-----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, QZ2gmhcER8AqG4UjvZNTiDVtAM/oIH2R730MdXk24r3mFcDDDmyl+a91SKdp/Upk E3iYhvZUhtXH4mBqLYB9Hw== 0001047469-99-021439.txt : 19990519 0001047469-99-021439.hdr.sgml : 19990519 ACCESSION NUMBER: 0001047469-99-021439 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19990518 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/A SEC ACT: SEC FILE NUMBER: 333-76343 FILM NUMBER: 99629780 BUSINESS ADDRESS: STREET 1: 3040 SCIENCE PARK RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195584300 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/A 1 S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1999 REGISTRATION STATEMENT NO. 333-76343 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO 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 (619) 558-4300 (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 (619) 558-4300 (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. [ ] 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 Maximum Maximum Securities Amount Offering Aggregate Amount of To Be To Be Price Offering Registration Registered Registered Per Unit Price Fee Common Stock $0.01 par value 12,000,000(1) $2.72(2) $32,640,000(2) $1,512.32(3)
(1) This pre-effective amendment registers an additional 2,000,000 shares of common stock, making the aggregate number of shares of common stock offered 12,000,000. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c). (3) A registration fee of $7,812 was previously paid in connection with the initial filing of this registration statement. 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. SUBJECT TO COMPLETION, DATED MAY 18, 1999 ALLIANCE PHARMACEUTICAL CORP. 12,000,000 SHARES OF COMMON STOCK ------------ Alliance Pharmaceutical Corp. is offering up to 12,000,000 shares of common stock with this prospectus. Our common stock is listed and traded on the Nasdaq National Market under the symbol "ALLP." On May 14, 1999, the last reported sale price of the common stock on the Nasdaq National Market was $3.13 per share.
Per Share Total ------------------------ --------------------- Public Offering Price Placement Fees Proceeds to Alliance
The shares of common stock are being offered directly by Alliance. Cruttenden Roth Incorporated will act as the placement agent in connection with the offering. Cruttenden Roth has no commitment to buy any of the 12,000,000 shares offered. It is required only to use its best efforts to place the shares. The offering is being made on a minimum-maximum basis and no shares of common stock will be sold if at least 6,000,000 shares of common stock are not sold prior to June 30, 1999. All investor funds received prior to the closing of the offering will be deposited into escrow with an escrow agent until the closing. If, for any reason, the offering is terminated any funds received will be returned promptly. WE URGE YOU TO READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 FOR A DESCRIPTION OF RISKS ASSOCIATED WITH PURCHASING OUR COMMON STOCK THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE 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 prospectus. We have not authorized anyone to provide you with different information. The date of this prospectus is ______ __, 1999. RED HERRING LANGUAGE The information in this prospectus is not complete and may be changed. We 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 is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. TABLE OF CONTENTS
PAGE Prospectus Summary.............................................................................................. Risk Factors.................................................................................................... Incorporation of Certain Documents by Reference................................................................. Where You Can Find More Information............................................................................. Use of Proceeds................................................................................................. Dilution........................................................................................................ Plan of Distribution............................................................................................ Legal Matters................................................................................................... Experts.........................................................................................................
NOTE TO READERS OF THIS PROSPECTUS We were incorporated in 1983 in New York. 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- and FLOGEL-R- are registered trademarks of Alliance. OXYGENT-TM-, PULMOSPHERES-TM- and RODA-TM- are trademarks of Alliance. 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 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, not human or animal blood. A Phase 3 study is underway in Europe and an additional Phase 3 study is planned in the U.S. to assess whether the use of OXYGENT can reduce the need for donor blood in surgical patients. 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 damage resulting from prolonged use of the ventilator, open up collapsed air sacs, assist in providing oxygen to and removing carbon dioxide from the lungs, and flush debris from the lungs. We are currently conducting a Phase 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. On May 11, 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. In addition, we have other products in early development. PULMOSPHERES are drug-containing hollow, porous particles that are being developed for delivery of drugs to the lungs via traditional inhalers and other devices. Laboratory (non-human) studies are being conducted to evaluate the potential uses of PULMOSPHERES. 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. 1 RODA is a monitor intended to provide real-time measurements of the cardiovascular (heart and blood system) and oxygenation status of surgical patients. During the past 16 months we resumed responsibility for the development and cost of OXYGENT and LIQUIVENT due to differences in priorities and clinical development strategies with our former partners. This forced us to reallocate our human and capital resources. We intend to seek new partners for both products, as well as for PULMOSPHERES. 2 THE OFFERING Offering................................................................ 12,000,000 shares Securities offered...................................................... Common stock, $.01 par value Shares of common stock outstanding prior to this offering............... 33,242,830 shares (1) Use of proceeds......................................................... Clinical trials, working capital and general corporate purposes
(1) Shares of common stock outstanding as of May 10, 1999; excludes (i) 5,305,910 shares of common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $7.72 per share; (ii) 565,523 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $14.78 per share; and (iii) a variable amount of common stock (which number varies based on the price of the common stock) issuable upon the conversion of Series D and Series E-1 preferred stock. 3 SUMMARY FINANCIAL DATA The following summary financial data for the three years ended June 30, 1998 are derived from the audited consolidated financial statements of Alliance. The financial data for the nine months ended March 31, 1998 and 1999 are derived from unaudited financial statements. The unaudited financial statements include all adjustments, consisting of normal recurring accruals which the Company considers necessary for a fair presentation of the financial position and results of operations for such periods. Operating results for the nine months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the entire year ending June 30, 1999. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information incorporated by reference herein.
NINE MONTHS ENDED FISCAL YEAR ENDED JUNE 30, MARCH 31, -------------------------- --------- OPERATING DATA: 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- (In thousands, except per share data) Total revenues.................... $ 17,323 $ 44,580 $ 21,209 $ 16,144 $ 7,169 Net loss applicable to common shares $(23,172) $(19,016) $(33,003) $(23,975) $(43,420) Net loss per common share Basic and diluted $ (0.91) $ (0.63) $ (1.04) $ (0.76) $ (1.35)
JUNE 30, MARCH 31, ------------------ --------- SELECTED BALANCE SHEET DATA: 1997 1998 1999 ---- ---- ---- (In thousands) Working capital........................................... $ 62,995 $ 48,730 $ 2,536 Total assets.............................................. 112,013 93,677 59,235 Long-term debt and other.................................. 2,871 8,921 24 Stockholders' equity...................................... 91,331 76,090 38,715
4 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 March 31, 1999, we had an accumulated deficit of $307.7 million. For the years ended June 30, 1996, 1997 and 1998, we incurred net losses of $23.2 million, $19.0 million and $33.0 million, respectively. Our net loss for the nine months ended March 31, 1999 was $43.4 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 expected revenues from our Schering License Agreement for IMAGENT and investments, together with the proceeds from this offering (assuming we sell at least $18,000,000 of common stock), will satisfy our capital requirements through December 1999. However, we will need additional financing to finance our business through at least the year 2000 and possibly longer. Our future capital requirements will depend on many factors, including: - results of our late-stage clinical trials - progress with pre-clinical testing - continued scientific progress in our research and development programs - the time and cost involved in obtaining regulatory approvals - changes in existing collaborative relationships - patent costs - competing technological and market developments - the cost of manufacturing scale-up Accordingly, we cannot estimate the amount that we will require, but we know that it will be substantial. 5 WE ARE CURRENTLY IN VIOLATION OF OUR BANK LOAN TERMS We have an outstanding bank loan in the amount of $13.9 million. That loan is secured by certain assets, including equipment and machinery. The loan requires us to have at all times cash, cash equivalents and receivables of at least $25 million. Our cash, cash equivalents and receivables are below $25 million. Under our agreement, the bank may demand that we pay all of our loan in full or it may take possession of the assets that secure the loan. If we are forced to pay off our loan with existing cash, we may have to reduce, delay or terminate some of our development efforts and would be forced to sell assets, including technology, to raise capital. The bank has indicated that if we raise $18 million, it will reduce the cash covenant to $10 million ($5 million of which will be held by the bank as collateral), take a lien on some of our patents and otherwise restructure the loan payments to increase principal payments. The bank is receiving a warrant to purchase 180,000 shares of our common stock at an exercise price of $2.88 per share. 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, LIQUIVENT and PULMOSPHERES 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 not be terminated until September 1999; however, thereafter, it may be terminated on one month's advance notice. 6 WE ARE IN ARBITRATION WITH A FORMER PARTNER AND AN ADVERSE JUDGMENT COULD COST MORE THAN $16.8 MILLION In December 1997, our former partner for LIQUIVENT, Hoechst Marion Roussel, Inc. (which we refer to as "HMR"), terminated its license agreement with us. We regained all rights to and responsibilities for the product. In May 1998, HMR asked us to pay it up to $7.5 million, payable in cash or stock. On September 25, 1998, we received a demand for arbitration from HMR, claiming up to $16.8 million, plus interest and punitive damages, in connection with the termination of the HMR license agreement. We have filed a counterclaim against HMR. We do not believe its claim is valid. We intend to contest HMR's claim and believe that the ultimate resolution will not have a material adverse effect on our business. However, if we do not prevail on the claim, an adverse judgment would take away substantial financial resources from our development programs, adversely impacting our ability to finance our continuing operations. 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. As of the date of this prospectus, we have not agreed with the FDA on the design for the U.S. Phase 3 clinical trial for OXYGENT. 7 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 8 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. 9 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 2,947,837 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 May 10, 1999, 5,871,433 shares of our common stock (or 15% of the total number of shares outstanding on a fully diluted basis) were issuable upon the exercise of outstanding options and warrants. Additional shares may be issued upon the conversion of preferred stock. We also intend to issue new convertible notes and warrants concurrently with the closing of this offering and will use the proceeds to repurchase the Series E-1 Preferred Stock. The bank is receiving a warrant to purchase 180,000 shares of our common stock at an exercise price of $2.88 per share. 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. IF REMAINING SHARES OF OUR SERIES E-1 PREFERRED STOCK ARE CONVERTED OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ STOCK MARKET In August 1998, we raised net proceeds of $5.6 million through the issuance of Series E-1 Preferred Stock that is convertible into shares of our common stock based on future trading prices of our common stock. We expect that all or substantially all of the shares of Series E-1 Convertible Preferred Stock will be converted at $2.46 per share or will be repurchased by us concurrently with or prior to the completion of this offer. However, if shares of Series E-1 Preferred Stock remain outstanding and the holders convert those shares when the trading price of our common stock is low, the resulting issuance of a large number of shares of our common stock could cause our shares to be 10 delisted from the Nasdaq Stock Market. IF OUR COMPUTER SYSTEMS OR THE COMPUTER SYSTEMS OF ANY OF OUR SUPPLIERS OR COLLABORATIVE PARTNERS ARE NOT YEAR 2000 COMPLIANT OUR OPERATIONS COULD BE INTERRUPTED Many currently installed operating systems and software products are coded only to accept two digit entries in the date code field. Consequently, they are unable to distinguish 21st century dates from 20th century dates. As a result, the computer systems and software used by many companies may need to be upgraded to prevent problems that would result from misreading the entries in the date code field. Failure to correct systems to become "Year 2000 compliant" may result in systems failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process data, send invoices or engage in similar normal business activities. We are currently reviewing the potential impact of Year 2000 issues on our business and attempting to mitigate or eliminate those issues. The primary risks to us are those of business continuity. We are determining which equipment we own needs to be replaced. We have also begun communicating with our significant suppliers, financial institutions, insurance companies and other parties that provide us significant services, including clinical trial sites, to determine whether they anticipate Year 2000 problems in their operations. If we or our significant vendors or suppliers are unable to become Year 2000 compliant in time, this could delay our product development efforts and have a material adverse effect on our ability to continue our operations. 11 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: - our ability to raise additional capital when needed - obtaining, or our ability to obtain, approval by the FDA and other regulatory authorities for certain products - our ability or capacity to manufacture, market and distribute our products - uncertainty of market acceptance of our products - our ability to obtain patents for our products and technologies - relationships with and abilities of important suppliers and business partners - 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. 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: 1. Annual Report on Form 10-K/A for the fiscal year ended June 30, 1998; 2. Quarterly Report on Form 10-Q for the quarters ended September 30, 1998, December 31, 1998 and March 31, 1999; and 3. Registration Statement on Form 8-A, dated October 25, 1984. 12 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, Secretary and General Counsel, Alliance Pharmaceutical Corp., 3040 Science Park Road, San Diego, California 92121, telephone (619) 558-4300. 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 in this prospectus. This prospectus does not contain all the information set forth in the Registration Statement and exhibits thereto, certain portions of which 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 prescribed rates. 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 stockholders 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. 13 USE OF PROCEEDS We plan to use the majority of the net proceeds from this offering to fund late-stage clinical trials of OXYGENT and LIQUIVENT and to prepare a New Drug Application filing package for IMAGENT. The balance of the net proceeds will be used for working capital and other general corporate purposes and limited research and development for PULMOSPHERES. The amounts actually expended for each purpose and the timing of such expenditures may vary significantly depending upon various factors including, but not limited to, the results and timing of our clinical development, the launch of new products, governmental or regulatory changes, the role of corporate partners and technological advances and competition by others. In addition, there can be no assurance that any product developed or introduced by us will be commercialized or that funds will be sufficient to develop successful products. We expect to use all of the net proceeds from this offering for the purposes described above, and we will require substantial additional funds in the future in order to continue our development programs and to manufacture and market any future products. We anticipate that existing cash balances and interest income thereon, together with the net proceeds of this offering will be adequate to satisfy our capital requirements through December 1999 (assuming we raise at least $18,000,000). Pending such uses, we intend to invest the net proceeds of this offering in short-term, investment grade securities. We also expect to privately place up to $2.2 million principal amount of 6% convertible subordinated notes due 2002 and warrants to purchase up to 366,667 shares of common stock for an aggregate purchase price of approximately $2.2 million. The conversion price of the notes will be the lower of $2 per share and the public offering price; the exercise price of the warrants will be the lower of $2.50 per share and 125% of the public offering price. We will use the proceeds from this private placement to fund the repurchase of up to 20,707 of the outstanding shares of the Series E-1 Preferred Stock. All or substantially all of the remaining shares of Series E-1 Preferred Stock will be immediately converted at a conversion price of $2.46 per share. We expect the repurchase and conversion of the Series E-1 Preferred Stock to occur in the near future. 14 DILUTION As of March 31, 1999, the net tangible book value applicable to common shareholders of Alliance was approximately $13.8 million, or $.42 per share. "Net tangible book value per share" represents the amount of total tangible assets of the Company reduced by the total liabilities and total liquidation preferences of preferred stock, and divided by the number of shares of common stock outstanding. After giving effect to the sale of all the 12,000,000 shares of common stock offered in this offering at an assumed public offering price of $3.13 per share, the pro forma net tangible book value of the common stock as of March 31, 1999 (after deducting the estimated placement fees and estimated expenses of this offering) would have been approximately $48.4 million, or $1.07 per share. This represents an immediate increase in net tangible book value of $.65 per share to existing shareholders and an immediate dilution of $2.06 per share to new investors purchasing shares of common stock in this offering. "Dilution per share" represents the difference between the price per share of common stock paid by the new investors in this offering and the net tangible book value per share at March 31, 1999 as adjusted to give effect to the sale of 12,000,000 shares in this offering. The following table illustrates the dilution per share taking into account estimated expenses of this offering(1): Public offering price per share $3.13 - --------------------------------------------------------------------------------------- Net tangible book value per share as of December 31, 1998 $0.42 - --------------------------------------------------------------------------------------- Increase to present shareholders attributable to this offering $0.65 - --------------------------------------------------------------------------------------- Pro forma net tangible book value per share after this offering $1.07 - --------------------------------------------------------------------------------------- Dilution to investors in this offering (2) $2.06 - ---------------------------------------------------------------------------------------
(1) For purposes of calculating expenses we estimated the placement agent's fee at an average of 7.5% of the proceeds received. (2) If 52,163 shares of Series E-1 Preferred Stock are converted into common stock prior to this offering, the net tangible book value per share of common stock would be $1.11 and the related dilution per share of common stock to new investors would be $2.02. To the extent fewer than 12,000,000 shares are sold in this offering, the dilution to new investors would be increased. 15 PLAN OF DISTRIBUTION We cannot be certain that we will be able to sell all of the shares offered, and it is possible that we will close this offering for less than the 12,000,000 shares being offered. All investor funds will be deposited into an escrow account established on the investors' behalf pending effectiveness of the registration statement and issuance of the shares. No investor funds may be accepted by us until the registration statement is declared effective. We will deposit the shares with the Depository Trust Company upon receiving a notice from the escrow agent. The shares will then be credited to the respective accounts of the investors. The offering is being made on a minimum-maximum basis and no shares of common stock will be sold if at least 6,000,000 shares are not sold prior to June 30, 1999. All investors funds received prior to the closing of the offering will be deposited into escrow with an escrow agent until the closing. If, for any reason, the offering is terminated, then all funds that were deposited into escrow will be returned to investors. Cruttenden Roth Incorporated has agreed to act as placement agent in connection with the offering and will use its best efforts to place the shares. Cruttenden Roth has no obligation to buy any shares in the offering. We have agreed to pay Cruttenden Roth a fee of 2% of the proceeds we receive from existing shareholders who purchase shares in this offering and 8% of the proceeds we receive from new investors in this offering. In addition, we will issue to Cruttenden Roth at the closing of the offering, warrants to purchase common stock in an amount up to 10% of the shares of common stock sold in this offering to investors solicited by Cruttenden Roth. The warrants will be exercisable for a period of five years from the closing of the offering with an exercise price equal to 120% of the public offering price per share. We also agreed to reimburse Cruttenden Roth for its expenses that it incurs in connection with the offering and to indemnify Cruttenden Roth against certain liabilities under the Securities Act. The Chairman and Chief Executive Officer of Cruttenden Roth is the brother of both the President and the Chief Executive Officer of Alliance. LEGAL MATTERS The legality of the issuance of the shares of common stock offered hereby will be passed upon for Alliance by Stroock & Stroock & Lavan LLP. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements included in our annual report on Form 10K/A for the year ended June 30, 1998, 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. 16 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.................................................................... $9,552 Blue Sky Fees and Expenses.............................................................. 5,000 Legal Fees and Expenses................................................................. 30,000 Accounting Fees and Expenses............................................................ 15,000 Miscellaneous........................................................................... 40,448 Total................................................................................. $100,000 ========
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. (a) List of Exhibits 1.1 Form of Placement Agency Agreement 1.2 Form of Escrow Agreement 5. Opinion of Stroock & Stroock & Lavan, counsel for Registrant. 23.(a) Consent of Stroock & Stroock & Lavan (included in Exhibit 5 hereof). (b) Consent of Ernst & Young LLP, Independent Auditors. 24. Power of Attorney.* - ---------
* Previously filed 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. 17 (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. 18 (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. 19 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 Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on May 17, 1999. ALLIANCE PHARMACEUTICAL CORP. (Registrant) Date: May 17, 1999 By: /s/ Theodore D. Roth ------------------------------------ Theodore D. Roth President and Chief Operating Officer 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.
* Chairman and Chief Executive Officer May 17, 1999 - -------------------------------- Duane J. Roth * Director, President and Chief Operating May 17, 1999 - -------------------------------- Officer Theodore D. Roth * Chief Financial Officer, Treasurer and May 17, 1999 - -------------------------------- Chief Accounting Officer Tim T. Hart * Director May 17, 1999 - -------------------------------- Pedro Cuatrecasas, M.D. * Director May 17, 1999 - -------------------------------- Carroll O. Johnson * Director May 17, 1999 - -------------------------------- Stephen M. McGrath * Director May 17, 1999 - --------------------------------- Helen M. Ranney, M.D. * Director May 17, 1999 - --------------------------------- Thomas F. Zuck, M.D. * Director May 17, 1999 - --------------------------------- Donald E. O'Neill * Director May 17, 1999 - --------------------------------- Jean G. Riess, Ph.D. *by: /S/ THEODORE D. ROTH ----------------------------- Theodore D. Roth Attorney-in-Fact
20 EX-1.1 2 PLACEMENT AGMT. EXHIBIT 1.1 12,000,000 SHARES ALLIANCE PHARMACEUTICAL CORP. COMMON STOCK PLACEMENT AGENCY AGREEMENT ___________, 1999 Cruttenden Roth Incorporated 4350 La Jolla Village Drive, Suite 220 San Diego, CA 92122 Ladies and Gentlemen: Alliance Pharmaceutical Corp., a New York corporation (the "Company"), proposes to issue and sell (the "Offering") up to an aggregate of 12,000,000 shares (the "Shares") of common stock, par value $0.01 per share (the "Common Stock"), to selected investors (collectively, "Investors"). The Company desires to engage you as its placement agent (the "Placement Agent") in connection with the Offering. The Company hereby confirms its agreements with the Placement Agent as follows: 1. AGREEMENT TO ACT AS PLACEMENT AGENT. On the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions of this Agreement, the Placement Agent agrees to act as the Company's exclusive placement agent, on a best efforts basis, in connection with the issuance and sale by the Company of the Shares to Investors. The Company shall pay to the Placement Agent 2% of the proceeds received by the Company from the sale of Shares in the Offering to Investors who are existing stockholders of the Company and 8% of the proceeds received by the Company from the sale of the Shares in the Offering to other Investors, and the Company will issue to the Placement Agent a warrant to purchase up to 10% of the number of shares sold in the Offering with an exercise price equal to 120% of the purchase price of the Shares sold in the Offering. The Company will also reimburse the Placement Agent for certain out-of-pocket expenses up to a maximum of $_______ in accordance with Section 5 of this Agreement. 2. DELIVERY AND PAYMENT. On or prior to the Effective Date (as defined below), the Company, the Placement Agent and City National Bank, as escrow agent (the "Escrow Agent"), shall enter into an escrow agreement in customary form mutually acceptable to the Company, the Placement Agent and the Escrow Agent (the "Escrow Agreement"), pursuant to which an escrow account will be established, at the Company's expense, for the benefit of Investors (the "Escrow Account"). The Escrow Agreement will provide that, prior to the Closing Date, (i) each Investor will deposit in the Escrow Account an amount equal to the price per Share multiplied by the number of Shares purchased by it, and (ii) the Escrow Agent will notify the Company and the 1. Placement Agent in writing whether such Investors have deposited in the Escrow Account funds in an amount which shall equal the proceeds of the sale of not fewer than 6,000,000 of the Shares offered in the Offering (the "Requisite Funds"). At 9:00 a.m., San Diego, California time, on June 30, 1999, or such other date (which shall not be later than September 1, 1999) as may be agreed upon by the Company and the Placement Agent (such date is hereinafter referred to as the "Closing Date"), the Escrow Agent will release the Requisite Funds from the Escrow Account for collection by the Company and the Placement Agent as provided in the Escrow Agreement and the Company shall deliver the Shares to Investors, which delivery may be made through the facilities of the Depository Trust Company. The closing of the Offering (the "Closing") shall take place at the offices of the Company or such other location as the Placement Agent and the Company shall agree. All actions taken at the Closing shall be deemed to have occurred simultaneously. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Placement Agent as follows: (a) REGISTRATION STATEMENT. A registration statement on Form S-3 (File No. 333-76343) under the Securities Act of 1933 as amended (the "Securities Act"), with respect to the Shares, including a form of prospectus subject to completion, has been prepared by the Company in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (the "Rules and Regulations"). Such registration statement has been filed with the Commission under the Securities Act, and one or more amendments to such registration statement (including any post-effective amendment thereto and any registration statement filed under Rule 462(b) of the Commission relating thereto) may also have been so filed. After the execution of this Agreement, the Company shall file with the Commission either (i) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the Securities Act, a prospectus in the form most recently included in an amendment to such registration statement filed with the Commission (or, if no such amendment shall have been filed, in such registration statement), with such insertions and changes as are required by Rule 430A under the Securities Act or permitted by Rule 424(b) under the Securities Act as shall have been provided to and approved by the Placement Agent prior to the filing thereof, or (ii) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the Securities Act, an amendment to such registration statement, including a form of prospectus, a copy of which amendment has been furnished to and approved by the Placement Agent prior to the filing thereof. As used in this Agreement, the term "Registration Statement" shall mean such registration statement, including all exhibits and financial statements, all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, in the form in which it became effective, and any registration statement filed pursuant to Rule 462(b) of the rules and regulations of the Commission with respect to the Stock (herein called a Rule 462(b) registration statement), and, in the event of any amendment thereto after the effective date of such registration statement (the "Effective Date"), shall also mean (from and after the effectiveness of such amendment) such registration statement as so amended (including any Rule 462(b) registration statement). The term Prospectus as used in this Agreement shall mean the prospectus relating to the Shares first filed with the Commission pursuant to Rule 424(b) and 2. Rule 430A (or if no such filing is required, as included in the Registration Statement) and, in the event of any supplement or amendment to such prospectus after the Effective Date, shall also mean (from and after the filing with the Commission of such supplement or the effectiveness of such amendment) such prospectus as so supplemented or amended. The term Preliminary Prospectus as used in this Agreement shall mean each preliminary prospectus included in such registration statement prior to the time it becomes effective. Any reference to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date of the Registration Statement or the Prospectus, as the case may be, and any reference to any amendment or supplement to the Registration Statement or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used in this Agreement, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the Registration Statement, the Prospectus or any amendment or supplement thereto. (b) COMPLIANCE. Neither the Commission nor any state securities commission has issued any order preventing or suspending the use of any Preliminary Prospectus or has instituted or threatened to institute any proceedings with respect to such an order. When any Preliminary Prospectus was filed with the Commission it (i) contained all statements required to be stated therein in accordance with, and complied in all material respects with the requirements of, the Securities Act and the Rules and Regulations and (ii) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When the Registration Statement or any amendment thereto was or is declared effective, it (A) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Securities Act and the Rules and Regulations and (B) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. When the Prospectus and when any amendment or supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not required to be so filed, when the Registration Statement and when any amendment thereto containing such amendment or supplement to the Prospectus was or is declared effective) and at all times subsequent thereto up to and including the Closing Date (as defined in Section 2 hereof), the Prospectus, as amended or supplemented at any such time, (I) contained or will contain all statements required to be stated therein in accordance with, and complied or will comply in all material respects with the requirements of, the Securities Act and the Rules and Regulations and (II) did not or will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing provisions of this paragraph (b) shall not apply to statements or omissions made in any Preliminary Prospectus which have been corrected in a subsequent Preliminary Prospectus or the Prospectus or to statements or omissions made in any Preliminary Prospectus, the Registration Statement or any amendment thereto or the Prospectus or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished in writing to the Company by the Placement Agent expressly for use therein. The Company has filed in a timely manner all documents that the Company was required to file with the Commission under Sections 13, 14(a) 3. and 15(d) of the Exchange Act during the twelve (12) months preceding the filing date of the Registration Statement and prior to the Closing Date. As of their respective filing dates (or, if amended, when amended), the Incorporated Documents filed by the Company with the Commission complied with the requirements of the Exchange Act. The Company currently and at the date of filing of the Registration Statement satisfied the requirements for the use of Form S-3 under the Securities Act. (c) ORGANIZATION AND STANDING. The Company and each of its subsidiaries is duly incorporated and validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own, lease and operate its properties and conduct its current business as described in the Registration Statement; the Company and each of its subsidiaries is duly qualified to do business as a foreign corporation and in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing is not reasonably likely to have a material adverse effect on the condition (financial or otherwise), operations, business or business prospects of the Company and its subsidiaries taken as a whole (hereinafter, a "Material Adverse Effect"); no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification; except as described in the Registration Statement, the Company and each of its subsidiaries is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from federal, state and other regulatory authorities, all of which are valid and in full force and effect, except where the failure to possess or be in compliance with any of the foregoing or where the failure of any of the foregoing to be valid or in full force and effect, is not reasonably likely to have a Material Adverse Effect. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries described in the Registration Statement. (d) CORPORATE POWER; AUTHORIZATION. The Company has full legal right, power and authority to enter into this Agreement and to perform the transactions to be performed by it, or contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company (assuming due authorization, execution and delivery by each of the other parties hereto and thereto) and is a valid and binding agreement on the part of the Company, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. The making, execution and performance of this Agreement by the Company and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company is a party or by which its properties may be bound, (ii) the Certificate of Incorporation or bylaws of the Company or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, administrative agency, regulatory body, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or its properties, except in the case of (i) and (iii) for any conflict, breach, violation or default which is not reasonably likely to have a Material Adverse Effect. 4. (e) FINANCIAL STATEMENTS. The consolidated financial statements of the Company and its subsidiaries included in the Registration Statement (the "Financial Statements") comply in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto. The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") and fairly present the financial position of the Company and its subsidiaries at the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring adjustments and the absence of complete footnotes). Except as and to the extent reflected in the Financial Statements, neither the Company nor any of its subsidiaries had, as of the date of the Financial Statements, any liabilities or obligations (other than obligations of continued performance under contracts and other commitments and arrangements entered into in the ordinary course of business) which GAAP would require the Company to reflect in the Financial Statements. Except as otherwise disclosed in the Registration Statement, there have not been any changes in the assets, liabilities, financial condition or operations of the Company or its subsidiaries from that reflected in the Financial Statements, except in the ordinary course of business (which in the aggregate are not material) and except for continuing operating losses that have not exceeded $_______________ from the most recent date of such financial statements to the date hereof, and changes in the ordinary course of business that have not had a Material Adverse Effect. (f) INTERNAL CONTROLS. The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (g) PROPERTIES. Except as set forth in the Registration Statement, (i) the Company or one of its subsidiaries has good title to all properties and assets described in the Registration Statement as owned by any of them, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, other than as would not have a Material Adverse Effect, (ii) the agreements to which the Company or any of its subsidiaries is a party described in the Registration Statement are valid agreements, enforceable by the Company or its subsidiary, as the case may be, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles and, to the Company's knowledge, the other contracting party or parties thereto are not in material breach or material default under any of such agreements, and (iii) the Company or one of its subsidiaries has valid and enforceable leases for all properties described in the Registration Statement as leased by it, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. Except as set forth in the Registration Statement, the Company and its subsidiaries own or lease all such properties as are necessary to the Company's operations as now conducted. 5. (h) CAPITALIZATION. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all applicable federal and state securities laws, and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities. The Shares have been duly authorized for issuance and sale to the Investors pursuant to the Registration Statement and this Agreement, and, when issued and delivered by the Company against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable, and will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. No preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Shares or the issuance and sale thereof other than those that have been satisfied or expressly waived prior to the date hereof and those that will automatically expire upon and will not apply to the consummation of the transactions contemplated on or before the Closing. No further approval or authorization of any shareholder or the Board of Directors of the Company is required for the issuance and sale or transfer of the Shares. Except as disclosed in the Registration Statement and the Financial Statements, and the related notes thereto included in the Registration Statement, and subject to the applicable anti-dilution provisions of securities described in the Registration Statement, the Company has no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. (i) LITIGATION. Except as described in the Registration Statement, there is not pending or, to the Company's knowledge, threatened, any action, suit, claim or proceeding against the Company, any of its subsidiaries, or any of their respective officers, properties, assets or rights before any court, administrative agency, regulatory body, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company, any of its subsidiaries, or any of their respective officers, properties, which (i) is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect or might materially and adversely affect the Company's properties, assets or rights, (ii) is reasonably likely to prevent consummation of the transactions contemplated hereby or (iii) is required to be disclosed in the Registration Statement (as of the date hereof) and is not so disclosed in the Registration Statement. There are no agreements, contracts, leases or documents of the Company or any of its subsidiaries of a character required to be described or referred to in the Registration Statement (or in any Incorporated Document, or that must be filed as an exhibit to the Registration Statement by the Securities Act or the Rules and Regulations thereunder), as of the date hereof, which have not been accurately described in all material respects in the Registration Statement or filed as an exhibit to the Registration Statement or an Incorporated Document. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any injunction, judgment, decree or order of any court, regulatory body, administrative agency, government or governmental agency or body domestic or foreign, that could reasonably be expected to have a Material Adverse Effect. The Company and each of its subsidiaries has conducted and is conducting its business in compliance with all applicable federal, state, local and foreign statutes, laws, rules, regulations, ordinances, codes, decisions, decrees, directives and orders, except where the failure to do so would not reasonably be likely, singly or in the aggregate, to have a Material Adverse Effect. 6. (j) LISTED SHARES. The Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and is approved for quotation on the Nasdaq National Market (the "NMS"). The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NMS, nor has the Company received any notification that the Commission or Nasdaq is contemplating terminating such registration or listing. (k) INTELLECTUAL PROPERTY. (i) To the best of the Company's knowledge and except as disclosed in the Registration Statement, (i) the Company and each of its subsidiaries has good title to and ownership of or licensed rights to, free and clear of all liens, claims and encumbrances of any nature, all patents, patent rights, patent applications, know-how, information, proprietary rights and processes (collectively, the "Intellectual Property") to conduct the business of the Company as described in the Registration Statement, and (ii) the conduct by the Company and its subsidiaries of their businesses in connection with the Intellectual Property neither conflicts with or constitutes, or is expected to conflict with or constitute, an infringement of the rights of others. (ii) To the best of the Company's knowledge, the Company has sufficient title to and ownership of, or license rights to, or has applied for, all patents, trademarks, service marks, trade names, copyrights and information, proprietary rights and processes necessary to the proper conduct of its business as described in the Registration Statement. (iii) The Company has not received any communications alleging that, and has no knowledge that the Company has violated or, by conducting its business, would infringe or violate any of the patents, trademarks, service marks, trade names, copyrights, proprietary rights or processes of any other person or entity. (l) NO CHANGE. Subsequent to the respective dates as of which information is given in the Registration Statement (except as disclosed therein), there has not been (i) any transaction that is material to the Company, (ii) any obligation, direct or contingent, incurred by the Company or any of its subsidiaries, except obligations incurred in the ordinary course of business, (iii) any change in the capital stock or outstanding indebtedness of the Company or any of its subsidiaries, except outstanding trade credit and obligations incurred in the ordinary course consistent with past practices, (iv) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its subsidiaries, (v) any default in the payment of principal of or interest on any outstanding debt obligations, or (vi) any loss or damage (whether or not insured) to the property of the Company or any of its subsidiaries which has been sustained or will have been sustained which has a Material Adverse Effect. (m) NO DEFAULTS. Neither the Company nor any of its subsidiaries is (a) in violation of its Certificate of Incorporation or bylaws or (b), except as disclosed in the Registration Statement, in default (upon notice or lapse of time or both) in the performance or observance of any obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness, or in any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which it is a 7. party or by which its properties may be bound, or (c) in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company, any of its subsidiaries or their properties except in the case of (b) or (c) for any default or violation not reasonably likely to have a Material Adverse Effect. (n) GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement ("Consents") except for (a) such Consents which are not material, (b) compliance with the securities and Blue Sky laws in the states and other jurisdictions in which Shares are offered and/or sold, which compliance will be effected in accordance with such laws, (c) Consents required by the NMS and the SEC, and (d) the effectiveness of the Registration Statement. The Company has not been advised, and has no reason to believe, that either it or any of its subsidiaries is not conducting business in compliance in all material respects with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including but not limited to, all applicable federal, state, provincial and local environmental laws and regulations, except for any failure to comply which is not reasonably likely to have a Material Adverse Effect. (o) LABOR; EMPLOYEES. (i) No labor disturbance by the employees of the Company or any of its subsidiaries exists or, to the Company's knowledge, is imminent. The Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any of its subsidiaries' principal suppliers, subcontractors, authorized dealers or international distributors that is reasonably likely to result in a Material Adverse Effect. No collective bargaining agreement exists with any of the Company's or any of its subsidiaries' employees and, to the Company's knowledge, no such agreement is imminent. (ii) If any employee of the Company or any of its subsidiaries has entered into any non-competition, non-disclosure, confidentiality or other similar agreement with any party other than the Company or its subsidiaries, to the Company's knowledge, such employee is neither in violation thereof nor is expected to be in violation thereof as a result of the business conducted or expected to be conducted by the Company or any of its subsidiaries as described in the Registration Statement or such person's performance of his obligations to the Company or any of its subsidiaries. To the Company's knowledge, no consultant or scientific advisor of the Company or any of its subsidiaries is in violation of any non-competition, non-disclosure, confidentiality or similar agreement between such consultant or scientific advisor and any party other than the Company or any of its subsidiaries. Every consultant and scientific advisor (collectively, "Consultants") engaged by or on behalf of the Company or any of its subsidiaries to render services for the Company or any of its subsidiaries has entered into an agreement with the Company or its subsidiaries providing for terms and conditions of non-disclosure and confidentiality in connection with such services ("Consulting Agreements"). Assuming due authorization, execution and delivery of the Consulting Agreements, the Consulting Agreements are legal, valid, binding and enforceable instruments of the Consultants. 8. (p) TAXES. The Company and each of its subsidiaries have timely filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown thereon as due, and there is no tax deficiency that has been or, to the Company's knowledge, that might be asserted against the Company that is reasonably likely to have a Material Adverse Effect. All tax liabilities are adequately provided for on the books of the Company. (q) INSURANCE. The Company and its subsidiaries maintain insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed prudent for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism, products liability, errors and omissions, and all other risks customarily insured against, all of which insurance is in full force and effect. The Company has not been refused any insurance coverage sought or applied for; and the Company does not have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. (r) INVESTMENT COMPANY ACT. The Company has been advised concerning the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and is not, and intends in the future to conduct its and its subsidiaries' affairs in such a manner as to ensure that it is not and will not become, an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act and such rules and regulations. (s) NO ILLEGAL CONTRIBUTIONS. Neither the Company nor any of its subsidiaries has at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (t) NO MANIPULATION. Neither the Company nor any of its subsidiaries has taken, and neither the Company nor any of its subsidiaries will take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (u) TRANSACTIONS WITH AFFILIATES. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company or any of its subsidiaries to or for the benefit of any of the officers or directors of the Company or any of its subsidiaries or any shareholder who owns beneficially more than five percent (5%) of the Common Shares of the Company or any of the members of the families of any of them, except as disclosed in the Registration Statement. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries on the one hand and the directors, officers, shareholders, customers or suppliers of the Company or any of its subsidiaries on the other hand, that is required by the Securities Act or the Exchange 9. Act or the Rules and Regulations promulgated thereunder to be described in the Registration Statement or any Incorporated Documents that is not described in the Registration Statement. (v) REGULATORY MATTERS. (i) The Company is not aware of any rule making or similar proceedings before the United States Food and Drug Administration ("FDA") or comparable federal, state, local or foreign government bodies which involve or affect the Company or any of its subsidiaries which, if the subject of an action unfavorable to the Company or any of its subsidiaries, would have a Material Adverse Effect. (ii) The descriptions of the results of tests or evaluations contained in the Registration Statement are accurate and complete in all material respects, and the Company has no knowledge of any other tests or evaluations, the results of which reasonably call into question the results described or referred to in the Registration Statement. Neither the Company nor any of its subsidiaries has received any notices or correspondence from the FDA or any other governmental agency requiring the termination, suspension or modification of any tests or evaluations conducted on behalf of the Company or any of its subsidiaries that are described in the Registration Statement or the results of which are referred to in the Registration Statement. (w) ENVIRONMENTAL MATTERS. (i) The Company and each of its subsidiaries is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business, except where the failure to comply would not reasonably be likely to have a Material Adverse Effect, (ii) neither the Company nor any of its subsidiaries has received any written notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim would be required to be disclosed in the Registration Statement, (iii) to the Company's knowledge, neither the Company nor any of its subsidiaries will be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is, or has been, owned, leased or occupied by the Company or any of its subsidiaries has, to the Company's knowledge, been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended, or otherwise designated as a contaminated site under applicable state or local law. 4. COVENANTS OF THE COMPANY. The company covenants and agrees as follows: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto to become effective as promptly as practicable. If required, the Company will file the Prospectus and any amendment or supplement thereto with the Commission in the manner and within the time period required by Rule 424(b) under the Securities Act. During any time when a prospectus relating to the Shares is required to be delivered under the Securities Act, the Company (i) will comply with all requirements imposed upon it by the Securities Act and the Rules and Regulations to the extent necessary to permit the continuance of sales of or dealings in the Shares in accordance with the provisions hereof and of the Prospectus, as then amended or supplemented, and (ii) will not file with the Commission the prospectus or the amendment referred to in the third sentence of Section 3(a) hereof, any amendment or supplement to such 10. prospectus or any amendment to the Registration Statement of which the Placement Agent shall not previously have been advised and furnished with a copy a reasonable period of time prior to the proposed filing and as to which filing the Placement Agent shall not have given their consent. (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Placement Agent (i) when the Registration Statement, as amended, has become effective; if the provisions of Rule 430A promulgated under the Securities Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (ii) of any request made by the Commission for amending the Registration Statement, for supplementing any Preliminary Prospectus or the Prospectus or for additional information, or (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto or the institution or threat of any investigation or proceeding for that purpose, and will use its best efforts to prevent the issuance of any such order and, if issued, to obtain the lifting thereof as soon as possible. (c) The Company will (i) use its best efforts to arrange for the qualification of the Shares for offer and sale under the state securities or blue sky laws of such jurisdictions as the Placement Agent may designate, (ii) continue such qualifications in effect for as long as may be necessary to complete the distribution of the Shares, and (iii) make such applications, file such documents and furnish such information as may be required for the purposes set forth in clauses (i) and (ii); provided, however, that the Company shall not be required to qualify as a foreign corporation or file a general or unlimited consent to service of process in any such jurisdiction. (d) The Company consents to the use of the Prospectus (and any amendment or supplement thereto) by the Placement Agent in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. If, at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act, any event occurs as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if it becomes necessary at any time to amend or supplement the Prospectus to comply with the Securities Act or the Rules and Regulations, the Company promptly will so notify the Placement Agent and, subject to Section 4(a) hereof, will prepare and file with the Commission an amendment to the Registration Statement or an amendment or supplement to the Prospectus which will correct such statement or omission or effect such compliance, each such amendment or supplement to be reasonably satisfactory to counsel to the Placement Agent. (e) The Company will maintain a Transfer Agent and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock. (f) The Company will furnish, without charge, to Placement Agent or on the Placement Agent's order, at such place as the Placement Agent may designate, copies of each 11. Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits) and the Prospectus, and all amendments and supplements thereto, in each case as soon as available and in such quantities as the Placement Agent may reasonably request. (g) Except as contemplated by the Prospectus, the Company will not, directly or indirectly, without the prior written consent of the Placement Agent, issue, offer, sell, grant any option to purchase or otherwise dispose (or announce any issuance, offer, sale, grant of any option to purchase or other disposition) of any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 90 days after the Closing Date, except for issuances pursuant to the exercise of stock options outstanding on or granted subsequent to the date hereof, pursuant to a stock option or other employee benefit plan in existence on the date hereof and except as contemplated by the Prospectus. (h) The Company will cause the Shares to be duly included for quotation on the NMS prior to the Closing Date. (i) Neither the Company nor any of its officers or directors, nor affiliates of any of them (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (j) The Company will apply the net proceeds of the offering received by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (k) The Company will timely file all such reports, forms or other documents as may be required from time to time, under the Securities Act, the Rules and Regulations, the Exchange Act and the rules and regulations thereunder, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Securities Act, the Rules and Regulations, the Exchange Act and the rules and regulations thereunder. 5. EXPENSES. Regardless of whether the transactions contemplated in this Agreement are consummated, and regardless of whether for any reason this Agreement is terminated, the Company will pay, and hereby agrees to indemnify the Placement Agent against, all fees and expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to, (i) fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, filing, delivery and shipping of copies of the Registration Statement and any pre-effective or post-effective amendments thereto, any Preliminary Prospectus and the Prospectus and any amendments or supplements thereto (including postage costs related to the delivery by the Placement Agent of any Preliminary Prospectus or Prospectus, or any amendment or supplement thereto), this Agreement, the Escrow Agreement and all other documents in connection with the transactions contemplated herein, including the cost of all copies thereof, (iii) fees and expenses relating to qualification of the Shares under state securities or blue sky laws, including the cost of preparing and mailing the preliminary and final blue sky memoranda 12. and filing fees and disbursements and fees of counsel and other related expenses, if any, in connection therewith, (iv) filing fees of the Commission and the NASD relating to the Shares and reasonable fees of counsel to the Placement Agent in connection with NASD filings, (v) any fees and expenses in connection with the listing for quotation of the Shares on the NMS, (vi) costs and expenses incident to the preparation, issuance and delivery to the escrow Agent of any certificates evidencing the shares, including transfer agent's and registrar's fees and any applicable transfer taxes incurred in connection with the delivery to the Escrow Agent of the Shares to be sold by the company pursuant to this Agreement and (vii) the fees of the Escrow Agent. In addition, the Company shall reimburse the Placement Agent, upon invoice on a monthly basis, for all actual, accountable travel, legal (including fees and expenses of counsel to the Placement Agent) and other out-of-pocket expenses incurred in connection with its engagement hereunder up to a maximum of $_______. 6. CONDITIONS OF THE PLACEMENT AGENT'S OBLIGATIONS. The obligations of the Placement Agent under this Agreement are subject to the accuracy in all material respects of the representations of the Company herein as of the date hereof and as of the Closing Date as if they had been made on and as of the Closing Date; the accuracy, in all material respects, on and as of the Closing Date of the statements of officers of the Company made pursuant to the provisions hereof; the performance by the Company on and as of the Closing Date of its covenants and agreements hereunder; and the following additional conditions: (a) If the Company has elected to rely on Rule 430A under the Securities Act, the Registration Statement shall have been declared effective, and the Prospectus (containing the information omitted pursuant to Rule 430A) shall have been filed with the Commission not later than the Commission's close of business on the second business day following the date hereof or such later time and date to which the Placement Agent shall have consented; if the Company does not elect to rely on Rule 430A, the Registration Statement shall have been declared effective not later than 11:00 A.M., California time, on the date hereof or such later time and date to which the Placement Agent shall have consented; if required, in the case of any changes in or amendments or supplements to the Prospectus in addition to those contemplated above, the Company shall have filed such Prospectus as amended or supplemented with the Commission in the manner and within the time period required by Rule 424(b) under the Securities Act; no stop order suspending the effectiveness of the Registration Statement or any amendment thereto shall have been issued, and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company or the Placement Agent, shall be contemplated by the Commission; and the Company shall have complied with any request of the Commission for additional information (to be included in the Registration Statement or the Prospectus or otherwise). (b) The Placement Agent shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Placement Agent's opinion, is material, or omits to state a fact which, in the Placement Agent's opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Placement Agent's opinion, is material, or omits to state a fact which, in the Placement Agent's opinion, is material and is required to be stated therein or is 13. necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On the Closing Date, the Placement Agent shall have received the opinion, dated the Closing Date, of (i) Stroock & Stroock & Lavan LLP, counsel to the Company ("Company Counsel"), and (ii) Knobbe, Martens, Olson & Bear, LLP, patent counsel to the Company ("Patent Counsel"), in forms acceptable to Placement Agent's counsel. (d) On or prior to the Closing Date, counsel to the Placement Agent shall have been furnished such documents, certificates and opinions as they may reasonably require in order to evidence the accuracy, completeness or satisfaction of any of the representations or warranties of the Company or conditions herein contained. (e) On the Closing Date, the Placement Agent shall have received from Ernst & Young LLP (the "Accountants") a letter dated as of the Closing Date in form and substance satisfactory to the Placement Agent. The letter shall not disclose any change, or any development involving a prospective change, in or affecting the business or properties of the Company which, in your reasonable judgment, makes it impracticable or inadvisable to proceed with the offering of the Shares as contemplated by the Prospectus. In addition, you shall have received from the Accountants a letter addressed to the Company and made available to you for your use stating that its review of the Company's system of internal accounting controls, to the extent it deemed necessary in establishing the scope of its latest examination of the Company's financial statements, did not disclose any weaknesses in internal controls that it considered to be material weaknesses. All such letters shall be in a form reasonably satisfactory to the Representatives and their counsel. (f) On the Closing Date, the Placement Agent shall have received a certificate, dated the Closing Date, of the principal executive officer and the principal financial or accounting officer of the Company to the effect that each of such persons has carefully examined the Registration Statement and the Prospectus and any amendments or supplements thereto and this Agreement, and that: (i) The representations and warranties of the Company in this Agreement are true and correct in all material respects, as if made on and as of the Closing Date, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to the Closing Date; (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best knowledge of each of such persons are contemplated or threatened under the Securities Act and any and all filings required by Rule 424 and Rule 430A have been timely made; (iii) The Registration Statement and Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and neither the Registration Statement nor any amendment thereto includes any 14. untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and neither the Prospectus (or any supplement thereto) or any Preliminary Prospectus includes or included any untrue statement of a material fact or omits or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus up to and including the Closing Date, neither the Company nor any of its subsidiaries has incurred, other than in the ordinary course of its business or as contemplated by the Prospectus, any material liabilities or obligations, direct or contingent; neither the Company nor any of its subsidiaries has purchased any of its outstanding capital stock or paid or declared any dividends or other distributions on its capital stock; neither the Company nor any of its subsidiaries has entered into any transactions not in the ordinary course of business, except as contemplated by the Prospectus; and there has not been any change in the capital stock or consolidated long-term debt or any increase in the consolidated short-term borrowings (other than any increase in short-term borrowings in the ordinary course of business) of the Company or any material adverse change to the business properties, assets, net worth, condition (financial or other), results of operations or prospects of the Company and its subsidiaries taken as a whole, except for continuing operating losses of not more than $________; neither the Company nor any of its subsidiaries has sustained any material loss or damage to its property or assets, whether or not insured; there is no litigation which is pending or threatened against the Company or any of its subsidiaries which is required under the Securities Act or the Rules and Regulations to be set forth in an amended or supplemented Prospectus which has not been set forth; and there has not occurred any event required to be set forth in an amended or supplemented Prospectus which has not been set forth therein. References to the Registration Statement and the Prospectus in this paragraph (g) are to such documents as amended and supplemented at the date of the certificate. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus up to and including the Closing Date there has not been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 6 or (ii) any change, or any development involving a prospective change, in the business or properties of the Company or its subsidiaries which change or decrease in the case of clause (i) or change or development in the case of clause (ii) makes it impractical or inadvisable in the Placement Agent's judgment to proceed with the public offering or the delivery of the Shares as contemplated by the Prospectus. (h) No order suspending the sale of the Shares in any jurisdiction designated by you pursuant to Section 4(c) hereof has been issued on or prior to the Closing Date and no proceedings for that purpose have been instituted or, to your knowledge or that of the Company, have been or are contemplated. (i) The Placement Agent shall have received from each person who is a director or officer of the Company an agreement to the effect that such person will not, directly or indirectly, without the prior written consent of the Placement Agent, offer, sell, grant any 15. option to purchase or otherwise dispose (or announce any offer, sale, grant of an option to purchase or other disposition) of any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 90 days after the Closing Date. (j) The Shares have been duly authorized for quotation on the NMS. (k) The Company shall have furnished the Placement Agent with such further opinions, letters, certificates or documents as the Placement Agent or counsel for the Placement Agent may reasonably request. All opinions, certificates, letters and documents to be furnished by the Company will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Placement Agent and to counsel for the Placement Agent. The Company shall furnish the Placement Agent with conformed copies of such opinions, certificates, letters and documents in such quantities as you reasonably request. The certificates delivered under this Section 6 shall constitute representations, warranties and agreements of the Company as to all matters set forth therein as fully and effectively as if such matters had been set forth in Section 2 of this Agreement. 7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless the Placement Agent and each person, if any, who controls such Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any and all losses, claims, damages or liabilities, joint or several (and actions in respect thereof), to which such Placement Agent or such controlling person may become subject, under the Securities Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or any amendment or supplement 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 necessary to make the statements, in light of the circumstances under which they were made, not misleading and will reimburse, as incurred, such Placement Agent or such controlling persons for any legal or other expenses incurred by such Placement Agent or such controlling persons in connection with investigating, defending or appearing as a third party witness in connection with any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with information furnished in writing to the Company by the Placement Agent expressly for use therein, and provided, further, that such indemnity with respect to any Preliminary Prospectus shall not inure to the benefit of the Placement Agent (or to the benefit of any person controlling such Placement Agent) to the extent that any such loss, claim, damage, liability or action (i) results from the fact that such Placement Agent failed to send or give a copy of the Prospectus (as amended or supplemented) to a purchaser of Shares that is asserting such loss, claim, damage or liability, at or prior to the confirmation of the sale of such Shares to such person in any case where such delivery is required by the Securities Act and (ii) arises out of or is based upon an untrue statement or omission of a material fact contained in such Preliminary 16. Prospectus that was corrected in the Prospectus (as amended and supplemented), unless such failure resulted from non-compliance by the Company with Section 4(h) hereof. The indemnity agreement in this paragraph (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) The Placement Agent agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities (and actions in respect thereof) to which the Company or any such director, officer, or controlling person may become subject, under the Securities Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished in writing by the Placement Agent to the Company expressly for use therein; and will reimburse, as incurred, all legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Company acknowledges that only the statements relating to the Placement Agent with respect to the public offering of the Shares set forth in the second paragraph of the cover page of the Prospectus and under the heading "Plan of Distribution" in the Prospectus have been furnished by the Placement Agent to the Company expressly for use therein and constitute the only information furnished in writing by or on behalf of the Placement Agent for inclusion in the Prospectus. The indemnity agreement contained in this subsection (b) shall be in addition to any liability which the Placement Agent may have at common law or otherwise. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify such indemnifying party or parties of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) of this Section 7 or to the extent that the indemnifying party was not adversely affected by such omission. In case any such action is brought against an indemnified party and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties against which a claim is to be made will be entitled to participate therein and, to the extent that it or they may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party has reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select one separate counsel for all of them to assume such legal defenses and otherwise to 17. participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses (other than the reasonable costs of investigation) subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party has employed such counsel in connection with the assumption of such different or additional legal defenses in accordance with the proviso to the immediately preceding sentence, (ii) the indemnifying party has not employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) If the indemnification provided for in this Section 7 is unavailable to hold harmless an indemnified party under paragraph (a) or (b) above in respect of any losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) (i) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand, from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. In any case where the Company is a contributing party and the Placement Agent is the indemnified party, the relative benefits received by the Company, on the one hand, and the Placement Agent, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares (before deducting expenses) bear to the total placement agent commissions and fees received by the Placement Agent hereunder, in each case as set forth in the table on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Placement Agent, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this paragraph (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph (d), no Placement Agent shall be required to contribute any amount in excess of the placement agent commissions applicable to the Shares paid to such Placement Agent hereunder. 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. For purposes of this paragraph (d), (i) each person, if any, who controls the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Placement Agent, and (ii) each director of the Company, each officer of the Company who has signed the Registration 18. Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company, subject in each case to this paragraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation (x) it or they may have hereunder or otherwise than under this paragraph (d) or (y) to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective representations, warranties, agreements, covenants, indemnities and statements of, and on behalf of, the Company and its officers and the Placement Agent, respectively, set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Placement Agent, and will survive delivery of and payment for the Shares. Any successors to the Placement Agent shall be entitled to the indemnity, contribution and reimbursement agreements contained in this Agreement. 9. TERMINATION. (a) This Agreement (except for the provisions of Sections 5 and 7 hereof) may be terminated by the Placement Agent by notice to the Company in the event that the Company has failed to comply in any respect with any of the provisions of this Agreement required on it to be performed at or prior to the Closing Date, or if any of the representations or warranties of the Company is not accurate in any material respect or if the covenants, agreements or conditions of, or applicable to the Company herein contained have not been complied with in any respect or satisfied within the time specified on the Closing Date or if prior to the Closing Date: (i) the Company or any of its subsidiaries shall have sustained a loss by strike, fire, flood, accident or other calamity of such a character as to interfere materially with the conduct of the business and operations of the Company and its subsidiaries takes as a whole regardless of whether or not such loss was insured; (ii) trading in the Common Stock shall have been suspended by the Commission or the Nasdaq National Market or trading in securities generally on the New York Stock Exchange or the Nasdaq National Market shall have been suspended or a material limitation on such trading shall have been imposed or minimum or maximum prices shall have been established on any such exchange or market system; (iii) a banking moratorium shall have been declared by New York or United States authorities; 19. (iv) there shall have been an outbreak or escalation of hostilities between the United States and any foreign power or an outbreak or escalation of any other insurrection or armed conflict involving the United States; or (v) there shall have been a material adverse change in (A) general economic, political or financial conditions or (B) the present or prospective business or condition (financial or other) of the Company and its subsidiaries taken as a whole that, in each case, in the Placement Agent's judgment, makes it impracticable or inadvisable to make or consummate the public offering, sale or delivery of the Shares on the terms and in the manner contemplated in the Prospectus and the Registration Statement. (b) This Agreement may be terminated by either party in the event that the Requisite Funds shall not have been deposited by Investors by the close of business thirty (30) days after the Effective Date. (c) Termination of this Agreement shall be without liability of any party to any other party other than as provided in Sections 5 and 7 hereof. 10. NOTICES. All communications hereunder shall be in writing and if sent to the Placement Agent shall be mailed or delivered or telegraphed and confirmed by letter or telecopied and confirmed by letter to Cruttenden Roth Incorporated at 4350 La Jolla Village Drive, Suite 220, San Diego, CA 92122, Attention: Managing Director or, if sent to the Company, shall be mailed or delivered or telegraphed and confirmed to the Company at 6175 Lusk Boulevard, San Diego, CA 92121, Attention: President. 11. SUCCESSORS. This agreement shall incur to the benefit of and be binding upon the Company and the Placement Agent and the Company's and the Placement Agent's respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person, except that the representations, warranties, indemnities and contribution agreements of the Company contained in this Agreement shall also be for the benefit of any person or persons, if any, who control the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and except that the Placement Agent's indemnity and contribution agreements shall also be for the benefit of the directors of the Company, the officers of the Company who have signed the Registration Statement and each person or persons, if any, who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. 12. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the choice of law or conflict of law principles thereof. Each party hereto consents to the jurisdiction of each court in which any action is commenced seeking indemnity or contribution pursuant to Section 7 above and agrees to accept, either directly or through an agent, service of process of each such court. 20. 13. COUNTERPARTS. This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 21. If the foregoing correctly sets forth our understanding, please indicate the Placement Agent's acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, ALLIANCE PHARMACEUTICAL CORP. By: --------------------------- Name: ------------------------- Title: ------------------------ Accepted as of the date first above written: CRUTTENDEN ROTH INCORPORATED By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 22. EX-1.2 3 ESCROW EXHIBIT 1.2 ESCROW INSTRUCTIONS (SECURITIES OFFERING) These Escrow Instructions are given by ALLIANCE PHARMACEUTICAL CORP., a New York corporation (the "Company") and CRUTTENDEN ROTH INCORPORATED, a California corporation (the "Placement Agent"), to CITY NATIONAL BANK, a national banking association ("Escrow Holder"). 1. OFFERING: The Company desires to offer to subscribers for Minimum Subscriptions (as defined Section 5(a) below) its shares of common stock, at a price per share of $2.00 (or such other price as specified by the Company or the Placement Agent), as more particularly set forth in a Registration Statement on Form S-3 (Reg. No. 333-76343) filed with the Securities and Exchange Commission (the "Registration Statement"), a copy of which has been delivered to Escrow Holder. Escrow Holder is not to be concerned with the Registration Statement, except as specifically set forth below. 2. ESTABLISHMENT OF THE ESCROW: Escrow Holder will open one or more escrow accounts (the "Escrow"), and either the Company or the Placement Agent, in accordance with Rule 15c2-4 under the Securities Exchange Act of 1934, as amended, will deliver to Escrow Holder from time to time for deposit into the Escrow the full amount of each payment received from each subscriber (the "Subscription Price"), together with the name, address and taxpayer identification number of such subscriber, the number of shares subscribed for and the amount paid therefor and an I.R.S. Form W-9 completed and executed by each subscriber. Escrow Holder shall have no obligation to accept monies, documents or instructions from any party other than the Company with respect to the Escrow. All monies so deposited will be in the form of a subscriber's personal check in favor of "City National Bank - Alliance Pharmaceutical Corp." or by wire transfer. Should any such check be returned to Escrow Holder as uncollectable for any reason, Escrow Holder will charge the amount of such unpaid check to Escrow, notify the Company of the amount of such return check, the name of the subscriber and the reason for return, and hold such check subject to further instructions from the Company or the Placement Agent. Escrow Holder will hold all monies and other property in the escrow free from any lien, claim or offset, except as set forth herein, and such monies and other property shall not become the property of the Company, nor subject to the debts thereof, unless the conditions set forth in these instructions to disbursement of such monies to the Company have been fully satisfied. 3. INVESTMENT: All funds will be held by Escrow Holder in a Money Market Investment Account bearing interest at Escrow Holder's then applicable rate. No funds will earn interest until Escrow Holder receives an I.R.S. Form W-9 completed and executed by the Company and the subscriber's check has been collected in good funds. 4. (a) CANCELLATION BY THE COMPANY: The Company may reject or cancel any subscription in whole or in part. If the Subscription Price for such rejected or cancelled subscription has been delivered to Escrow Holder, the Company will inform Escrow Holder of 1. the rejection or cancellation, and Escrow Holder upon receiving such notice will refund to the subscriber the Subscription Price. (b) CANCELLATION BY SUBSCRIBERS: All Subscriptions are irrevocable, and no subscriber will have any right to cancel or rescind the subscription, except as required under the law of any jurisdiction in which the shares are sold. 5. CLOSING: The Escrow will remain open and the Escrow Holder will continue to receive subscriptions until the earliest to occur of the following (the "Closing Date"): (a) The effective date for closing of the Escrow set forth in a written instruction from the Company and the Placement Agent to the Escrow Holder after the Escrow Holder has received aggregate Subscription Prices for at least 6,000,000 shares ("Minimum Subscriptions"); or (b) June 30, 1999. On the Closing Date, the Escrow Holder will disburse all monies, instruments and other documents in the Escrow to the Company or as otherwise instructed by the Company. If the Minimum Subscriptions have not been received by the Escrow Holder or the Escrow Holder receives written notice from the Company or the Placement Agent that the offering has been terminated prior to Closing, the Escrow Holder will refund all the monies in the Escrow, to the subscribers without further notice to the Company. Under no circumstances will Escrow Holder be required to disburse any monies until the check therefor has been collected in good funds. 6. INSTRUCTIONS AND AMENDMENTS: All notices and instructions to Escrow Holder must be in writing and may be delivered personally or mailed, certified or registered mail, return receipt requested, addressed to City National Bank, 400 N. Roxbury Dr., 6th Floor, Beverly Hills, California, 90210, Attention: Sue Behning/CNI. All such notices and instructions will be deemed given when received by Escrow Holder, as shown on the receipt therefor. All Instructions from the Company will be signed by Ted Roth or Tim Hart and all instructions from the Placement Agent will be signed by Lisa Walters or Joe Schimmelpfennig. Unless otherwise provided herein, these instructions may be amended or further instructions given only to the extent that such amendments or instructions are consistent with, and do not add materially to, the description of the Escrow contained in the Registration Statement, unless consented to in writing by all subscribers whose Subscription Prices have been received by Escrow Holder therefore and unless disclosed to all subscribers thereafter. 7. FEES: Escrow Holder shall be entitled to an initial, non refundable, set-up fee of $2,000 payable concurrently with its acceptance, and upon opening of this Escrow, plus actual expenses incurred in performing its duties hereunder. The Company or partnership will pay Escrow Holder's fees and expenses provided that upon the close of the escrow, Escrow Holder may withhold from any amounts disbursed to the Company the amount of its then earned but unpaid fees and expenses. Fees will be charged pursuant to the fee schedule attached hereto and incorporated herein by reference. 2. 8. EXCULPATION: Escrow Holder will not be liable for: (a) The genuineness, sufficiency, correctness as to form, manner of execution or validity of any instrument deposited in the Escrow, nor the identity, authority or rights of any person executing the same. (b) Any misrepresentation or omission in the Registration Statement or any failure to keep or comply with any of the provisions of any agreement, contract, or other instrument referred to therein; or (c) The failure of the Company to transmit, or any delay in transmitting any subscriber's Subscription Price to Escrow Holder. Escrow Holder's duties hereunder shall be limited to the safekeeping of monies, instruments or other documents received by the Escrow Holder into the Escrow, and for the disposition of same in accordance with this Escrow Agreement and any further instructions pursuant to this Escrow Agreement. 9. INTERPLEADER: In the event conflicting demands are made or notices served upon Escrow Holder with respect to the Escrow, Escrow Holder shall have the absolute right at its election to do either or both of the following: (a) Withhold and stop all further proceedings in, and performance of, this escrow; or (b) File a suit in interpleader and obtain an order from the court requiring the parties to litigate their several claims and rights among themselves. In the event such interpleader suit is brought, Escrow Holder shall be fully released from any obligation to perform any further duties imposed upon it hereunder, and the Company shall pay Escrow Holder all costs, expenses and reasonable attorney's fees expended or incurred by Escrow Holder, (or allocable to its in-house counsel), the amount thereof to be fixed and a judgment thereof to be rendered by the court in such suit. 10. INDEMNITY: The Company further agrees to pay on demand, and to indemnify and hold Escrow Holder harmless from and against, all cost, damages, judgments, attorney's fees, expenses, obligations and liabilities of any kind or nature which, in good faith, Escrow Holder may incur or sustain in connection with or arising out of the Escrow other than such that arise as a result of the Escrow Holder's gross negligence or willful misconduct, and Escrow Holder is hereby given a lien upon all the rights, titles, interest of the Company in monies and other property deposited in the Escrow, to protect Escrow Holder's rights to indemnity and to indemnify and reimburse Escrow Holder under these Escrow Instructions. 11. RESIGNATION OF ESCROW HOLDER: Escrow Holder may resign herefrom upon thirty (30) days' written notice to the Company and shall thereupon be fully released from any obligation to perform any further duties imposed upon it hereunder; provided that a replacement escrow holder shall have been appointed by the Company. Escrow Holder will transfer all files and records relating to the Escrow to any successor escrow holder upon receipt of a copy of executed escrow instructions designating such successor. 3. 12. FACSIMILE: The Company agrees that Escrow Holder may, but need not, honor and follow instructions, amendments or other orders ("orders") which shall be provided by telephone facsimile transmission ("faxed") to Escrow Holder in connection with this escrow and may act thereon without further inquiry and regardless of by whom or by what means the actual or purported signature of the Company may have been affixed thereto if such signature in Escrow Holder's sole judgment resembles the signature of the Company. The Company indemnifies and holds Escrow Holder free and harmless from any and all liability, suits, claims or causes of action which may arise from loss or claim of loss resulting from any forged, improper, wrongful or unauthorized faxed order. The Company agrees to pay all attorney fees and cost incurred by Escrow Holder (or allocable to its in-house counsel), in connection with said claim(s). 13. OTHER: (a) Time is of the essence of these and all additional or changed instructions. (b) These Escrow Instructions may be executed in counterparts, each of which so executed shall, irrespective of the date of its execution and delivery, be deemed an original, and said counterparts together shall constitute one and the same instrument. (c) These Escrow Instructions shall be governed by, and shall be construed according to, the laws of the State of California. (d) The Company will not make any reference to City National Bank in connection with the Offering except with respect to its role as Escrow Holder hereunder, and in no event will the Company state or imply the Escrow Holder has investigated or endorsed the offering in any manner whatsoever. IN WITNESS WHEREOF, The parties have executed these Escrow Instructions as of the date set forth besides such parties' signature below. "COMPANY" ALLIANCE PHARMACEUTICAL CORP. a New York corporation By: ________________________________ Its________________________________ Date: _____________ Address: 6175 Lusk Boulevard, San Diego, CA 92121 Phone Number: (619) 558-4300 Fax Number: (619) 558-5306 4. "PLACEMENT AGENT" CRUTTENDEN ROTH INCORPORATED a California corporation By: ________________________________ Its________________________________ Date: _____________ Address: 4350 La Jolla Village Drive, Suite 220, San Diego, CA 92122 Phone Number: (619) 678-3064 Fax Number: (619) 558-1522 "ESCROW HOLDER" CITY NATIONAL BANK, a national banking Association By: _________________________________ Its_________________________________ Date: _______________ 5. EX-5 4 OPINION OF STROOCK Exhibit 5 STROOCK & STROOCK & LAVAN LLP 180 Maiden Lane New York, New York 10038-4982 May 17, 1999 Alliance Pharmaceutical Corp. 3040 Science Park Road San Diego, CA 92121 Re: ALLIANCE PHARMACEUTICAL CORP. REGISTRATION STATEMENT ON FORM S-3, FILE NO. 333-76343 Ladies and Gentlemen: We have acted as counsel to 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") filed with the Securities and Exchange Commission on May 17, 1999 (File No. 333-76343), as amended, relating to 12,000,000 shares of common stock of the Company, $.01 par value (the "Shares") to be offered by the Company. As counsel to the Company, 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 Company, 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 Exhibit 23.(b) CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No.1 to the Registration Statement (Form S-3, File No. 333-76343) and related Prospectus of Alliance Pharmaceutical Corp. for the registration of 12,000,000 shares of its common stock and to the incorporation by reference therein of our report dated July 31, 1998, except for Note 8, as to which the date is August 14, 1998 and the second paragraph of Note 1, as to which the date is April 12, 1999, with respect to the consolidated financial statements of Alliance Pharmaceutical Corp. included in its Annual Report (Form 10 K/A) for the year ended June 30, 1998, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP San Diego, California May 14, 1999 -----END PRIVACY-ENHANCED MESSAGE-----