ASSOCIATED WITH PURCHASING OUR COMMON STOCK THAT YOU SHOULD CONSIDER BEFORE MAKING YOUR INVESTMENT DECISION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. You should rely only on the information contained in this document or that we have referred you to. We have not authorized anyone to provide you with different information. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. The date of this Prospectus is March __, 2000. TABLE OF CONTENTS PAGE WHERE YOU CAN FIND MORE INFORMATION.......................................2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................3 PROSPECTUS SUMMARY........................................................4 RISK FACTORS..............................................................5 USE OF PROCEEDS..........................................................10 SELLING SHAREHOLDERS.....................................................11 PLAN OF DISTRIBUTION.....................................................13 LEGAL MATTERS............................................................15 EXPERTS..................................................................15 NOTE TO READERS OF THIS PROSPECTUS We were incorporated in 1983 in New York. When we refer to "us," "we," "our," "the Company" and "Alliance" in this prospectus, we mean Alliance Pharmaceutical Corp. and its consolidated subsidiaries. Our address is 3040 Science Park Road, San Diego, California 92121. Information contained on our website does not constitute part of this prospectus. IMAGENT(R), LIQUIVENT(R), FLOGEL(R), SATPAD(R) and RODA(R) are registered trademarks of Alliance. OXYGENT(TM) is a trademark Of Alliance. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-3 (the "Registration Statement") under the Securities Act, with respect to the shares offered by this prospectus. This prospectus does not contain all the information set forth in the Registration Statement and its exhibits. Certain portions of the Registration Statement have been omitted as permitted by the rules and regulations of the SEC. Copies of the Registration Statement (including the omitted portions) are available from the SEC upon payment of a fee. For further information, reference is made to the Registration Statement and the exhibits filed therewith. Statements contained in this prospectus or the Registration Statement relating to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each instance are qualified in all respects by the full text of such contract or document. You should rely only on the information or representations provided in this prospectus or incorporated by reference. We have not authorized anyone else to provide you with different information. The selling shareholders have agreed not to make an offer of the shares of our common stock in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the cover page. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any documents we file at the SEC's public reference room in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, or in the public reference rooms located in New York, New York and Chicago, Illinois. Please call the SEC at (1-800) SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC's website at http://www.sec.gov. The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information we later file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act: o Annual Report on Form 10-K for the fiscal year ended June 30, 1999; o Quarterly Reports on Forms 10-Q for the quarters ended September 30, 1999 and December 31, 1999; o Current Reports on Form 8-K dated October 4, 1999, November 4, 1999 and February 22, 2000; and o Registration Statement on Form 8-A, dated October 25, 1984. We will provide without charge to any person to whom this prospectus is delivered, upon written or oral request of such person, a copy of any or all of the documents which have been incorporated by reference in this prospectus. Requests for copies should be directed to Lloyd Rowland, Vice President and General Counsel, Alliance Pharmaceutical Corp., 3040 Science Park Road, San Diego, California 92121, telephone (858) 410-5200. PROSPECTUS SUMMARY MANY OF THE MATTERS SET FORTH IN THIS PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THIS PROSPECTUS. WE REFER YOU TO CAUTIONARY INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND IN OTHER DOCUMENTS WE FILE WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. THE COMPANY Alliance Pharmaceutical Corp. is a pharmaceutical research and development company with three products in late-stage human (clinical) development, each of which is designed to address a different medical need. These products are based on our expertise with perfluorochemicals and other technologies. Perfluorochemicals are man-made chemicals that can dissolve and carry oxygen throughout the body, including within the lung. Perfluorochemicals have also been shown to be useful in enhancing ultrasound images. OXYGENT is a temporary oxygen carrier which is being developed to reduce or eliminate the need for human blood transfusions during elective surgeries where substantial blood loss is common. OXYGENT is a "blood substitute" that uses perfluorochemicals as raw materials, instead of human or animal blood. A Phase 3 clinical trial is under way in Europe to assess whether the use of OXYGENT can reduce the need for donor blood in surgical patients. In December 1999, we initiated a complementary Phase 3 U.S. study in patients undergoing coronary artery bypass surgery. Phase 3 studies are typically the final human studies required prior to requesting marketing approval from a U.S. or foreign regulatory agency. LIQUIVENT is a perfluorochemical liquid that is trickled directly into the lungs of a patient who is being supported by a mechanical ventilator. LIQUIVENT therapy is expected to reduce the number of days a patient requires ventilator support by reducing the damage resulting from prolonged use of the ventilator, opening up collapsed air sacs, assisting in providing oxygen to and removing carbon dioxide from the lungs, and flushing debris from the lungs. We are currently conducting a Phase 2/3 clinical study in the U.S., Canada, and Europe to evaluate the use of LIQUIVENT for the treatment of adult patients with acute (sudden-onset) lung injury and acute respiratory distress syndrome; however, one or more additional studies may be required prior to filing a New Drug Application with the FDA. IMAGENT is a perfluorochemical-based diagnostic agent intended for use with ultrasound diagnostic techniques to enhance real-time images of blood flow in the blood vessels, heart, and other organs. In May 1999, we announced that two Phase 3 studies in which IMAGENT was evaluated as a contrast agent demonstrated highly statistically significant improvement in visualization of the walls of the heart (endocardial border delineation) compared to standard (non-contrasted) ultrasound imaging. On December 14, 1999, the FDA accepted our New Drug Application for IMAGENT, which is currently being reviewed. In addition, we have other products in early development. FLOGEL is a liquid/gel that is intended to reduce the occurrence of internal adhesions (scar tissue) in patients undergoing surgeries involving their internal organs. RODA is a monitor intended to provide real-time measurements of the cardiovascular (heart and blood system) and oxygenation status of surgical patients. PULMOSPHERES. In November 1999, we announced that we transferred aspects of our PULMOSPHERES technology to Inhale Therapeutic Systems, Inc. for $15 million in cash, $5 million in Inhale common stock and future development milestones and royalty payments. In exchange, Inhale received rights to the PULMOSPHERES technology in the field of respiratory delivery, PulmoSpheres-related assets and $5 million in Alliance common stock. The parties have each agreed to register the respective common stock sold to the other party. In connection with the transaction, Alliance retained the right to develop two PULMOSPHERES products for use in the respiratory field, as well as all non-respiratory and liquid ventilation applications of PULMOSPHERES. On February 11, 2000, certain investors purchased $15 million in principal amount of four-year 5% subordinated convertible debentures. The debentures are convertible at any time at each investor's option into shares of our common stock at $9.65 per share, subject to adjustment to protect against dilution. This initial conversion price was below the trading market price of the stock on the day the debentures were issued. We have recognized an immediate charge of $3.7 million to interest expense for the beneficial conversion feature. The investors have the option at any time to purchase, and we have certain rights to require the investors to purchase, an additional $15 million of four-year 5% subordinated convertible debentures, convertible into our common stock at $12.06 per share. RISK FACTORS Investing in our stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our stock. Any of the following risks could materially adversely affect our business, operating results and financial condition and could result in a complete loss of your investment. WE HAVE A HISTORY OF OPERATING LOSSES AND LIMITED PRODUCT REVENUES AND WE MAY NEVER BECOME PROFITABLE We have had net operating losses since our inception and we expect such losses to continue until we receive revenues from product sales. As of December 31, 1999, we had an accumulated deficit of $340.5 million. For the years ended June 30, 1997, 1998, and 1999, we incurred net losses of $19.0 million, $33.0 million, and $62.5 million, respectively. Our net loss for the six months ended December 31, 1999 was $13.8 million. Substantially all of our revenues to date have come from sources other than product sales, such as licensing fees, milestone payments and payments to fund research and development activities under joint development and license agreements. WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING WE WILL NEED TO COMPLETE DEVELOPMENT AND INTRODUCE PRODUCTS The costs of our current clinical trials are high. We believe that our existing capital resources, including estimated net proceeds of $14.5 million from the convertible debenture offering, will satisfy our capital requirements through at least June 2000. However, we will need additional financing to finance our business through at least the balance of the year and possibly longer. Our future capital requirements will depend on many factors, including: o results of our late-stage clinical trials o progress with preclinical testing o continued scientific progress in our research and development programs o the time and cost involved in obtaining regulatory approvals o changes in existing collaborative relationships o patent costs o competing technological and market developments o the cost of manufacturing scale-up Accordingly, we cannot estimate the amount of additional financing that we will require, but we know that it will be substantial. FAILURE TO LICENSE OUR PRODUCTS COULD SERIOUSLY HINDER OUR ABILITY TO FURTHER DEVELOP OUR PRODUCTS AND MARKET THEM SUCCESSFULLY If we do not negotiate acceptable collaborative arrangements for our principal products, we will lack the funds to further develop them. We do not have internal marketing and sales capabilities and will need to rely on collaborative partners to market and sell any products that we may successfully develop. Even if we find collaborative partners, we may not be able to completely control the amount and timing of resources our collaborative partners will devote to these activities. We intend to seek collaborative arrangements for OXYGENT and LIQUIVENT to help cover the cost of development, but we do not know whether we will be successful. If we cannot find collaborative relationships or other sources of financing we may not be able to continue some of our development programs and would be forced to sell assets, including technology, to raise capital. A TERMINATION OF THE SCHERING LICENSE AGREEMENT COULD ADVERSELY AFFECT OUR RESEARCH, DEVELOPMENT AND, ULTIMATELY, MARKETING OF IMAGENT We depend on Schering for development and regulatory approvals outside the United States and for worldwide marketing of IMAGENT. As of December 30, 1998, the Schering license agreement was modified to reduce ongoing development reimbursement, add new milestone payments and restructure the methods for calculating royalties. The Schering license agreement may be terminated on one month's advance notice. IF WE DO NOT OBTAIN GOVERNMENTAL APPROVALS FOR OUR PRODUCTS, WE WILL BE UNABLE TO MARKET THEM We will not be able to commercialize our products until we have acceptable clinical trial results and regulatory approval from the FDA and foreign regulatory authorities. The FDA and other regulatory authorities require that the safety and efficacy of a drug be supported by results from adequate and well-controlled clinical trials before approval for commercial sale. If the results of the clinical trials of our products do not demonstrate that they are safe and effective, we will not be able to submit to the FDA a New Drug Application or other relevant applications for pre-market approval. Further, the results of preclinical testing and initial clinical trials do not necessarily predict how safe and effective a product will be when it is evaluated in large-scale Phase 3 clinical trials. It is possible that unacceptable side effects may be discovered at any time. A number of companies have suffered significant setbacks in advanced clinical trials, despite promising results in earlier trials. Even if we believe the clinical trials demonstrate the safety and efficacy of a product, the FDA and other regulatory authorities may not accept our assessment of the results. The FDA has required other companies involved in the development of blood substitutes to increase the size of their Phase 3 trials, extending the time and cost to complete the trials. In any case, in order to demonstrate the safety and efficacy of the products we may have to conduct additional clinical trials beyond those currently planned. The process of obtaining regulatory clearances or approvals is costly and time-consuming. DELAYS IN THE COMPLETION OF OUR CLINICAL TRIALS COULD INCREASE OUR COSTS We cannot predict how long our preclinical and clinical trials will take or whether they will be successful. The rate of completion of the clinical trials for our products depends on many factors, including obtaining adequate clinical supplies and the rate of patient recruitment. Patient recruitment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, and the eligibility criteria for patients who may enroll in the trial. We may experience increased costs, program delays, or both, if there are delays in patient enrollment in the clinical trials. WE WILL BE UNABLE TO MANUFACTURE OUR PRODUCTS IF WE DO NOT RECEIVE FDA APPROVAL While we believe that we can produce materials for clinical trials and the initial market launch for OXYGENT and IMAGENT at our existing San Diego facilities and for LIQUIVENT at our Otisville, New York facility, we will need FDA approval in order to do so. We do not know whether the FDA will determine that our facilities comply with Good Manufacturing Practices. A delay in FDA approval of our manufacturing facilities would delay the marketing of our products. IF WE CANNOT PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY, WE WILL BE UNABLE TO SUCCESSFULLY MANUFACTURE AND MARKET OUR PRODUCTS We believe that our success will depend largely on our ability to obtain and maintain patent protection for our own inventions, and to license the use of patents owned by third parties. We have obtained patents covering certain intermediate, and high-concentration PFC emulsions, patents related to liquid ventilation, and patents covering certain stabilized microbubble compositions, as well as other patents. We have filed, and when appropriate will file, other patent applications with respect to our products and processes in the United States and in foreign countries. We cannot assure you, however, that we will develop any additional products and processes that will be patentable or that any additional patents will be issued to us. It is possible that any of our patents or any patents licensed to us may be challenged successfully. It is also possible that we may unintentionally infringe on patents of third parties, or that we may have to alter our products or manufacturing processes to take into account the patents of third parties and this may cause delays in product development. Further, we cannot assure that we will be able to alter our products or manufacturing processes to avoid third-party patents, in which case we may have to terminate the development or commercialization of a product or pay royalties to the holders of the patents. Litigation, which could result in a substantial cost to us, may be necessary to enforce any patents we own and/or to determine the scope and validity of others' proprietary rights. We also attempt to protect our proprietary products and processes by relying on trade secret laws and non-disclosure and confidentiality agreements with our employees and certain other persons who have access to our products or processes. It is possible that others will develop such products or processes independently or obtain access to such products or processes. Our competitive position may be affected adversely if others develop or obtain products or processes similar to ours. In particular, with respect to ultrasound contrast imaging patents, there are several companies with issued patents and other patent applications in process. Many of these patents overlap each other, and it will take several years to clarify which ones are valid and enforceable. Although we believe we have the right to manufacture, use and sell IMAGENT once it is approved, it is possible that we may need to license rights under patents owned by others, and that such rights may not be available. Other companies may well find that their current or future activities violate our patents. We believe certain companies have obtained patents to which they are not entitled under U.S. law, and have requested patent interference proceedings in the U.S. Patent Office to resolve those issues. WE WILL NOT BE ABLE TO DEVELOP OR MANUFACTURE OUR PRODUCTS IF WE ARE UNABLE TO OBTAIN THE NECESSARY RAW MATERIALS Some of the raw materials for our products are available from single sources. At times, one or more of these raw materials may not be available or may be available only in limited quantities. Our ability to develop our products could be materially adversely affected if sufficient supplies of raw materials are not available. We are currently negotiating with some of these suppliers for long-term supply contracts for raw materials; however, we do not know whether we will be able to obtain commitments for a long-term supply of these raw materials on acceptable terms. UNFORESEEN TECHNOLOGICAL AND SCIENTIFIC PROBLEMS OR THIRD-PARTY DEVELOPMENT MAY DELAY OR PREVENT MARKETING We or our collaborative partners may encounter unforeseen technological or scientific problems, including adverse side effects, which may force us to abandon or substantially change the plan of development of a specific product or process. A technological change or product development by others may also have a significant adverse effect on our operations. THE LACK OR INADEQUACY OF THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS Our ability to commercialize our products successfully will depend in part on the extent to which the cost of the products and related treatment will be reimbursed by government authorities, private health insurers and other organizations, such as HMOs. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed healthcare in the United States, the growth of healthcare organizations such as HMOs, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of healthcare services and products, resulting in lower prices and reducing demand for our products. The cost containment measures that healthcare providers are instituting and any healthcare reform could affect our ability to sell our products by not allowing us to make a profit on sales of products. We cannot assure you that full or partial reimbursement in the United States or foreign countries will be available for any of our products. If reimbursements are not available or sufficient, we may not be able to sell our products. We cannot forecast what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect the legislation or regulation would have on our business. MANY OF OUR EXISTING OR POTENTIAL COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES AND MAY BE BETTER EQUIPPED TO DEVELOP, MANUFACTURE AND MARKET PRODUCTS SIMILAR TO OURS We may not be able to compete successfully in developing and marketing our products. There are many pharmaceutical companies, biotechnology companies, public and private universities, and research organizations actively engaged in research and development of products that compete with our products. These companies have more resources and may develop and introduce products and processes competitive with or superior to ours. In addition, our products and technologies may be rendered uncompetitive or obsolete by the development of other technologies or products that have an entirely different approach or means of accomplishing the same purposes. OUR PRODUCTS AND THE PROCESSES WE USE COULD EXPOSE ALLIANCE TO SUBSTANTIAL LIABILITY Product liability could arise from claims by users of our products or of products manufactured by processes we developed, or from manufacturers or others selling our products, either directly or as a component of other products. Our product liability insurance coverage may not be adequate. WE MAY ISSUE ADDITIONAL PREFERRED STOCK, THE TERMS OF WHICH COULD ADVERSELY AFFECT OUR COMMON STOCK Our Board of Directors has the authority to issue up to an additional three million shares of preferred stock and may determine the rights, preferences, privileges and restrictions of such shares without any further vote or action by the shareholders. The possible issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of Alliance. The conversion and other features of any series of preferred stock may also limit the price that investors might be willing to pay in the future for shares of our common stock. THE SUBSTANTIAL NUMBER OF OUR SHARES THAT ARE ELIGIBLE FOR FUTURE SALE COULD ADVERSELY AFFECT OUR ABILITY TO FIND NEW EQUITY INVESTORS As of March 15, 2000, 8,733,029 shares of our common stock (or 15.6% of the total number of shares outstanding on a fully diluted basis) were issuable upon the exercise of outstanding options and warrants. Also, over a period of approximately four years, we may issue an indeterminate number of additional shares of our common stock to the former shareholders of MDV Technologies, Inc., a company we acquired in 1996. The existence of such warrants, options and convertible securities, as well as certain registration rights, may adversely affect the terms on which we may obtain additional equity financing and the aftermarket trading of our stock. The holders of the outstanding warrants and options are likely to exercise their securities at a time when we would otherwise be able to obtain capital on terms more favorable than those provided by the exercise or conversion prices thereof. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus may contain forward-looking statements regarding our plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may," and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements in this document include, but are not necessarily limited to, those relating to: o our ability to raise additional capital when needed o obtaining, or our ability to obtain, approval by the FDA and other regulatory authorities for certain products o our ability or capacity to manufacture, market and distribute our products o uncertainty of market acceptance of our products o our ability to obtain patents for our products and technologies o relationships with and abilities of important suppliers and business partners o the development of new products and enhanced versions of existing products Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the risk factors section and elsewhere in this prospectus. We are not obligated to update or revise these forward-looking statements to reflect new events or circumstances. USE OF PROCEEDS The proceeds from the sale of the common stock covered by this prospectus will belong to the selling shareholders. Any funds received from the exercise of warrants will be used for working capital. SELLING SHAREHOLDERS The following table sets forth the aggregate number of shares held by the selling shareholders and offered by the selling shareholders hereunder and the percentage of all shares of our common stock held by such selling shareholders after giving effect to the offering (based on 47,087,766 shares of common stock outstanding as of March 15, 2000). There is no assurance that the selling shareholders will sell any or all of the shares offered hereby.
NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED NUMBER OF SHARES OF BEFORE OFFERING(1) COMMON STOCK TO BE NUMBER OF SHARES OF COMMON STOCK OFFERED BY THIS BENEFICIALLY OWNED AFTER THE SELLING SHAREHOLDERS PROSPECTUS OFFERING(2) NUMBER PERCENTAGE Inhale Therapeutic 1,134,738 1,134,738 -0- -0- Systems Inc.(3) Brown Simpson Strategic 507,772 507,772 -0- -0- Value Fund, Ltd.(4) Brown Simpson Strategic 269,430 269,430 -0- -0- Value Fund, L.P.(4) Maatchap Petrus(4) 777,202 777,202 -0- -0- Imperial Bank(5) 180,000 180,000 -0- -0- Deitje D. Dekker(6) 118,642 66,667 51,975 * Anna C. Dekker(7) 117,542 66,667 50,975 * Sophia G. Dekker(8) 117,542 66,667 50,975 * Emma C. Dekker(9) 117,892 66,667 51,225 * Jan A. Dekker(10) 214,972 55,422 159,550 * Harris & Harris Group, Inc.(11) 800,000 800,000 -0- -0- Stephen M. McGrath(12) 259,016 133,333 125,683 * Burrill & Company(13) 350,000 350,000 -0- -0- Mark Biderman(14) 1,063 1,063 -0- -0- Frederich Bloch(14) 188 188 -0- -0- Roger Einiger(14) 7,995 7,995 -0- -0- Nathan Gantcher(14) 16,823 16,823 -0- -0- Steven Levinson(14) 4,450 4,450 -0- -0- Joseph V. Missett(14) 1,052 1,052 -0- -0- Oppenheimer & Co.(14) 1,736,398 42,398 1,694,000 3.4% Alan Rappaport(14) 4,706 4,706 -0- -0- Stephen Robert(14) 16,823 16,823 -0- -0- Eric Rosenfeld(14) 363 363 -0- -0- Gerald Rothstein(14) 3,040 3,040 -0- -0- James Stanko(14) 363 363 -0- -0- Jeffrey Stern(14) 2,946 2,946 -0- -0- Richard White(14) 564 564 -0- -0- Ronald Peters(14) 663 363 300 * Charles Rose(14) 121 121 -0- -0- Lisa Walters(14) 60,660 10,660 50,000 * * Indicates ownership of less than 1% of outstanding shares (1) Includes the shares of common stock underlying the warrants, 5% subordinated convertible debentures, 6% subordinated convertible notes and Series D Preferred Stock being offered by this prospectus. (2) Based on 49,411,511 shares of Alliance's common stock outstanding and which number assumes the sale of all the shares of common stock registered under this prospectus to persons who are not affiliates of the selling shareholders. (3) Represents common stock received in a commercial transaction. (4) Represents common stock underlying four-year, 5% subordinated convertible debentures, dated February 11, 2000, convertible at $9.65 per share. (5) Represents shares underlying a warrant, dated March 30, 1999, exercisable at $2.875 per share. (6) Offered shares represent 16,667 shares underlying a warrant, dated May 20, 1999, exercisable at $2.45 per share and 50,000 shares received upon conversion of a 6% subordinated convertible note due May 20, 2002. (7) Offered shares represent 16,667 shares underlying a warrant, dated May 20, 1999, exercisable at $2.45 per share and 50,000 shares received upon conversion of a 6% subordinated convertible note due May 20, 2002. (8) Offered shares represent 16,667 shares underlying a warrant, dated May 20, 1999, exercisable at $2.45 per share and 50,000 shares received upon conversion of a 6% subordinated convertible subordinated note due May 20, 2002. (9) Offered shares represent 16,667 share underlying a warrant, dated May 20, 1999, exercisable at $2.45 per share and 50,000 shares received upon conversion of a 6% subordinated convertible note due May 20, 2002. (10) Offered shares represent 55,422 shares underlying a warrant, dated July 2, 1999, exercisable at $2.95 per share. (11) Represents 600,000 shares issued upon conversion of a 6% subordinated convertible note due May 20, 2002 and 200,000 shares received upon exercise of a warrant, dated May 20, 1999, at $2.45 per share. (12) Represents 100,000 shares issued upon conversion of a 6% subordinated convertible note due May 20, 2002 and 33,333 shares underlying a warrant, dated May 20, 1999, exercisable at $2.45 per share. (13) Represents 100,000 shares underlying a warrant, dated June 23, 1999, exercisable at $2.6875 per share and 250,000 shares underlying a warrant, dated November 15, 1999, exercisable at $4.375 per share. (14) Offered shares represent shares underlying a warrant, dated August 31, 1988, exercisable at $8.655 per share.
We have or have had the following material relationships with certain selling shareholders. As of March 10, 2000, we have a loan with an outstanding principal balance of $10.2 million with Imperial Bank. We issued Jan Dekker a warrant to purchase 55,422 shares of our common stock as payment for financial services provided by him to us. Stephen M. McGrath is a director of Alliance. Burrill & Company provides consulting services to us in connection with certain of our products. Oppenheimer & Co. provided financial consulting services to us from time to time, including in connection with the 5% subordinated convertible debentures issued as of February 11, 2000. Lisa Walters is a selling agent with Roth Capital Partners, Inc., which served as the placement agent in our June 1999 offering. PLAN OF DISTRIBUTION We are registering the securities offered by this prospectus on behalf of the Holders. As used herein, the term Holders means the holders of the securities and includes donees and pledgees selling the securities received from named Holders after the date of this prospectus. All costs, expenses and fees in connection with the registration of the securities will be paid by Alliance. Brokerage commissions and similar selling expenses, if any, attributable to the sale of the securities will be paid by the Holders. Sales of the securities may be effected by Holders from time to time in one or more types of transactions (which may include block transactions) on the Nasdaq National Market, in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the securities, through short sales of the securities, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices. These transactions may or may not involve brokers or dealers. The Holders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinated broker acting in connection with the proposed sale of the securities by the Holders. The Holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the securities or of securities convertible into or exchangeable for the securities in the course of hedging positions they assume with Holders. The Holders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to broker-dealers or other financial institutions of the securities offered by this prospectus and the broker-dealer or other financial institution may resell pursuant to this prospectus (as amended or supplemented to reflect such transaction). The Holders may effect such transactions by selling the securities directly to purchasers or to or through broker-dealers, which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from Holders and/or the purchasers of the securities for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Holders and any broker-dealers that act in connection with the sale of the securities might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by broker-dealers and any profit on the resale of the securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act. Alliance has agreed to indemnify each Holder against certain liabilities, including liabilities arising under the Securities Act. The Holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the securities against certain liabilities, including liabilities arising under the Securities Act. The Holders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. The Holders will be subject to the prospectus delivery requirements of the Securities Act. We have informed the Holders that the anti-manipulative provisions of Regulation M under the Exchange Act may apply to their sales in the market. Holders also may resell all or a portion of the securities in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of Rule 144. Upon notification by a Holder to Alliance that any material arrangement has been entered into with a broker-dealer for the sale of the securities offered hereby through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act. The prospectus will disclose (i) the name of each such Holder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the initial price at which such securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus and (vi) other facts material to the transactions. In addition, upon notification by a Holder to Alliance that a donee or pledgee intends to sell more than 500 shares, we will file a supplement to this prospectus. From time to time the Holders may pledge their securities pursuant to the margin provisions of their customer agreements with their brokers. Upon a default by a Holder, the broker may offer and sell the pledged securities from time to time. LEGAL MATTERS Stroock & Stroock & Lavan LLP has passed upon certain legal matters regarding the common stock for Alliance. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements included in our annual report on Form 10-K for the year ended June 30, 1999, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Company's ability to continue as a going concern as described in Note 1 to the consolidated financial statements), which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the offering, all of which will be borne by the Registrant, are as follows: SEC Registration Fee............................. $17,655.45 Blue Sky Fees and Expenses....................... 0.00 Legal Fees and Expenses.......................... 10,000.00 Accounting Fees and Expenses..................... 8,000.00 Miscellaneous.................................... 0.00 Total............................................ $35,655.45 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Article VI of the By-Laws of the Company (filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1989) and to Sections 721-727 of the New York Business Corporation Law, which, among other things and subject to certain conditions, authorize the Company to indemnify each of its officers and directors against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such officers or directors. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 4. (a) Form of Warrant dated June 23, 1999, July 2, 1999 and November 15, 1999** (b) Form of Warrant dated August 31, 1988** (c) Form of Warrant dated May 20, 1999(1) (d) Form of Warrant dated March 30, 1999(1) (e) Form of 6% Subordinated Convertible Note due May 20, 2002(1) (f) Form of 5% Subordinated Convertible Debenture dated February 11, 2000(2) (g) Form of Securities Purchase Agreement dated February 11, 2000(2) (h) Form of Registration Rights Agreement dated February 11, 2000(2) 5. Opinion of Stroock & Stroock & Lavan, counsel for Alliance.** 23. (a) Consent of Stroock & Stroock & Lavan (included in Exhibit 5 hereof).** (b) Consent of Ernst & Young LLP, Independent Auditors.** 24. Power of Attorney.** - --------- ** Filed herewith (1) Incorporated by reference to the Company's Annual Report on Form 10-K dated September 28, 1999. (2) Incorporated by reference to the Company's Report on Form 8-K dated February 22, 2000. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(c)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. PROVIDED, HOWEVER, that paragraphs (d)(1)(i) and (d)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on March 24, 2000. ALLIANCE PHARMACEUTICAL CORP. (Registrant) Date: March 24, 2000 By: /S/ THEODORE D. ROTH ----------------------- Theodore D. Roth President and Chief Operating Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Duane J. Roth and Theodore D. Roth, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, agent, or their substitutes may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. /S/ DUANE J. ROTH Chairman and Chief Executive March 24, 2000 - ------------------------- Officer Duane J. Roth /S/ THEODORE D. ROTH Director, President and Chief March 24, 2000 - ------------------------- Operating Officer Theodore D. Roth /S/ TIM T. HART Chief Financial Officer, March 24, 2000 - ------------------------- Treasurer and Chief Tim T. Hart Accounting Officer /S/ PEDRO CUATRECASAS, M.D. Director March 24, 2000 - --------------------------- Pedro Cuatrecasas, M.D. /S/ CARROLL O. JOHNSON Director March 24, 2000 - ------------------------- Carroll O. Johnson /S/ STEPHEN M. MCGRATH Director March 24, 2000 - ------------------------- Stephen M. McGrath /S/ HELEN M. RANNEY, M.D. Director March 24, 2000 - ------------------------- Helen M. Ranney, M.D. /S/ THOMAS F. ZUCK, M.D. Director March 24, 2000 - ------------------------- Thomas F. Zuck, M.D. /S/ DONALD E. O'NEIL Director March 24, 2000 - ------------------------- Donald E. O'Neill /S/ JEAN G. RIESS, PH.D Director March 24, 2000 - ------------------------- Jean G. Riess, Ph.D. EX-4.(A) 2 Exhibit 4(a) NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH. VOID AFTER 5:00 P.M. NEW YORK TIME, ON JUNE 23, 2004 OR UPON EARLIER EXPIRATION PURSUANT TO ARTICLE VIII HEREIN. WARRANT TO PURCHASE No. ___ **_______ SHARES** FORM OF WARRANT TO PURCHASE COMMON STOCK OF ALLIANCE PHARMACEUTICAL CORP. This certifies that, for good and valuable consideration received, ________________ and its registered, permitted assigns (collectively, the "Warrantholder"), are entitled to purchase from Alliance Pharmaceutical Corp., a corporation incorporated under the laws of New York (the "Company"), subject to the terms and conditions hereof, at any time on or after June 23, 1999 and before 5:00 P.M., New York time, on June 23, 2004, or such earlier date of expiration as may occur pursuant to Article VIII herein, (or, if such day is not a Business Day, as defined herein, at or before 5:00 P.M., New York time, on the next following Business Day), the number of fully paid and non-assessable shares of Common Stock (par value $.01) of the Company (the "Common Stock") stated above at the Exercise Price (as defined herein). The Exercise Price and the number of shares purchasable hereunder are subject to adjustment as provided in Article III hereof. ARTICLE I SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the following capitalized terms shall have the following respective meanings: (a) BUSINESS DAY: A day other than a Saturday, Sunday or other day on which banks in the State of New York are authorized by law to remain closed. (b) COMMON STOCK: Common Stock, $.01 par value per share, of the Company. (c) COMMON STOCK EQUIVALENTS: Securities that are convertible into or exercisable for shares of Common Stock. (d) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. (e) EXERCISE PRICE: $2.6875 per Warrant Share, as such price may be adjusted from time to time pursuant to Article III hereof. (f) EXPIRATION DATE: 5:00 P.M., New York time, on June 23, 2004, or such earlier date of expiration as may occur pursuant to Article VIII herein. (g) HOLDER: A holder of Registrable Securities. (h) NASD: National Association of Securities Dealers, Inc. (i) PERSON: An individual, partnership, joint venture, corporation, trust, unincorporated organization or government or any department or agency thereof. (j) PIGGYBACK REGISTRATION: See Section 7.01. (k) PROSPECTUS: Any prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the Prospectus, including post-effective amendments and all material incorporated by reference in such Prospectus. (l) PUBLIC OFFERING: A public offering of any of the Company's equity or debt securities pursuant to a registration statement under the Securities Act. (m) REGISTRATION EXPENSES: Any and all expenses incident to performance of or compliance with Article VII hereunder, including, without limitation, (i) all SEC and stock exchange or NASD registration and filing fees; (ii) all fees and expenses of complying with state securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters, if any, in connection with the blue sky qualifications of the Registrable Securities); (iii) all printing, mailing, messenger and delivery expenses; (iv) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or "cold comfort" letters required by or incident to such performance and compliance; and (v) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts, commissions and transfer taxes, if any. (n) REGISTRABLE SECURITIES: Warrant Shares and/or other securities that may be or are issued by the Company upon exercise of such Warrants, including those which may thereafter be issued by the Company in respect of any such securities by means of any stock splits, stock dividends, recapitalizations or the like, and as adjusted pursuant to Article III hereof; PROVIDED, HOWEVER, that as to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement; or (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act. (o) REGISTRATION STATEMENT: Any registration statement of the Company filed or to be filed with the SEC, which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference by such registration statement, if any. (p) SEC: The Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act. (q) SECURITIES ACT: The Securities Act of 1933, as amended. (r) WARRANTS: This Warrant and all other warrants that may be issued in its place (together evidencing the right to purchase an aggregate of ONE HUNDRED THOUSAND (100,000) shares of Common Stock, subject to adjustment from time to time in accordance with Article III). (s) WARRANTHOLDER: The person(s) or entity(ies) to whom this Warrant is originally issued, or any successor in interest thereto, or any assignee or transferee thereof, in whose name this Warrant is registered upon the books to be maintained by the Company for that purpose. (t) WARRANT SHARES: Common Stock purchasable upon exercise of the Warrants. ARTICLE II DURATION AND EXERCISE OF WARRANT SECTION 2.01: DURATION OF WARRANT. Subject to the terms contained herein, this Warrant may be exercised at any time after June 23, 1999, and before 5:00 P.M. New York time, on the Expiration Date (or, if such day is not a Business Day, at or before 5:00 P.M. New York time, on the next following Business Day). If this Warrant is not exercised at or before 5:00 P.M., New York time, on the Expiration Date, it shall become void, and all rights hereunder shall thereupon cease. SECTION 2.02: EXERCISE OF WARRANT. (a) The Warrantholder may exercise this Warrant, in whole or in part, upon surrender of this Warrant with the Subscription Form hereon duly executed, to the Company at its corporate office in San Diego, California, together with the full Exercise Price for each share of Common Stock to be purchased in lawful money of the United States, or by certified check, bank draft or postal or express money order payable in United States Dollars to the order of the Company and upon compliance with and subject to the conditions set forth herein. (b) Upon receipt of this Warrant with the Subscription Form duly executed and accompanied by payment of the aggregate Exercise Price for the shares of Common Stock for which this Warrant is then being exercised, the Company will cause to be issued certificates for the total number of whole shares of Common Stock for which this Warrant is being exercised in such denominations as are required for delivery to the Warrantholder, and the Company shall thereupon deliver such certificates to the Warrantholder. If at the time this Warrant is exercised, a registration statement is not in effect to register under the Securities Act the Warrant Shares issuable upon exercise of this Warrant, the Company may require the Warrantholder to make such investment intent representations, and may place such legends on certificates representing the Warrant Shares, as may be reasonably required in the opinion of counsel to the Company to permit the Warrant Shares to be issued without such registration. (c) In case the Warrantholder shall exercise this Warrant with respect to less than all of the shares of Common Stock that may be purchased under this Warrant, the Company will execute a new warrant certificate in the form of this Warrant for the balance of the shares of Common Stock that may be purchased upon exercise of this Warrant and deliver such new warrant certificate to the Warrantholder. (d) The Company covenants and agrees that it will pay when due and payable any and all taxes which may be payable in respect of the issue of this Warrant or in respect of the issue of any Warrant Shares. The Company shall not, however, be required to pay any tax imposed on income or gross receipts or any tax which may be payable in respect of any transfer involved in the issuance or delivery of this Warrant or of Warrant Shares in a name other than that of the Warrantholder at the time of surrender and, until the payment of such tax, shall not be required to issue such Warrant Shares. ARTICLE III ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF EXERCISE PRICE The Exercise Price and the number and kind of Warrant Shares shall be subject to adjustment from time to time upon the happening of certain events as provided in this Article III. SECTION 3.01: MECHANICAL ADJUSTMENTS. (a) If at any time prior to the full exercise of this Warrant, the Company shall (i) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock (other than cash dividends or distributions out of earnings); (ii) subdivide, reclassify or recapitalize its outstanding Common Stock into a greater number of shares; or (iii) combine, reclassify or recapitalize its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date of such subdivision, combination, reclassification or recapitalization shall be proportionately adjusted so that the Warrantholder shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised in full immediately prior to such time, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination, reclassification or recapitalization. Such adjustment shall be made successively whenever any event listed in this paragraph 3.01(a) shall occur. (b) In case the Company shall hereafter fix a record date for making a distribution to the holders of Common Stock of assets or evidences of its indebtedness (excluding cash dividends or distributions out of earnings and dividends or distributions referred to in paragraph (a) of this Section 3.01) or Common Stock subscription rights, options or warrants for Common Stock or Common Stock Equivalents, then in each such case the Exercise Price in effect after such record date shall be adjusted to the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding at such time multiplied by the current market price per share of Common Stock (as defined in paragraph (d) of this Section 3.01), less the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such Common Stock subscription rights, option and warrants or of such Common Stock Equivalents, and the denominator of which shall be the total number of shares of Common Stock outstanding at such time multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever the record date for such a distribution is fixed and shall become effective immediately after such record date. (c) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to paragraphs (a) or (b) of this Section 3.01, the Warrant Shares shall simultaneously be adjusted by multiplying the number of Warrant Shares then issuable upon exercise of each Warrant by the Exercise Price in effect on the date thereof and dividing the product so obtained by the Exercise Price as adjusted. (d) For the purpose of any computation under this Section 3.01, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing price for 30 consecutive Business Days commencing 45 Business Days before such date. The closing price for each day shall be the last sale price regular way or, in case no such reported sales takes place on such day, the average of the last reported bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on such exchange, the representative closing bid price as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined in good faith by the Board of Directors. (e) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least twenty-five cents ($.25) in such price; provided, however, that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3.01 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Notwithstanding anything in this Section 3.01 to the contrary, the Exercise Price shall not be reduced to less than the then existing par value of the Common Stock as a result of any adjustment made hereunder. (f) In the event that at any time, as a result of any adjustment made pursuant to paragraph (a) of this Section 3.01, the Warrantholder thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in paragraphs (a) to (e), inclusive, of this Section 3.01. SECTION 3.02: NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the Exercise Price is adjusted as herein provided, the Company shall prepare and deliver to the Warrantholder a certificate signed by its President, any Vice President, Treasurer or Secretary, setting forth the adjusted number of shares purchasable upon the exercise of this Warrant and the Exercise Price of such shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which adjustment was made. SECTION 3.03: NO ADJUSTMENT FOR DIVIDENDS. No adjustment in respect of any cash dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. SECTION 3.04: PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company agrees that a condition of such transaction will be that the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrantholder an agreement granting the Warrantholder the right thereafter, upon payment of the Exercise Price in effect immediately prior to such action, to receive upon exercise of this Warrant the kind and amount of shares and other securities and property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article III. The provisions of this Section 3.04 shall similarly apply to successive consolidations, mergers, sales, or conveyances. SECTION 3.05: FORM OF WARRANT AFTER ADJUSTMENTS. The form of this Warrant need not be changed because of any adjustments in the Exercise Price or the number or kind of the Warrant Shares, and Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant as initially issued. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER SECTION 4.01: NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS. Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder or his transferees the right to vote or to receive dividends or to consent or to receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. If, however, at any time prior to the expiration or exercise in full of the Warrants, any of the following events shall occur: (a) the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution (other than a cash dividend) to the holders of its shares of Common Stock; or (b) the Company shall offer to the holders of its shares of Common Stock any additional shares of Common Stock or Common Stock Equivalents or any right to subscribe thereto; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger, or sale of all or substantially all of its property, assets, and business as an entirety) shall be proposed; then, in any one or more of said events, the Company shall give notice of such event to the Warrantholder. Such giving of notice shall be initiated (i) at least 25 days prior to the date fixed as a record date or the date of closing the Company's Stock transfer books for the determination of the shareholders entitled to such dividend, distribution, or subscription rights, or for the determination of the shareholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution or subscription rights, or proposed dissolution, liquidation or winding up. SECTION 4.02: LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this warrant certificate is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new warrant certificate of like denomination and tenor as, and in substitution for this Warrant. SECTION 4.03: RESERVATION OF SHARES. (a) The Company covenants and agrees that at all times it shall reserve and keep available for the exercise of this Warrant such number of authorized shares of Common Stock as are sufficient to permit the exercise in full of this Warrant. (b) The Company covenants that all shares of Common Stock issued on exercise of this Warrant will be validly issued, fully paid, nonassessable and free of pre-emptive rights. SECTION 4.04: NO FRACTIONAL SHARES. Anything contained herein to the contrary notwithstanding, the Company shall not be required to issue any fraction of a share in connection with the exercise of this Warrant, and in any case where the Warrantholder would, except for the provisions of this Section 4.04, be entitled under the terms of this Warrant to receive a fraction of a share upon the exercise of this Warrant, the Company shall, upon the exercise of this Warrant and receipt of the Exercise Price, issue the number of whole shares purchasable upon exercise of this Warrant. The Company shall be required to make any cash or other adjustment in respect of such fraction of a share to which the Warrantholder would otherwise be entitled. ARTICLE V TREATMENT OF WARRANTHOLDER SECTION 5.01. Prior to due presentment for registration of transfer of this Warrant, the Company may deem and treat the Warrantholder as the absolute owner of this Warrant (notwithstanding any notation of ownership or other writing hereon) for the purpose of any exercise hereof and for all other purposes and the Company shall not be affected by any notice to the contrary. ARTICLE VI TRANSFER RESTRICTIONS SECTION 6.01: RESTRICTIONS ON TRANSFER. This Warrant may be transferred, in whole or in part, subject to the following restrictions. Neither this Warrant nor the Registrable Securities received upon exercise of this Warrant shall be transferable unless registered under the Securities Act or unless an exemption from registration is available. Unless and until this Warrant or the Registrable Securities are so registered, such securities and any certificate thereof shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, stating that the Warrant or Registrable Securities, as the case may be, may not be sold, transferred or otherwise disposed of unless, in the opinion of counsel satisfactory to the Company, which may be counsel to the Company, the Warrant, or Registrable Securities may be transferred without such registration. This Warrant and the Registrable Securities may also be subject to restrictions on transferability under applicable state securities or blue sky laws. Unless and until this Warrant or Registrable Securities, as the case may be, are registered under the Securities Act, the holder of such securities shall, if requested by the Company, provide to the Company an opinion of counsel reasonably satisfactory to the Company, to the effect that (i) the Warrant or Registrable Securities, as the case may be, may be transferred without such registration and (ii) the transfer will not violate any applicable state securities or blue sky laws. Any transfer of this Warrant permitted hereunder shall be made by surrender of this Warrant to the Company with the form of assignment annexed hereto properly completed and duly executed and accompanied by (x) any necessary documentation required hereunder and (y) funds sufficient to pay any transfer taxes applicable. Upon satisfaction of all transfer conditions, the Company, without charge, shall execute and deliver a new Warrant in the name of the transferee named in such transfer form, and this Warrant promptly shall be canceled. SECTION 6.02: SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS. Subject to and limited by the provisions of Section 6.01 hereof, this Warrant may be split up, combined or exchanged for another Warrant or Warrants containing the same terms to purchase a like aggregate number of shares of Common Stock. If the Warrantholder desires to split up, combine or exchange this Warrant, he shall make such request in writing delivered to the Company and shall surrender to the Company this Warrant and any other Warrants to be so split up, combined or exchanged. Upon any such surrender for a split-up, combination, or exchange, the Company shall execute and deliver to the Person entitled thereto a Warrant or Warrants, as the case may be, as so requested. The Company shall not be required to effect any split-up, combination or exchange which will result in the issuance of a Warrant entitling the Warrantholder to purchase upon exercise a fraction of a share of Common Stock or a fractional Warrant. The Company may require such Warrantholder to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any split-up, combination or exchange of Warrants. ARTICLE VII REGISTRATION UNDER THE SECURITIES ACT OF 1933 SECTION 7.01: PIGGYBACK REGISTRATION. (a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after June 30, 1996, the Company proposes to register any class of debt or equity security or any Common Stock Equivalent under the Securities Act on any form for the general registration of securities under such Securities Act, whether or not for its own account (other than a registration form relating to (i) a registration of a stock option, stock purchase or compensation or incentive plan or stock issued or issuable pursuant to any such plan, or a dividend investment plan; (ii) a registration of stock proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another corporation; or (iii) a registration of stock proposed to be issued in exchange for other securities of the Company) in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act (a "Piggyback Registration"), it will at such time give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders' rights under this Section 7.01. Upon the written request of any such Holder made within 15 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), the Company will include in the Registration Statement the Registrable Securities which the Company has been so requested to register by the Holders thereof. (b) WITHDRAWAL OF PIGGYBACK REGISTRATION BY COMPANY. If, at any time after giving written notice of its intention to register any securities but prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such registration. All best efforts obligations of the Company pursuant to Section 7.04 shall cease if the Company determines to terminate any registration where Registrable Securities are being registered pursuant to this Section 7.01. (c) PIGGYBACK REGISTRATION OF UNDERWRITTEN PUBLIC OFFERINGS. If a Piggyback Registration requested pursuant to this Section 7.01 involves an underwritten offering, then, (i) all Holders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to other selling shareholders or the Company, if there are no selling shareholders; and (ii) any Holder requesting to be included in such registration may elect in writing, not later than five (5) Business Days prior to the effectiveness of the Registration Statement filed in connection with such registration, not to register such securities in connection with such registration. (d) PAYMENT OF REGISTRATION EXPENSES FOR REGISTRATION. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 7.01, except for the fees and disbursements of any counsel retained by the Holders of the Registrable Securities being registered and such Holders' pro rata share of any filing fees or other expenses directly and solely resulting from the inclusion of the Registrable Securities in the Registration Statement, including underwriting discounts and commissions. (e) PRIORITY IN PIGGYBACK REGISTRATION. If a registration pursuant to this Section 7.01 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number or kind of Registrable Securities requested to be included in such registration would have a material adverse effect on such offering, including an adverse decrease in the price at which such securities can be sold, then the amount or kind of Registrable Securities to be offered for the accounts of Holders shall be eliminated entirely or reduced pro rata as to all requesting Holders on the basis of the relative number of Registrable Securities each such Holder has requested to be included in such registration, to the extent necessary to reduce the total amount or kind of securities to be included in such offering to the amount recommended by such managing underwriter; provided, however, that no securities may be offered in such registration for the account of persons other than the Company by virtue of their also having "piggyback" registration rights, or otherwise, unless the Registrable Securities requested to be included in such registration are so included on a pro rata basis. (f) EXPIRATION OF PIGGYBACK REGISTRATION IN RIGHTS. The Piggyback Registration rights granted to the Holders of Registrable Securities by this Section 7.01 shall survive the exercise of the Warrant or the transactions or events pursuant to which such Registrable Securities were issued, but all such rights will terminate in all events two (2) years after exercise of this Warrant. SECTION 7.02: BUY-OUTS OF REGISTRATION DEMAND. In lieu of carrying out its obligations to effect the Piggyback Registration of Registrable Securities pursuant to this Article VII, the Company may discharge such obligation by offering to purchase and, if accepted, by purchasing such Registrable Securities requested to be registered at 95% of the closing bid or sale price of the Common Stock on the day the request or demand for Registration is made. If the offer to purchase is accepted by the Holder, payment will be made by wire transfer or certified check in U.S. dollars within ten (10) business days of receipt by the Company of written acceptance by such Holder, accompanied by the stock certificate representing such shares duly endorsed to the Company. SECTION 7.03: REGISTRATION PROCEDURES. If and whenever the Company is required pursuant to this Article VII to use its best efforts to effect the registration of the Registrable Securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the SEC a Registration Statement which includes the Registrable Securities and use its best efforts to cause such Registration Statement to become and remain effective until the distribution described in the registration statement has been completed or until the participating Holders can sell all such Registrable Securities pursuant to Rule 144; (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of Registrable Securities covered by such Registration Statement whenever a Holder shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Article VII; (c) furnish to each participating Holder (and to each underwriter, if any, of Registrable Securities) such number of copies of a Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; (d) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such state securities or blue sky laws of such jurisdiction as each participating Holder shall reasonably request and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such Holder to consummate the public sale or other disposition in such jurisdictions of the Registrable Securities, except that the Company shall not for any purpose be required to consent generally to service of process or qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (e) before filing the Registration Statement or Prospectus or amendments or supplements thereto, furnish to counsel selected by the participating Holders copies of such documents proposed to be filed which shall be subject to the reasonable approval of such counsel; (f) enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offer; (g) notify the participating Holders at any time when a Prospectus relating to any Registrable Securities covered by such Registration Statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and promptly file such amendments and supplements as may be necessary so that, as thereafter delivered to such Holders, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and use its best efforts to cause each such amendment and supplement to become effective; (h) furnish at the request of the participating Holders on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Article VII an opinion, dated such date, of the counsel representing the Company, for purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offer addressed to the underwriters, if any, and to such Holders, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offer, addressed to the underwriters and to such Holders; and (i) use its best efforts to cause all such Registrable Securities to be listed on the securities exchange or the Nasdaq National Market, if any, on which the Company's Common Stock is then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such securities and such other information as may otherwise be required to be included in such Registration Statement, as the Company may from time to time reasonably request in writing. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (g) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in such Prospectus, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. SECTION 7.04: INDEMNIFICATION. In the event Registrable Securities are registered pursuant to this Article VII: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder of Registrable Securities which are included in a Registration Statement filed pursuant to the provisions of this Agreement and any underwriter (within the meaning of the Securities Act) with respect to the Registrable Securities, and each officer, director, employee and agent thereof and each person, if any, who otherwise controls such Holder or underwriter (within the meaning of the Securities Act), against any losses or claims, damages, expenses or liabilities, joint or several, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or allegedly untrue statement of any material fact contained in the Registration Statement for the Registrable Securities, including any preliminary Prospectus or final Prospectus contained therein or any amendments or supplements thereto, or any document incident to the registration or qualification of any Registrable Securities, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or allegedly necessary to make the statements therein not misleading or arise out of any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and will reimburse such Holder, any underwriter, officer, director, employee, agent or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7.04(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of the Company, which shall not be unreasonably withheld, nor shall the Company be liable under this Section 7.04(a) to such Holder, such underwriter, officer, director, employee, agent or controlling person for any such loss, claim, damage, expense, liability or action to the extent that it arises out of, or is based upon, an untrue statement or allegedly untrue statement or omission or alleged omission made in connection with such Registration Statement, preliminary Prospectus, final Prospectus, or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing expressly for use in connection with such registration by such Holder, such underwriter, officer, director, employee, agent or such controlling person. (b) To the extent permitted by law, each Holder of Registrable Securities which are included in a Registration Statement filed pursuant to the provisions of this Agreement will indemnify and hold harmless the Company, each of its employees, agents, directors and officers, each person, if any, who controls the Company within the meaning of the Securities Act, and any underwriter (within the meaning of the Securities Act) against any losses, claims, damages, expenses or liabilities to which the Company or any such person or underwriter may become subject, under the Securities Act, the Exchange Act or other federal or state law or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of, or are based upon any untrue or allegedly untrue statement of any material fact contained in a Registration Statement for the Registrable Securities, including any preliminary Prospectus or final Prospectus contained therein or any amendments or supplements thereto, or any document incident to the registration or qualification of any Registrable Securities, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or allegedly necessary to make the statements therein not misleading; in each case to the extent that such untrue statement or allegedly untrue statement or omission or alleged omission was made in such Registration Statement, preliminary Prospectus, final Prospectus or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing by such Holder expressly for use in connection with such registration; provided, however, that the indemnity agreement contained in this Section 7.04(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of such Holder, which shall not be unreasonably withheld; and such Holder will reimburse the Company or any such person or underwriter for any legal or other expenses reasonably incurred by the Company or any such person or underwriter in connection with investigating or defending such loss, claim, damage, liability, expense or action. (c) Promptly after receipt by an indemnified party under this Section 7.04 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7.04, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties. An indemnifying party shall not have the right to direct the defense of such an action on behalf of an indemnified party if such indemnified party has reasonably concluded that there may be defenses available to it that are different from or additional to those available to the indemnifying party; provided, however, that in such event, the indemnifying party shall bear the fees and expenses of only one (1) separate counsel for all indemnified parties, such separate counsel to be reasonably satisfactory to the indemnifying party. The failure to notify an indemnifying party promptly of the commencement of any such action if prejudicial to the ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7.04, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise than under this Section. (d) To the extent permitted by law, the indemnification provided for under this Section 7.05 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person (within the meaning of the Securities Act) of such indemnified party and will survive the transfer of securities. (e) If for any reason the foregoing indemnity is unavailable to, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Notwithstanding the foregoing, no underwriter, if any, shall be required to contribute any amount in excess of the amount by which the total price at which the securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligation of any underwriters to contribute pursuant to this Section 7.04(e) shall be several in proportion to their respective underwriting commitments and not joint. SECTION 7.05: RESTRICTIONS ON PUBLIC SALE. Each holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to Article VII hereof agrees, if requested by the managing underwriters in an underwritten offering, not to effect any public sale or distribution of any securities of the Company of the same class as the securities included in such Registration Statement, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration), during the 10-day period prior to, and during the 90-day period beginning on, the closing date of the underwritten offering made pursuant to such Registration Statement, to the extent timely notified in writing by the managing underwriters. The foregoing provision shall not apply to any Holder if such Holder is prevented by applicable statute or regulation from entering into any such agreement. However, any such Holder shall undertake, in its request to participate in any such underwritten offering, not to effect any public sale or distribution of the applicable Registrable Securities commencing on the date of sale of such applicable class of Registrable Securities unless it has provided 45 days' prior written notice of such sale or distribution to the underwriter or underwriters. SECTION 7.06: REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the Holder the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder of Registrable Securities to sell such securities of the Company to the public without registration, and with a view to making it possible for any such holder to register the Registrable Securities pursuant to a registration on Form S-3, the Company agrees, subject to this Article VII in the case of Section 7.06(b), to: (a) make available adequate current public information as contemplated by Rule 144 (c)(1) or (2); (b) take such action as is necessary to enable a Holder to utilize Form S-3 for the sale of Registrable Securities; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to a Holder owning any Registrable Securities upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a registrant whose Registrable Securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably required in availing any Holder of Registrable Securities of any rule or regulation of the SEC which permits the selling of any such Registrable Securities without registration or pursuant to such form. ARTICLE VIII OTHER MATTERS SECTION 8.01: EXPENSES OF TRANSFER. The Company will from time to time promptly pay, subject to the provisions of Section 6.01, 6.02 and paragraph (d) of Section 2.02, all taxes and charges that may be imposed upon the Company in respect to the issuance or delivery of Warrant Shares upon the exercise of this Warrant by the Warrantholder. SECTION 8.02: SUCCESSORS AND ASSIGNS. All the covenants and provisions of this Warrant by or for the benefit of any party hereto shall bind and inure to the benefit of its permitted successors and assigns hereunder. SECTION 8.03: AMENDMENTS AND WAIVERS. The provisions of this Warrant, including the provisions of this sentence, may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of holders of at least a majority of the outstanding Warrants or Registrable Securities (assuming, for purposes of calculating such consent, that all Warrantholders have exercised the Warrants at the time such consent is sought). Warrantholders and Holders shall be bound by any consent authorized by this Section whether or not certificates representing such Warrants or Registrable Securities have been marked to indicate such consent. SECTION 8.04: GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8.05: SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provisions in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. SECTION 8.06: INTEGRATION/ENTIRE AGREEMENT. This Warrant is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to this Warrant. This Warrant supersedes all prior agreements and understandings between the parties with respect to such subject matter. SECTION 8.07: NOTICES. Notices or demand pursuant to this Warrant to be given or made by the Warrantholder to or on the Company shall be sufficiently given or made if sent (i) by recognized international courier such as Federal Express or DHL or (ii) by first class mail, postage prepaid, addressed, until another address is designated in writing by the Company, as follows: Alliance Pharmaceutical Corp. 3040 Science Park Road San Diego, CA 92121 Attention: President and to Alliance Pharmaceutical Corp. 3040 Science Park Road San Diego, CA 92121 Attention: General Counsel Any action or demand authorized by this Warrant to be given or made by the Company to or on the Warrantholder or a Holder of Registrable Securities shall be sufficiently given or made if sent (i) by recognized international courier such as Federal Express or DHL or (ii) by first class mail, postage prepaid, to the Warrantholder or the Holder of Registrable Securities, at his last known address as it shall appear on the books of the Company. SECTION 8.08: HEADINGS. The Article headings herein are for convenience only and are not part of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of the ____ day of _________________. ALLIANCE PHARMACEUTICAL CORP. By:______________________ FORM OF ASSIGNMENT (To be Signed Only Upon Assignment) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____________________________________________________________ the right to purchase ____________________ shares of common stock evidenced by the within Warrant, and appoints ___________________________________________________________ to transfer same on the books of Alliance Pharmaceutical Corp. with full power of substitution in the premises. Dated: ____________________________, 199__ (Signature must conform in all respects to the name of Warrantholder as specified on the face of the Warrant, without alteration, enlargement or any change whatsoever, and the signature must be guaranteed in the usual manner) Signature Guaranteed: _______________________________ SUBSCRIPTION FORM To Be Executed By The Warrantholder If He Desires To Exercise The Warrant In Whole Or In Part: To: The undersigned, ____________________________, (Name of Warrantholder) (____________________________________________) (Please insert Social Security or other identifying number of subscriber) hereby irrevocably elects or exercises the right of purchase represented by the within Warrant for, and to purchase thereunder, __________ shares of Common Stock provided for therein and tenders payment herewith to the order of Alliance Pharmaceutical Corp. in the amount $__________. The undersigned requests that certificates for such shares of Common Stock be issued as follows: Name: Address: Deliver to: Address: and, if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable hereunder, that a new Warrant for the balance remaining of the shares of Common Stock purchasable under the within Warrant be registered in the name of, and delivered to, the undersigned at the address states below: Address: Date: Signature: Note: The signature of this Subscription must correspond with the name as written upon the face of this Warrant in every particular, without alternation or enlargement or any change whatsoever. EX-4.(B) 3 Exhibit 4(b) - ------------------------------------------------------------------------------- NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH. VOID AFTER 5:00 P.M. NEW YORK TIME, ON July 31, 1998.1 *********************************************************** No. ____ FORM OF WARRANT to SUBSCRIBE FOR AND PURCHASE COMMON STOCK, NO PAR VALUE of ------------------------------ ********************************************************** This certifies that, for good and valuable consideration,______________________________, a California corporation (the "Corporation"), grants to _______________________________________ or registered assigns (the "Warrantholder"), the right to subscribe for and purchase from the Corporation, at the price specified in subsection 2.1 hereof during the period specified in subsection 2.2 hereof, ______________________________________ validly issued, fully paid and non-assessable shares, as such number of shares may be adjusted from time to time (the "Warrant Shares"), of the Corporation's Common Stock, no par value (the "Common Stock"), subject to the provisions and upon the terms and conditions herein set forth. This warrant is one of a series of warrants (individually a "Warrant", collectively the "Warrants") issued by the Corporation representing the right initially to purchase in the aggregate _______ shares of Common Stock (representing in the aggregate a minimum of 2.85% up to a maximum of 2.89% of the Corporation's outstanding Common Stock on a fully-diluted basis on the date hereof) based on the number of Units issued by the Corporation and Otisville BioPharm, Inc. pursuant to the Private Placement Memorandum dated June 8, 1988, as amended. - ----------------------------------------------------------------------------- - --------------- 1 Pursuant to an action by the Board of Directors on September 1, 1995, the expiration date was extended to July 31, 2000. 1. DEFINED TERMS. For purposes of this Warrant: 1.1 "Initial Public Offering" shall mean the first time after the date of this Warrant at which an offering, whether primary or secondary, of shares of Common Stock, options, warrants or securities convertible or exchangeable (with or without payment of additional consideration) for shares of Common Stock or rights to acquire shares of Common Stock is registered pursuant to an effective registration statement filed by the Corporation under the Securities Act of 1933, as amended (the "Securities Act") (other than a registration statement filed on Form S-4, or any successor form thereto, relating to a transaction which, if consummated, would constitute a Surviving Combination.) An Initial Public Offering will be deemed to be consummated (i) upon the first sale under the related registration statement in the case of an underwritten offering and (ii) when the related registration statement first becomes effective in the case of an offering that is not underwritten. 1.2 "Non-Surviving Combination" shall mean any merger, consolidation or other business combination by the Corporation with one or more other Persons in which any such other Person is the survivor, or a sale of all or substantially all of the assets of the Corporation to one or more such other Persons, and with respect to which cash and/or non-cash consideration is distributed to holders of shares of Common Stock. 1.3 "Person" shall mean individual, partnership, corporation, joint venture, association, joint stock company, trust or unincorporated organization, or a government or agency or political subdivision thereof. 1.4 "Surviving Combination" shall mean any merger, consolidation or other business combination by the Corporation with one or more other Persons in which the Corporation is the survivor, or a purchase of assets by the Corporation from one or more other Persons, if in either case the Corporation is thereafter required to file reports with respect to its shares of Common Stock with the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as amended. 1.5 "Triggering Event" shall mean any of the following events: (i) the consummation of an Initial Public Offering by the Corporation; (ii) a Non-Surviving Combination; or (iii) a Surviving Combination. 2. DURATION AND EXERCISE OF WARRANT; EXERCISE PRICE; LIMITATION ON EXERCISE; PAYMENT OF TAXES. 2.1 EXERCISE PRICE. Subject to adjustment pursuant to section 6 hereof, the exercise price per Warrant Share to be purchased hereunder shall be $6.78 (the "Exercise Price"). 2.2 PERIOD OF EXERCISE. This Warrant may be exercised, in whole, or from time to time in part, only during the period from and after 9:00 A.M., Los Angeles time, on the first day of July to and including 5:00 P.M., Los Angeles time, on the 31st day of July in each of the years of 1991, 1992 and 1993 and at any time from and after July 31, 1993; provided, however, that this Warrant may also be exercised during the period from 9:00 A.M., New York City time; on the day on which a Triggering Event first occurs, and to and including 5:00 P.M., Los Angeles time, on the earlier of (a) July 31, 1998 and (b) if the Triggering Event is a sale of all or substantially all of the Corporation's assets, to be followed by a liquidation of the Corporation, thirty (30) days following such Triggering Event (the "Expiration Date"). The first day in July 1991, 1992 and 1993 and the day on which a Triggering Event first occurs is herein referred to as an "Exercise Commencement Date." 2.3 DURATION AND EXERCISE OF WARRANT. (a) The rights represented by this Warrant may be exercised by the Warrantholder of record, in whole, or from time to time in part by the (a) surrender of this Warrant, accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly executed by the Warrantholder of record and specifying the number of Warrant Shares to be purchased, to the Corporation at the office of the Corporation located at 3855 Avocado Boulevard, Suite 260, La Mesa, California 92041 (or such other office or agency of the Corporation as it may designate by notice to the Warrantholder at the address of such Warrantholder appearing on the books of the Corporation) during normal business hours on any day (a "Business Day") other than a Saturday, Sunday or a day on which national banks are authorized to close in the City of Los Angeles, State of California or on which the Corporation is otherwise closed for business (a "Nonbusiness Day") on or after 9:00 A.M., Los Angeles time, on any Exercise Commencement Date but not later than the close of business on the Expiration Date (or the close of business on the next succeeding Business Day, if the Expiration Date is a Nonbusiness Day), and (b) delivery of payment to the Corporation, for the account of the Corporation, by cash, by certified or bank cashier's check or by wire transfer, of the Exercise Price for the number of Warrant Shares specified in the Exercise Form in lawful money of the United States of America. The Corporation agrees that such Warrant Shares shall be deemed to be issued to the Warrantholder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. Certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Warrantholder as promptly as practicable, and in any event within ten (10) Business Days, thereafter. The certificate or certificates so delivered shall be issued in the name of the Warrantholder or, if permitted by subsection 2.5 and in accordance with the provisions thereof, such other name as shall be designated in the Exercise Form, subject to subsection 2.4, and shall be subject to the restrictions on transfer and bear the legend specified in subsection 2.5. If this Warrant shall have been exercised only in part, the Corporation shall, at the time of delivery of the certificate or certificates for the Warrant Shares, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. If this Warrant is not exercised prior to the close of business on the Expiration Date (or the next succeeding Business Day, if the Expiration Date is a Nonbusiness Day), this Warrant shall cease to be exercisable and shall become void and all rights of the Warrantholder hereunder shall cease. No adjustments or payments shall be made on or in respect of Warrant Shares issuable on the exercise of this Warrant for any cash distributions paid or payable to holders of record of shares of Common Stock prior to the date as of which the Warrantholder shall be deemed to be the record holder of such Warrant Shares. (b) No fractional shares of Common Stock shall be issued upon the exercise of this Warrant. If more than one Warrant shall be exercised at one time by the same holder, the number of Warrant Shares which shall be issuable shall be computed on the basis of the aggregate principal amount of the Warrants so exercised. With respect to any fraction of a share called for upon any exercise hereof, the Corporation shall pay to the Warrantholder an amount in cash equal to such fraction multiplied by, the difference between the "closing price of the Corporation's Common Stock", determined as of the date of exercise in accordance with subsection 7.5 hereof, and this Warrant's exercise price per share of Common Stock as of the date of exercise. 2.4 PAYMENT OF TAXES. The initial issuance of a certificate or certificates, if any, for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Warrantholder for any securities transfer or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect to any transfer involved in the issuance and delivery of any certificate or certificates for Warrant Shares in a name other than that of the then Warrantholder as reflected upon the books of the Corporation. 2.5 TRANSFER RESTRICTIONS AND LEGEND. (a) This Warrant may not be sold, assigned, pledged, hypothecated, encumbered, or in any manner transferred or disposed of, in whole or in part, without the consent of the Corporation except by operation of law or, in connection with a registration of Warrant Shares under the Securities Act, to a member firm of the National Association of Securities Dealers, Inc. Without limiting the generality of the foregoing, neither this Warrant nor any of the Warrant Shares, nor any interest or participation in either, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with applicable United States federal and state securities laws and the terms and conditions hereof. (b) The Warrantholder agrees that prior to any transfer of this Warrant or any transfer of the related Warrant Shares requiring the consent of the Corporation under subsection 2.5(a) above, such Warrantholder will give notice to the Corporation of its intention to effect such transfer (and, in the case of a disposition, of the intended method of disposition), together with a copy of the opinion of such Warrantholder's counsel, who shall be acceptable to the Corporation, as to the necessity or non-necessity for registration under the Act and applicable state securities laws in connection with such transfer. The following provisions shall then apply: (i) If in the opinion of the Warrantholder's counsel, the proposed transfer of this Warrant or the proposed transfer of such Warrant Shares may be effected without registration under the Act or applicable state securities laws of this Warrant or such Warrant Shares, as the case may be, and if the Corporation's counsel shall deliver an opinion to the Corporation to substantially the same effect (for purposes of which it may rely on the opinion of Warrantholder's counsel), then the Warrantholder shall be entitled to transfer this Warrant or to transfer such Warrant Shares in accordance with the intended method of disposition specified in the notice delivered by such holder to the Corporation. The Corporation agrees to request said opinion of its counsel promptly after receiving each such notice and opinion from the Warrantholder and to deliver to said holder a copy of the opinion of the Corporation's counsel promptly after it is received. The Warrantholder shall cooperate fully, and provide the Corporation and its counsel with such information and documents as either may reasonably request, to evaluate such opinion. In the event that no such opinion of the Corporation's counsel (whether such opinion shall concur with or dissent from said opinion of the Warrantholder's counsel) shall be delivered to the Warrantholder within 30 days after the date when the Warrantholder delivered said notice and opinion to the Corporation, it shall not be necessary that any opinion of the Corporation's counsel be delivered in order that any action be taken under this subsection, and the Corporation shall thereafter be obligated in connection with said notice and opinion of the Warrantholder's counsel to rely upon such Warrantholder's counsel's opinion and effect such transfer. (ii) If, in the opinion of either one or of both of said counsel, either the proposed transfer of this Warrant or the proposed transfer of such Warrant Shares may not be effected without registration under the Securities Act or applicable state securities law of this Warrant or such Warrant Shares, as the case may be, the Warrantholder shall not be entitled to transfer this Warrant or to transfer such Warrant Shares, as the case may be. (c) Notwithstanding anything to the contrary contained in this paragraph 2.5, this Warrant may be transferred in whole or from time to time in part to any successor to the business of Oppenheimer or any affiliate, officer, director, employee, parent, subsidiary or partner of Oppenheimer or by operation of law in compliance with applicable United States federal and state securities laws and such transfer shall not be subject to the provisions of subsection 2.5(b). Upon due presentation for registration of transfer of this Warrant pursuant to this subsection 2.5(c), the Corporation shall execute and deliver in the name of the transferee or transferees a new Warrant or Warrants in like kind; provided, however, that such new Warrant or Warrants shall not contain the provisions of this subsection 2.5(c). (d) In the case of Warrant Shares, each certificate therefor shall bear a legend to the effect of the foregoing paragraph. Any Warrant issued at any time in exchange or substitution for any Warrant bearing such a legend shall also bear such legend unless, in the opinion of counsel for the Corporation, the Warrant need no longer be subject to the restriction contained herein. The provisions of this subsection 2.5 shall be binding upon all subsequent holders of this Warrant, if any. Warrant Shares transferred to the public as expressly permitted by, and in accordance with, the provisions of this Warrant shall thereafter cease to be deemed to be "Warrant Shares" for purposes hereof. (e) The Warrantholder represents that Warrantholder is acquiring the Warrant (and, if exercised, the shares of Common Stock issuable upon such exercise) for the Warrantholder's own account (or a trust account if Warrantholder is a trustee) and not with a view to or for sale in connection with any distribution of the securities. 2.6 DIVISIBILITY OF WARRANT. Subject to securities law compliance, this Warrant may be divided into warrants representing one Warrant Share or multiples thereof, upon surrender at the principal office of the Corporation on any Business Day, without charge to the Warrantholder. Upon any such division, and, if permitted by subsection 2.5 and in accordance with the provisions thereof, the Warrants may be transferred of record to a name other than that of the Warrantholder of record; PROVIDED, HOWEVER, that the Warrantholder shall be required to pay any and all transfer taxes with respect thereto. 2.7 REGISTER. The Corporation shall maintain, at the principal office of the Corporation (or such other office or agency of the Corporation in _________________ as it may designate by notice to the holder hereof), a register for the Warrants, in which the Corporation shall record the name and address of the person in whose name a Warrant has been issued, as well as the name and address of each transferee and each prior owner of such Warrant. Within 10 days after any holder of Warrants shall by notice request the same, the Corporation will deliver to such holder a certificate, signed by a duly authorized representative, listing the name and address of every other holder of Warrants as such information appears in said register of the Corporation at the close of business on the day before such certificate is signed. 3. RESERVATION AND LISTING OF SHARES, ETC. The Corporation covenants and agrees that all Warrant Shares which are issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens, security interests, charges and other encumbrances with respect to the issue thereof, other than taxes in respect of any transfer occurring contemporaneously with such issue. The Corporation further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Corporation will at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant, and will at its expense use its best efforts to procure such listing thereof (subject to official notice of issuance) as then may be required on all stock exchanges on which the Common Stock is listed. 4. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT. If permitted by subsection 2.5 and in accordance with the provisions thereof, upon surrender of this Warrant to the Corporation with a duly executed instrument of assignment and funds sufficient to pay any transfer tax, the Corporation shall, without charge, execute and deliver a new Warrant of like tenor in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. Upon receipt by the Corporation of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of such bond or indemnification as the Corporation may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Corporation will execute and deliver a new Warrant of like tenor. The term "Warrant" as used herein includes any Warrants issued in substitution or exchange for this Warrant. 5. OWNERSHIP OF WARRANT. The Corporation may deem and treat the person in whose name this Warrant is registered as the Warrantholder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Corporation) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in subsections 2.3 and 2.5 or in section 4. 6. CERTAIN ADJUSTMENTS. 6.1 ADJUSTMENT OF WARRANT SHARES. The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows: (a) In case the Corporation shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding Shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue by reclassification of its Shares of Common Stock other securities of the Corporation (including any such reclassification in connection with a consolidation or merger in which the Corporation is the surviving entity), the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted so that the Warrantholder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Corporation which it would have owned or have been entitled to receive after the happening of any of the events described above, had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subsection (a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Whenever the number of Warrant Shares purchasable upon the exercise of the Warrant is adjusted, as herein provided, the Exercise Price payable upon the exercise of this Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and the denominator of which shall be the number of Warrant Shares purchasable immediately thereafter. (c) Irrespective of any adjustments of the number or kind of securities issuable upon exercise of Warrants or the Exercise Price, Warrants theretofore issued may continue to express the same number of Shares and Exercise Price as are stated in similar Warrants previously issued. 6.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Corporation shall promptly mail by first class, postage prepaid, to all Warrantholders, notice of such adjustment or adjustments and a certificate of a firm of independent public accounts selected by the Board of Directors of the Corporation (which may be the regular accountants employed by the Corporation) setting forth the number of Warrant Shares and the Exercise Price of such Warrant Shares after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment. If a dispute shall at any time arise with respect to the failure of the Corporation to make any adjustments of the Exercise Price or the number of Warrant Shares issuable pursuant to this Warrant, such dispute shall be conclusively determined by such accountants. Any such determinations shall be binding upon the Corporation, all Warrantholders and holders of Warrant Shares and all other security holders of the Corporation. 6.3 RIGHTS OF WARRANTHOLDERS TO CERTAIN DISTRIBUTIONS. If the Corporation at any time makes any spin-off, split-up, split-off or distribution of assets upon or with respect to its shares of Common Stock, as a liquidating or partial liquidating dividend, spin-off or by way of return of capital, or other than as a dividend payable out of current earnings, each Warrantholder shall upon the exercise of the Warrant receive, in addition to the Warrant Shares then issuable on exercise of the Warrant, the amount of such assets (or at the option of the Corporation, a sum equal to the value thereof at the time of the distribution) which would have been payable to such holder had he exercised the Warrant immediately prior to the record date for such distribution. 6.4 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC. (a) If any capital reorganization or reclassification of any shares of Common Stock, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another entity, shall be effected while any Warrants are outstanding in such a way that holders of any class of Common Stock shall be entitled to receive stock, partnership interests, securities or assets with respect to or in exchange for any class of such Common Stock, then as a condition of such registration, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the Warrant Shares immediately theretofore receivable upon the exercise of such Warrants, such number of shares of stock, partnership interests, securities or assets to which a holder of the number of Warrant Shares issuable upon the exercise of such Warrants would have been entitled upon such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of each such Warrantholder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, partnership interests, securities or assets thereafter deliverable upon the exercise of such Warrants. The Corporation shall not effect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof the survivor or successor limited partnership or corporation (if other than the Corporation) resulting from such consolidation or merger or the limited partnership or corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each registered Warrantholder, the obligation to deliver to such Warrantholder such shares of stock, partnership interests, securities or assets as, in accordance with the foregoing provisions, such Warrantholder may be entitled to receive, and containing the express assumption by such successor limited partnership or corporation of the due and punctual performance and observance of every provision of this Warrant to be performed and observed by the Corporation and of all liabilities and obligations of the Corporation hereunder. (b) In the event of any change in the rights of the Warrantholder by reason of other events herein set forth, then and in each such case, the Corporation will promptly obtain an opinion of Deloitte Haskins & Sells or of another independent national firm of certified public accountants selected by the Corporation, specifying the other shares of stock, partnership interests, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Corporation will promptly mail a copy of such accountants' opinion to the registered Warrantholder. 7. REDEMPTION. 7.1 In the event that the Warrantholder exercises his or its right to include any Warrant Shares issuable, but not yet issued, on the exercise hereof in a registration statement pursuant to section 8 hereof, then the Corporation may compel the holder of this Warrant to sell [all or portion] of this Warrant to the Corporation at a price equal to 95% of the difference between "the closing price of the Corporation's Common Stock" on the date of Redemption Notice (as hereinafter defined) and the Exercise Price then in effect. 7.2 The Corporation shall give at least 10 days prior written notice of any requested redemption ("Redemption Notice"), by mail, postage prepaid, to each Warrantholder of record, Redemption Notice to be addressed to the holder at the address as it appears on the stock transfer books of the Corporation and to specify the date of redemption and amount of this Warrant to be redeemed. The amount of this Warrant specified in such Redemption Notice shall be redeemed automatically as of the date of redemption without any further action by the Corporation or such holder and regardless of whether this Warrant is surrendered to the Corporation or its transfer agent. On or after the date of redemption as specified in such Redemption Notice, the holder shall surrender this Warrant. Upon such surrender, the Corporation shall pay to such holder in cash or by check the price for the [amount of this Warrant so redeemed.] [If less than all of this Warrant is to be redeemed, the Corporation shall forthwith issue a new Warrant, of like tenor, for the unredeemed portion of this Warrant.] 7.3 If less than all of the series of Warrants, all of which this Warrant is one, are to be redeemed, the Warrantholder acknowledges that the particular Warrants in the series to be redeemed shall be selected by the Corporation by such method as it shall deem fair and appropriate in its sole and absolute discretion. 7.4 Notwithstanding that this Warrant has been called for redemption, this Warrant may be exercised in whole or in part during the periods specified in subsection 2.2 hereof at any time before the date of redemption specified in the Redemption Notice. 7.5 For the purpose hereof, the "closing price of the Corporation's Common Stock" on any Redemption Date shall be the last sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case on the principal national securities exchange on the Corporation's Common Stock is listed or admitted to trading, or if it is not listed or admitted to trading on any national securities exchange, on the National Market System, as reported by NASDAQ, or if not admitted to trading on the National Market System, the average of the closing bid and asked prices in the over-the-counter market as reported by NASDAQ, or if not so available, the fair market price as determined by the Corporation's Board of Directors (whose determination shall be conclusive) and described in an officers' certificate signed by a responsible officer of the Corporation. For purposes of this subsection the term "trading day" shall not include any day on which securities are not traded on such exchange or in such market. 8. REGISTRATION OF THE WARRANTS AND/OR WARRANT SHARES. 8.1 PIGGYBACK REGISTRATION. If at time after the date hereof, the Corporation proposes to file a registration statement under the Securities Act with respect to a primary offering by the Corporation for its own account (other than a "rights offering" to shareholders of the Corporation) on a form suitable for a secondary offering and/or a secondary offering on behalf of a shareholder of the Corporation, then the Corporation will notify each Warrantholder (including for the purpose of this section 8 any subsequent holder or holders of the Warrants and/or Warrant Shares) at least thirty (30) days prior to the proposed filing of such registration statement (the "Corporate Notice"), specifying in the Corporate Notice the form of registration statement, the number of shares of Common Stock or other securities which the Company proposes to register, the name of the managing underwriter or underwriters (if any), (which may be Oppenheimer pursuant to an existing agreement with the Corporation) and the general terms and conditions of the proposed registration. Within fifteen (15) days of the Corporate Notice, any Warrantholder may deliver a notice in writing to the Corporation (the "Holder Notice") requesting that the Corporation include in such registration statement some or all of the Warrant Shares. The Corporation shall include the Warrant Shares in the registration statement, and, if any proposed sale is to be underwritten, to see that the underwriters purchase such Warrant Shares. In the event that any registration pursuant to this subsection shall be, in whole or in part, an underwritten offering of securities of the Corporation, any request by a Warrantholder pursuant to this subsection to register the Warrant Shares must specify that such shares are to be included in the underwriting on the same terms and conditions as the securities, if any, otherwise being sold through underwriters under such registration; PROVIDED, HOWEVER, that if the managing underwriter or underwriters of such offering request in writing, at least fifteen (15) days prior to the date that the registration statement becomes effective, that part or all of the Warrant Shares be excluded from the registration statement on the ground that the inclusion of such Warrant Shares with the securities which the other shareholders and the Corporation propose to include in such offering will materially adversely affect the success of the offering or offering price of the Common Stock being sold, certain of the securities, including such Warrant Shares, will be excluded from the registration statement as set forth below in this subsection. If the underwriters agree to purchase any or all of the Warrant Shares, the Warrantholders will enter into an underwriting agreement with the underwriters and will sell such Warrant Shares to the underwriters unless and except to the extent that, upon written notice to the Corporation and the managing underwriter or underwriters at least two days prior to the effective date of the registration statement, any such Warrantholder withdraws any portion of such Warrant Shares. If the underwriters elect to reduce the amount of securities to be offered and thereby purchase less than all of the Warrant Shares, such reduction of Warrant Shares to be purchased by the underwriter shall be made pro rata among the aggregate of Warrant Shares that were included in the timely requests from Warrantholders under this subsection 8.1 and the shares of other holders of the Corporation's securities with piggyback registration rights who exercised their rights to participate in the subject registration statement. To the extent Warrant Shares held by the Warrantholders are so reduced, such shares will be excluded from the registration statement. Warrantholders shall have no right to participate in the selection of the underwriters for the offering pursuant to this subsection. The rights granted in this subsection 8.1 shall expire five (5) years after the date hereof. 8.2 DEMAND REGISTRATION. (a) At any time after the first anniversary of the Corporation's Initial Public Offering but prior to the fifth anniversary of the date hereof, any Warrantholder may at any time make a written request ("Demand Registration Notice") for registration under and in accordance with the Securities Act of all or part of its Warrant Shares (the "Demand Registration") provided that the number of Warrant Shares requested to be registered by such Warrantholder shall equal more than fifty percent (50%) of the aggregate number of Warrant Shares issued and issuable. In such event, the Corporation shall promptly notify in writing all other Warrantholders that it has received a Demand Registration Notice and will, subject to the limitations described herein, include in such registration all Warrant Shares with respect to which the Corporation has received written requests for inclusion therein within thirty (30) business days after receipt by the applicable holder of the notice of the Corporation's receipt of the Demand Registration Notice. The Warrantholders will be entitled to one such Demand Registration of such Warrant Shares for which registration has been properly requested pursuant to this subsection 8.2, except as set forth below. The Corporation and all other holders of Common Stock issued and outstanding or reserved for future issuance pursuant to options, warrants and conversion privileges as of the date of this Warrant, including, without limitation, the holders of preferred stock ("Other Shareholders"), will be permitted to participate in the registration statement filed pursuant to the Demand Registration. If the Warrantholder or Warrantholders making the Demand Registration so elect, the offering of Warrant Shares pursuant to such demand registration will be in the form of an underwritten offering. In the event that the registration pursuant to this subsection 8.2 shall be in whole or in part an underwritten offering, if the managing underwriter or underwriters of such offering advise the Corporation in writing that in its or their opinion the amount of Warrant Shares proposed to be included in such proposed offering is sufficiently large to materially adversely affect the success of the offering or offering price of the Common Stock, the Corporation will include in such registration only an amount of Warrant Shares which in the opinion of such managing underwriter or underwriters can be sold without such material adverse effect (the "Maximum Amount"). In such event, the registration statement shall only include the number of Warrant Shares in the Maximum Amount, and such amount shall be allocated in the following priority order: (A) all Warrant Shares that Warrantholders exercising their rights pursuant to the Demand Registration propose to sell up to the Maximum Amount; and the balance of the Maximum Amount, if any, to (B) the Corporation and then to (C) Other Shareholders. All allocations within categories (A), (B) and (C) above will be made on a pro rata basis among the securities proposed to be included in such registration by the respective shareholders. (b) Notwithstanding the foregoing, in the event that the Maximum Amount represents less than fifty percent (50%) of the aggregate number of Warrant Shares for which registration has been demanded under subsection 8.2(a), then the Warrantholders shall be entitled to a second Demand Registration under the terms and conditions set forth in this subsection 8.2; provided, however, that the number of shares of Warrant Shares to be registered pursuant to such second Demand Registration shall be more than fifty percent (50%) of the aggregate number of Warrant Shares issued and issuable not previously registered under the Securities Act. (c) Notwithstanding the obligations set forth in subsections (a) and (b) above: (i) The Corporation shall not be required to file any registration statement which would require the inclusion of audited financial statements for a period other than the Corporation's fiscal year; (ii) Should any Warrantholder, upon receiving a Holder Notice pursuant to subsection 8.1, not exercise his rights to include all of his Warrant Shares in the registration statement referred to in such Holder Notice, then such Warrantholder may not submit a Demand Registration Notice pursuant to this subsection 8.2 until one hundred eighty (180) days after the effective date of such registration statement. 8.3 MARKET STAND-OFF. Each Warrantholder agrees that if the managing underwriter or underwriters of the offering contemplated by subsection 8.1 so request, such Warrantholder shall not sell any Requested Shares (as hereinafter defined) or other Warrant Shares held by him not included in the registration statement for a period of sixty (60) days after the effective date of the registration statement filed in connection with the public offering; PROVIDED, HOWEVER, that no Warrantholder shall be bound by this subsection 8.3 if none of such Warrantholder's Warrant Shares have been included in the registration statement filed pursuant to subsection 8.1. 8.4 OBLIGATIONS OF THE CORPORATION. When required under this section 8 to effect the registration of any of the Warrant Shares under subsections 8.1 or 8.2 hereof (in either such case, the "Requested Shares"), the Corporation shall, as expeditiously as is reasonably possible: (a) Prepare and file with the Securities Exchange Commission (the "SEC") a registration statement with respect to such Requested Shares and such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to cause such registration statement to become effective at the earliest practicable date and to remain effective for a period of ninety (90) days or until the Warrantholders and any underwriter purchasing such Requested Shares have sold or otherwise disposed of the Requested Shares registered in such registration statement, whichever is earlier. (b) Furnish to each Warrantholder selling Requested Shares such number of copies of such registration statement, each supplement and amendment thereto, a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Warrantholder may from time to time reasonably request in order to facilitate the disposition of Requested Shares to be sold by such Warrantholder pursuant to such registration statement. (c) Register and qualify the Requested Shares covered by such registration statement under such securities laws or state securities laws of such jurisdictions as shall be reasonably appropriate for the distribution of the Requested Shares covered by the registration statement; PROVIDED, HOWEVER, that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (d) Furnish, at the request of any Warrantholder or Warrantholders requesting registration of Requested Shares pursuant to this section 8 on the date that such Requested Shares are delivered to the underwriters for the sale pursuant to such registration or, if such Requested Shares are not being sold through underwriters, on the date the registration statement with respect to such Requested Shares becomes effective: (1) an opinion, dated such date, of the counsel representing the Corporation for the purposes of such registration, addressed to the underwriters, if any, and to the Warrantholder or Warrantholders making such request, stating that such registration statement has become effective under the Securities Act and that (a) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof as has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act; (b) the registration statement, the related prospectus, and each amendment or supplement thereto, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the SEC thereunder (except that such counsel need express no opinion as to financial statements contained therein); (c) such counsel has no reason to believe that either the registration statement or the prospectus, or any amendment or supplement thereto, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (d) to the best knowledge of such counsel, the descriptions in the registration statement and the prospectus, and any amendment or supplement thereto, of legal and governmental matters and all contracts and other legal documents or instruments are accurate and fairly present the information required to be shown; and (e) such counsel does not know of any legal or governmental proceedings, pending or contemplated, required to be described in the registration statement or prospectus, or any amendment or supplement thereto, that are not described as required, nor of any contracts or documents or instruments of a character required to be described in the registration statement or prospectus or any amendment or supplement thereto or to be filed as exhibits to the registration statement that are not described and filed as required; and (2) a letter, dated such date, from the independent public accountants of the Corporation, addressed to the underwriters, if any, and to the Warrantholder or Warrantholders making such request, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements and other financial data of the Corporation included in the registration statement and the prospectus, and any amendment or supplement thereto, comply as to form in all material respects with the applicable accounting requirements of the Securities Act. Such letter from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five business days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as the Warrantholder or Warrantholders of Requested Shares requesting such letter may reasonably request. (e) Effect any notification registration, qualification and listing on a securities exchange which shall be reasonably necessary to permit the sale of such Requested Shares, if the Common Stock is then being traded on an exchange. 8.5 EXERCISE OF WARRANT. Nothing herein shall require a Warrantholder holding any Warrants to have exercised any of its Warrants prior to making a request under subsections 8.1 or 8.2 hereof for registration of shares of Common Stock issuable upon the exercise of such Warrants; provided, however, that such Warrants must be exercised not later than the date of the effectiveness of the registration statement covering the shares of Common Stock issuable upon exercise thereof, or such earlier date as shall be reasonably required by the managing underwriter(s) in an underwritten offering. Nothing herein shall require the Corporation to register the Warrants under the Securities Act or any state securities law. Upon the exercise of this Warrant, any and all registration rights granted in this section 8 shall survive and the holder of Warrant Shares acquired upon exercise hereof, shall be entitled to the rights granted herein with respect to such Warrant Shares. 8.6 FURNISH INFORMATION. It shall be a condition precedent to the obligation of the Corporation to take any action pursuant to this section 8 that the Warrantholders promptly furnish to the Corporation such information regarding them, the securities of the Corporation held by them and the intended method of disposition of such securities as the Corporation shall reasonably request and as shall be required in connection with the Corporation's obligations under this section. 8.7 REGISTRATION EXPENSES. All expenses incurred by the Corporation in complying with this section 8, including without limitation, all registration and filing fees, printing expenses, travel expenses, fees and disbursements of counsel for the Corporation and the expense of any special audits incident to or required by any such registration, shall be paid by the Corporation. The Corporation shall not be responsible for any underwriters' fees, brokerage fees, underwriting discounts and commissions with respect to such registration of the Requested Shares, or the counsel fees incurred by Warrantholders. 8.8 EXPANDED RIGHTS. From and after the fifth anniversary of this Warrant, section 8 shall be extended through July 31, 1998 with the following modifications: (a) The last sentence of subsection 8.1 shall be deleted. (b) The Warrantholders shall have the right to make two demands for registration of the Warrant Shares, after the fifth anniversary of this Warrant, under subsection 8.2(a). Subsection 8.2(b) shall be deleted. Upon demand for registration of the Warrant Shares pursuant to subsection 8.2(a), subsection 8.7 shall be amended to include the following: (i) The expenses of registering the Warrant Shares upon the first Demand Registration shall be borne by the Corporation. (ii) HOWEVER, the expenses of registering the Warrant Shares upon the second Demand Registration shall be borne by the Warrantholders. 8.9 INDEMNIFICATION. In the event any of the Warrant Shares of a Warrantholder is included in a registration statement pursuant to this section 8: (a) To the extent permitted by law, the Corporation will indemnify and hold harmless each Warrantholder selling Requested Shares, any underwriter (within the meaning of the Securities Act) with respect to the Requested Shares, and each officer and director of and each person, if any, who otherwise controls such Warrantholder or underwriter within the meaning of the Securities Act, against any losses, claims, damages, expenses, or liabilities, joint or several, to which they may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or allegedly untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or allegedly necessary to make the statements therein not misleading; and will reimburse each such Warrantholder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this section 8 shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of the Corporation which shall not be unreasonably withheld, nor shall the Corporation be liable under this section 8 to such a Warrantholder, underwriter or controlling person for any such loss, claim, damage, expense, liability or action to the extent that it arises out of, or is based upon, an untrue statement or allegedly untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospectus, final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing expressly for use in connection with such registration by such Warrantholder, such underwriter or such controlling person. (b) To the extent permitted by law, each Warrantholder selling Requested Shares pursuant to this section 8 will indemnify and hold harmless the Corporation, each of its directors and officers, each person, if any, who controls the Corporation within the meaning of the Securities Act, and any underwriter for the Corporation (within the meaning of the Securities Act) against any losses, claims, damages or liabilities to which the Corporation or any such person or underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereto) arise out of, or are based upon, any untrue or allegedly untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or allegedly necessary to make the statements therein not misleading, in each case to the extent that such untrue statement or allegedly untrue statement or omission or alleged omission was made in such registration statement, preliminary prospectus, or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing by such Warrantholder expressly for use in connection with such registration; PROVIDED, HOWEVER, that the indemnity agreement contained in this section 8 shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of such Warrantholder which shall not be unreasonably withheld; and each such Warrantholder will reimburse the Corporation or any such person or underwriter for any legal or other expenses reasonably incurred by the Corporation or any such person or underwriter in connection with investigating or defending any such loss, claim, damage, liability, expense or action. (c) Promptly after receipt by an indemnified party under this section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this section 8 notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED that each indemnified party shall have the right to employ its own counsel in any such cash, but the fees and expense of such counsel shall be at the expense of such indemnified party unless the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action or the indemnifying party shall not have employed counsel to have charge of the defense of such action or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them that are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties) in any of which events the fees and expenses of such counsel shall be borne by the indemnifying parties. The failure to notify an indemnifying party promptly of the commencement of any such action if prejudicial to the ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this subsection (g), but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise than under this section. (d) To the extent permitted by law, the indemnification provided for under this Warrant will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person (within the meaning of the Securities Act) of such indemnified party and will survive the transfer of securities. (e) If for any reason the foregoing indemnity is unavailable to, or is insufficient to hold harmless, an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, or provides a lesser sum to the indemnified party then the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Notwithstanding the foregoing, no underwriter, if any, shall be required to contribute any amount in excess of the amount by which the total price at which the securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligation of any underwriters to contribute pursuant to this subsection (e) shall be several in proportion to their respective underwriting commitments and not joint. (f) As used in this section 8, the term "Person" shall mean an individual, partnership, corporation, joint venture, association, stock company, trust or unincorporated organization, or a government or agency or political subdivision thereof. 8.10 NO-ACTION LETTER OR OPINION OF COUNSEL IN LIEU OF REGISTRATION. Notwithstanding anything else contained in this section 8, in the event that (i) the Corporation shall have obtained from the SEC an "interpretative" or a "no-action" letter in which the SEC has indicated that registration is not required or that it will take no action if, without registration under the Securities Act, any Warrantholder disposes of Requested Shares in the manner in which such Warrantholder proposes to dispose of the Requested Shares, or (ii) in the opinion of counsel for the Corporation, no registration under the Securities Act is required in connection with such disposition, the Requested Shares shall not be eligible for registration under this section, but if the Corporation Holder receives a contrary opinion of its counsel, the Corporation will either allow such shares to be registered pursuant to this Section 8 and reimburse the Warrantholder for the reasonable costs of obtaining such opinion or obtain a no-action letter from the SEC. 8.11 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Warrantholder may participate in any underwritten registration hereunder unless such Warrantholder (a) agrees to sell such Warrantholder's securities on the basis provided in any underwriting arrangements approved by the Corporation and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. PRIOR NOTICE OF CERTAIN EVENTS. In case at any time: (a) the Corporation shall pay any dividends or make any distribution to its holders of shares of Common Stock; (b) the Corporation proposes to make the Initial Public Offering; or (c) there shall be any capital reorganization or reclassification of the shares of Common Stock of the Corporation, including any subdivision, split, combination or reverse split, or any consolidation or merger of the Corporation with another corporation or a sale of all or substantially all of its assets; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Corporation; then, in any of said cases, the Corporation shall give prior written notice, by first-class mail, postage prepaid, addressed to the Warrantholder at the address of such Warrantholder as shown on the registration books of the Corporation, of the date on which (i) the books of the Corporation shall close or a record shall be taken for such distribution or subscription rights, or (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up shall take place, as the case may be, or (iii) the registration statement is expected to become effective. To the extent applicable, such notice shall also specify the date as of which the Corporation's shareholders shall participate in said distribution or subscription rights or shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger or sale, dissolution, liquidation or winding-up, as the case may be. Such written notice shall be given at least fifteen (15) days prior to (i) such applicable event, (ii) the applicable record date or (iii) the date on which the Corporation's transfer books are closed in respect thereto. In addition to the foregoing, the Corporation shall promptly notify Warrantholders in writing, by first class mail, postage prepaid, of the first occurrence of a Triggering Event and such notice shall set forth the number of shares of Common Stock outstanding on such date, excluding any shares of Common Stock which are issued in connection with such Triggering Event. 10. MISCELLANEOUS. 10.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement between the Corporation and the Warrantholders with respect to the Warrants and Warrant Shares. 10.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the benefit of and shall be binding upon the Corporation, the Warrantholders and holders of Warrant Shares and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Corporation, the Warrantholders and holders of Warrant Shares, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant or the Warrant Shares. 10.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. The Corporation, any Warrantholder or holders of Warrant Shares may, by an instrument in writing, waive compliance by the other party with any term or provision of this Warrant on the part of such other party hereto to be performed or complied with. The waiver by any such party of a breach of any term or provision of this Warrant shall not be construed as a waiver of any subsequent breach. 10.4 SECTION AND OTHER HEADINGS. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 10.5 FURTHER ASSURANCES. Each of the Corporation, the Warrantholders and holders of Warrant Shares shall do and perform all such further acts and things and execute and deliver all such other certificates, instruments and/or documents (including without limitation, such proxies and/or powers of attorney as may be necessary or appropriate) as any party hereto may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Warrant. 10.6 NOTICES. All demands, requests, notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States first class mail, postage prepaid, to the parties hereto at the following addresses or to such other address as any party hereto shall hereafter specify by notice to the other party hereto: (a) if to the Corporation, addressed to: ------------------------------- ------------------------------- ------------------------------- With a copy given in the same manner to: ------------------------------- ------------------------------- ------------------------------- (b) if to any Warrantholder or holder of Warrant Shares, addressed to the address of such person appearing on the books of the Corporation. Except as otherwise provided herein, all such demands, requests, notices and other communication shall be deemed to have been received on the date of delivery thereof or on the third Business Day after the mailing thereof. 10.7 SEPARABILITY. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable any other term or provision of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 10.8 RIGHTS OF THE WARRANTHOLDER. The Warrantholder shall not, solely by virtue of this Warrant, be entitled to any rights of a shareholder of the Corporation, either at law or in equity. 10.9 GOVERNING LAW. This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed and enforced in accordance with the laws of such State. IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed by its duly authorized officer. CORPORATION By:_______________________ Dated: ___________________ EXERCISE FORM (To be executed upon exercise of this Warrant) The undersigned, the record holder of this Warrant, hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase _______ of the Warrant Shares, and to become a shareholder of ________________________________, and herewith tenders payment for such Warrant Shares in the amount of $____________ in accordance with the terms of this Warrant. The undersigned requests that a certificate for such Warrant Shares be registered in the name of __________________________ and that such certificates be delivered to _____________________ whose address is ____________________________________. Signature: _______________________ Date ______________________ EX-5 4 Exhibit 5 Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10028 Phone 212 806-5400 March 24, 2000 Alliance Pharmaceutical Corp. 3040 Science Park Road San Diego, CA 92121 Re: ALLIANCE PHARMACEUTICAL CORP. REGISTRATION STATEMENT ON FORM S-3 ---------------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel for Alliance Pharmaceutical Corp., a New York corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), of a Registration Statement on Form S-3 (the "Registration Statement"), relating to 4,588,483 shares of Common Stock of the Company, par value $0.01 per share (the "Shares"), to be issued upon the conversion of the Company's 5% subordinated convertible debentures, 6% subordinated convertible notes, Series D Preferred Stock, upon the exercise of warrants as set forth in the Selling Shareholders section of the Registration Statement, and upon the proposed sale of Shares by the selling shareholders as set forth in such section of the Registration Statement (the "Selling Shareholders"). The Shares are to be sold from time to time as set forth in the Registration Statement, the prospectus contained therein and any amendments or supplements thereto. As such counsel, we have examined copies of the Amended Certificate of Incorporation and Bylaws of the Company, each as in effect as of the date hereof, and the Registration Statement. We also have examined the original or reproduced or certified copies of all such records of the Company, all such agreements, certificates of officers and representatives of the Company and others, and such other documents, papers, statutes and authorities as we deemed necessary to form the basis of the opinions hereinafter expressed. In such examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of copies of documents supplied to us by the Company and others. As to certain matters of fact relevant to the opinions hereinafter expressed, we have relied upon statements and certificates of officers of the Company and others. Attorneys involved in the preparation of this opinion are admitted to practice law in the State of New York and we do not purport to be experts on, or to express any opinion herein concerning, any law other than the laws of the State of New York and the federal laws of the United States of America. Based upon and subject to the foregoing, we are of the opinion that the Shares to be offered by the Selling Shareholders, when sold under the circumstances contemplated in the Registration Statement, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the prospectus forming a part of the Registration Statement. In giving such consent, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder. Very truly yours, /s/ Stroock & Stroock & Lavan LLP STROOCK & STROOCK & LAVAN LLP EX-23.(B) 5 Exhibit 23.(b) CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Alliance Pharmaceutical Corp. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated July 23, 1999, except for paragraph 2 of Note 5, as to which the date is September 14, 1999, with respect to the consolidated financial statements of Alliance Pharmaceutical Corp. included in its Annual Report on Form 10-K for the year ended June 30, 1999, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP San Diego, California March 21, 2000 -----END PRIVACY-ENHANCED MESSAGE-----