<PAGE>
As filed with the Securities and Exchange Commission on October 31, 1996
Registration No. 33-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PHARMOS CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
Nevada 36-3207413
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Innovation Drive
Alachua, Florida 32615
(904) 462-1210
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------
GAD RIESENFELD
2 Innovation Drive
Alachua, Florida 32615
(904) 462-1210
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------------
Copies to:
ADAM D. EILENBERG, ESQ.
Eilenberg & Zivian
666 Third Avenue, 30th Floor
New York, New York 10017
---------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the registration statement
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 in connection with dividend or interest
reinvestment plans, check the following box. | X |
---
<PAGE>
CALCULATION OF REGISTRATION FEE
-------------------------------
Proposed
Maximum Proposed
Offering Maximum Amount of
Title of Each Class of Amount to be Price Aggregate Registration
Securities to be Registered Registered Per Unit Price Fee
- -------------------------------------------------------------------------------
Shares of Common stock to be 3,166,667(2) $1.42(4) $4,496,667 $1,363
sold by Selling Security (3)
holders(1)
Shares of Common Stock 50,000(3) $1.75 $ 87,500 $ 27
issuable upon exercise of
Warrants to purchase 50,000
Shares at $1.75 per share
Shares of Common Stock 65,000(3) $1.34 $ 87,100 $ 27
issuable upon exercise of
Warrants to purchase 65,000
Shares at $1.34 per share
Shares of Common Stock 15,000(3) $2.31 $ 34,650 $ 11
issuable upon exercise of
Warrants to purchase 15,000
Shares at $2.31 per share
- -------------------------------------------------------------------------------
Total Registration Fee $4,705,917 $1,428
(1) To be offered by selling security holders, after conversion of preferred
shares, which can be converted in 25% increments over a period of 1 year.
(2) Assumes conversion price for all the preferred stock at $0.60 which is
estimated for the purpose of determining the maximum number of shares of
Common Stock obtained upon conversion.
(3) Pursuant to Rule 416 under the Securities Act of 1933, any additional
shares of Common Stock issued as a result of the anti-dilution provisions
of the Certificate of Designation relating to the Preferred Stock or of
the Common Stock Purchase Warrants pursuant to which the Common Stock will
be issued are deemed to be registered herewith.
(4) Estimated solely for the purpose of calculating the registration fee.
Proposed maximum offering price per share is estimated based upon the
average of the high and low prices of the Company's Common Stock listed on
the Nasdaq SmallCap Market on October 28, 1996.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PHARMOS CORPORATION
Cross Reference Sheet Showing Location in Prospectus of Information Required
Therein by Item 1 through 13 of Form S-3
Registration Statement Prospectus Caption
Item and Heading of Location
---------------------- ------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus . . . . . . . .Outside Front Cover
2. Inside Front and Outside Back
Cover Pages and Prospectus . . . . . . .Inside Front Cover Page
3. Summary Information,
Prospectus Summary
and Ratio of Earnings to Outside Front Cover,
Fixed Charges . . . . . . . . . . . . .Risk Factors
4. Use of Proceeds. . . . . . . . . . . . .Use of Proceeds
5. Determination of Offering Price. . . . .Cover Page
6. Dilution . . . . . . . . . . . . . . . .Dilution
7. Selling Security Holders . . . . . . . .Selling Security Holders
8. Plan of Distribution . . . . . . . . . .Cover Page, Plan of Distribution
9. Description of the Securities to
be Registered. . . . . . . . . . . . . .Description of Securities
10. Interest of Named Experts and Counsel. .Experts
11. Material Changes . . . . . . . . . . . .Recent Developments
12. Incorporation of Certain
Information by Reference . . . . . . . .Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities. . . . . . . . . . . . .Commission's Policy on
Indemnification for Securities Act
Liabilities
<PAGE>
SUBJECT TO COMPLETION,
DATED OCTOBER 31, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
PHARMOS CORPORATION
-------------------
3,166,667 SHARES OF COMMON STOCK,
$.03 PAR VALUE, TO BE SOLD BY
SELLING SECURITY HOLDERS
50,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.75 PER SHARE
65,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.34 PER SHARE
15,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $2.31 PER SHARE
This Prospectus covers the proposed offer and resale of up to 3,166,667
shares (the "Shares"), the amount of which is calculated based on a $0.60
conversion price, of common stock, par value $.03 ("Common Stock") of Pharmos
Corporation (the "Company") held by stockholders (the "Selling Stockholders")
who purchased 1,900 shares ($1,900,000 principal amount) of 5% Preferred Stock
(the "Series A Preferred Stock") convertible into such shares in a private
placement transaction in September 1996 (the "Private Placement Transaction").
The Private Placement Transaction, in which the Company issued 1,900 shares of
Series A Preferred Stock to the Selling Stockholders for the principal amount of
$1,900,000, was completed on September 30, 1996 (the "Closing Date"). The
preferred shares can be converted by the Selling Stockholders as follows: up to
25% of their initial investment after 80 days from the Closing Date, up to a
cumulative of 50% of their initial investment after 180 days from the Closing
Date, up to a cumulative of 75% of their initial investment after 270 days from
the Closing Date, and up to a cumulative of 100% of their initial investment
after 360 days from the Closing Date, at prevailing market prices at time of
sale.
This Prospectus also covers the offer and proposed sale by the Company of
up to (i) 50,000 shares of Common Stock issuable upon the exercise by the
holders thereof of warrants to purchase 50,000 shares (which amount may increase
solely to account for applicable anti-dilution adjustments, if any) at an
exercise price of $1.75 per share issued to
<PAGE>
the Selling Stockholders in connection with the Private Placement
Transaction; (ii) 65,000 shares of Common Stock issuable upon the exercise by
the holder thereof of warrants to purchase 65,000 shares (which amount may
increase solely to account for applicable anti- dilution adjustments, if any) at
an exercise price of $1.34 per share issued to a finder in connection with his
efforts on behalf of the Company in the Private Placement Transaction; (iii)
15,000 shares of Common Stock issuable upon the exercise by the holder thereof
of warrants to purchase 15,000 shares (which amount may increase solely to
account for applicable anti-dilution adjustments, if any) at an exercise price
of $2.31 per share issued to an advisor of the Company in connection with his
efforts on behalf of the Company. (All of the warrants set forth above are
hereinafter separately and collectively referred to as the "Warrants" and the
shares of Common Stock issuable upon the exercise of the Warrants are
hereinafter separately and collectively referred to as the "Warrant Shares.")
In connection with this offering, the Selling Stockholders and certain
holders of the Warrants who may be deemed to be "affiliates" of the Company, as
that term is defined under the Securities Act of 1933, as amended (the "Act"),
may be deemed to be an "underwriter," as that term is defined under the Act, of
the Shares or Warrant Shares offered hereby. It is anticipated that the Selling
Stockholders and such affiliates intend to sell the Shares or Warrant Shares
offered hereby from time to time for their own respective accounts in the open
market at the prices prevailing therein or in individually negotiated
transactions at such prices as may be agreed upon. Each Selling Stockholder and
such affiliate will bear all expenses with respect to the offering of the Shares
or Warrant Shares offered hereby by him except the costs of legal counsel and
costs associated with registering such shares under the Act and preparing and
printing this Prospectus.
The net proceeds from Shares to be sold by the Selling Stockholders (and
by holders of Warrant Shares who exercise their Warrants) will inure entirely to
their benefit and not that of the Company; however the Company will receive
proceeds from the exercise of the Warrants.
The Company's Common Stock is traded on the over-the-counter market and
is quoted on the Nasdaq SmallCap Market under the symbol "PARS" The closing
price of the Company's Common Stock on October 28, 1996 was $1.41.
(ii)
<PAGE>
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION
AS DESCRIBED HEREIN (SEE "RISK FACTORS" AND "DILUTION").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is ____________________, 1996.
(iii)
<PAGE>
The laws of many states provide exemptions from registration,
particularly for sales of securities by persons other than issuers, such as the
certain of the Selling Stockholders and holders of the Warrants, who do not have
a control relationship with the issuer, and for the subsequent resale of such
securities by purchasers thereof. Purchasers hereunder should consult with
their broker and/or attorney to determine whether applicable state laws permit
such purchases and resales by them.
With respect to the proposed sale of the Shares offered hereby by the
Selling Stockholders and the sale of the Warrant Shares by the Company upon
exercise of the Warrants, the Company is taking steps to register these
securities or permit such sales pursuant to exemption from registration only
under the laws of New Jersey, New York and Pennsylvania. However, if holders of
the Shares are not residents of the aforementioned states, such holders will not
be able to resell their Shares in any other states, including the states in
which they reside. In such event, such holders must arrange either (i) to sell
their Shares (through a broker/dealer or otherwise) only to a resident of one of
the aforementioned states or to an entity, such as a broker/dealer registered in
such state, which may be exempt under applicable state laws, or (ii) pursuant to
another applicable exemption. In such event, the Company will only permit the
transfer of the Shares if its transfer agent receives a certification from the
holder that the sale was made to a resident of one of the aforementioned states
or to a state registered broker/dealer or the Company receives an opinion of
counsel, satisfactory to the Company's counsel, that the resale of the Shares is
otherwise exempt from registration under applicable state law.
With respect to the proposed sale of the Warrant Shares, if holders of
the Warrants are not residents of the aforementioned states, the Company will
not be able to permit them to exercise Warrants held by them, unless such
holders obtain an opinion of counsel, satisfactory to the Company's counsel,
that such transaction is exempt from registration. Under such circumstances,
their only alternatives may be to sell their Warrants and/or Common Stock to a
resident of the aforementioned states or to sell their Warrants and/or Warrant
Shares to an entity, such as a registered broker-dealer in such state, which may
be exempt under applicable state laws.
Holders of the Warrants and/or Warrant Shares should consult with their
broker and/or attorney to determine what actions should be taken to comply with
the laws of their state with respect to any Warrants and/or Warrant Shares held
by them and, specifically with respect to the Warrants, ensure that such action
is taken well prior to the respective expiration dates of the Warrants, if
necessary.
The Company will furnish to each person to whom this Prospectus is
delivered, upon written request, a copy of any or all of the documents referred
to by reference, other than exhibits to such documents unless such exhibits are
specifically incorporated herein by reference. Requests should be addressed to:
Mr. Gad Riesenfeld, Executive Vice President, Pharmos Corporation, 2 Innovation
Drive, Alachua, Florida 32615, (904) 462-1210.
(iv)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. ANY INFORMATION OR REPRESENTATION NOT HEREIN CONTAINED, IF GIVEN OR
MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN RESPECT OF THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE OF THIS PROSPECTUS.
(v)
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C. 20549, a Registration Statement on Form S-3 under
the Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus filed as part of such Registration Statement does not contain all the
information set forth in, or annexed as exhibits to, the Registration Statement.
For further information pertaining to the securities offered hereby and the
Company, reference is made to the Registration Statement and the exhibits
thereto. The Registration Statement and exhibits thereto may be inspected at
the Headquarters Office of the Securities and Exchange Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the
Commission's regional offices at the following addresses: 7 World Trade Center,
Suite 1300, New York, New York 10048; Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of this material also may be
obtained from the Public Reference Section of the SEC, at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. at prescribed rates. Electronic registration
statements made through the Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the Commission's World Wide Web site at
http:\www.sec.gov. The statements contained in this Prospectus concerning the
contents of any contract or document referred to are not necessarily complete,
and in each instance, reference is made to such contract or document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by provisions of such exhibit to which reference is hereby made for a
full statement of the provisions thereof.
(vi)
<PAGE>
THE COMPANY
The Company is engaged in the development of novel pharmaceuticals based
on innovative drug design technologies targeting diseases of the eye,
principally ocular inflammation, and the brain, principally stroke and head
trauma.
Its leading product, Lotemax(Trademark), is a proprietary ophthalmic
anti-inflammatory drug designed with the Company's proprietary "site active"
concept system and has demonstrated significant efficacy in a series of
completed Phase III clinical trials and a uniquely superior safety profile
compared to currently available ophthalmic steroids. The Company has submitted
its New Drug Application ("NDA") for Lotemax(Trademark) to the U.S. Food and
Drug Administration ("FDA").
The Company's principal executive offices are located at 2 Innovation
Drive, Alachua, Florida 32615, telephone (904) 462-1210.
RISK FACTORS
The Common Stock being offered hereby involves a high degree of risk.
Prospective investors should carefully consider the following risk factors in
addition to other information contained in this Prospectus, in evaluating an
investment in the shares of Common Stock offered hereby.
Early Stage of Development; Technological Uncertainty
The Company is at an early stage of development. Apart from
Lotemax(Trademark), most of the Company's other potential products are early in
the research and development phase, and product revenues may not be realized
from the sale of any such products for at least the next several years, if at
all. Many of the Company's proposed products will require significant
additional research and development efforts prior to any commercial use,
including extensive preclinical and clinical testing as well as lengthy
regulatory approval. There can be no assurance that the Company's research and
development efforts will be successful, that the Company's potential products
will prove to be safe and effective in clinical trials or that any commercially
successful products will ultimately be developed by the Company.
History of Operating Losses; Accumulated Deficit
The Company has experienced significant operating losses since its
inception. As of June 30, 1996, the Company had an accumulated deficit of
approximately $58 million. The Company expects to incur operating losses over
at least the next several years as the Company's research and development
efforts and preclinical and clinical testing activities continue. The Company's
ability to achieve profitability depends in part upon its ability, alone or with
others, to successfully commercialize and receive approval on its first proposed
product, to complete development of its other proposed products, to obtain
required regulatory approvals and to manufacture and market such products.
<PAGE>
Future Capital Needs; Uncertainty of Additional Financing
The Company's operations to date have consumed substantial amounts of
cash. The development of the Company's technology and potential products will
require a commitment of substantial funds to conduct the costly and
time-consuming research necessary to develop and optimize such technology, and
ultimately, to establish manufacturing and marketing capabilities. The
Company's future capital requirements will depend on many factors, including
continued scientific progress in the research and development of the Company's
technology and drug programs, the ability of the Company to establish and
maintain collaborative arrangements with others for drug development, progress
with preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims, competing technological and market
developments, changes in its existing research relationships and effective
product commercialization activities and arrangements.
The Company believes that its current cash resources and interest income
thereon, including approximately $1.8 million in net cash and cash equivalents
received by the Company from the Private Placement Transaction should be
sufficient to fund its operating expenses and capital requirements as currently
planned through the first quarter of 1997. The Company will seek additional
funding through collaborative arrangements or through future public or private
equity or debt financing. There can be no assurance that additional financing
will be available on acceptable terms, or at all. In addition, pursuant to the
Private Placement Transaction, the Selling Stockholders are granted limited
rights to approve of the Company's efforts to obtain convertible debt or equity
for a period of one hundred eighty (180) days following the Closing Date. If
additional funds are raised by issuing equity securities, further dilution to
stockholders may result. If adequate funds are not available, the Company may
be required to delay, reduce the scope of or eliminate one or more of its
research or development programs or to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself.
Dependence on Potential Collaborative Partners
The Company's strategy for the development, clinical testing,
manufacturing, marketing and commercialization of certain of its products
includes entering into various collaborations with corporate partners,
licensors, licensees and others. To date, the Company has entered into an
agreement with Bausch & Lomb to manufacture and market its lead product,
Lotemax(Trademark), in the United States. The agreement also covers the
co-development of Lotemax(Trademark) line extension products currently being
developed by the Company. Pharmos Corporation has signed a letter of intent
with Bausch & Lomb to market Lotemax(Trademark) and line extension products
currently being developed, throughout Europe, Canada and selected other
countries. There can be no assurance that the Company will be able to negotiate
any future collaborative agreement with Bausch & Lomb or other companies on
acceptable terms, or that any present or future collaborative agreements will be
successful. To the extent that the Company chooses not to or is not able to
2
<PAGE>
establish such arrangements, the Company would experience increased capital
requirements to undertake such activities at its own expense. In addition, the
Company may encounter significant delays in introducing its proposed products
currently under development into certain markets or find that the development,
manufacture, or sale of its proposed products in such markets is adversely
affected by the absence of such collaborative agreements.
Technological Change and Competition
The pharmaceutical industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and other pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities, and manufacturing and
marketing experience than the Company. To this end, the Company has entered
into an agreement with Bausch & Lomb for the manufacture and marketing of
Lotemax(Trademark). There can be no assurance that developments by the
Company's competitors or potential competitors will not render the Company's
technology or proposed applications of its technology obsolete.
Technologies Subject to Licenses
As a licensee of certain research technologies, the Company has various
license agreements with certain U.S. federal agencies and the State of Israel,
certain universities and Dr. Nicholas Bodor, a former vice president and
director of the Company, wherein the Company has acquired exclusive and
coexclusive rights to develop and commercialize certain research technologies.
The agreements generally require the Company to pay royalties on sale of
products developed from the licensed technologies and fees on revenues from
sublicensees, where applicable, and the Company is responsible for the costs of
filing and prosecuting patent applications. In addition, some of the Company's
license agreements require that the Company commit certain sums annually for
research and development of the licensed products. The Company's license
agreements with the University of Florida and with Dr. Bodor require the Company
to pay annual license maintenance fees as well as make payments upon completion
of certain milestones occurring in the clinical trials of certain licensed
products.
The exclusivity of license agreements generally expires fifteen years
after the later of commercialization or the effectiveness of the patents. Each
agreement is terminable by either party, upon notice, if the other party
defaults in its obligations.
Uncertainty of Protection of Patents and Proprietary Rights
The Company's success will depend in large part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the U.S. and in other countries. The
patent positions of pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions, and therefore the breadth and
enforceability of claims allowed in pharmaceutical patents cannot be predicted.
There can be
3
<PAGE>
no assurance that any issued or pending patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to the Company.
The commercial success of the Company also will depend, in part, on
Pharmos not infringing patents issued to others and not breaching the technology
licenses upon which any Company products are based. It is uncertain whether any
third-party patents will require the Company to alter its products or processes,
obtain licenses or cease certain activities. In addition, if patents are issued
to others which contain competitive or conflicting claims, and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If
any licenses are required, there can be no assurance that the Company will be
able to obtain any such licenses on commercially favorable terms, if at all.
The Company's breach of an existing license or failure to obtain a license to
any technology that it may require to commercialize its products may have a
material adverse impact on the Company. Litigation, which could result in
substantial costs to the Company, may also be necessary to enforce any patents
licensed or issued to the Company or to determine the scope and validity of
third-party proprietary rights. If competitors of the Company prepare and file
patent applications in the U.S. that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs to the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require the Company to cease using such
technology.
The Company also relies on secrecy to protect its technology, especially
where patent protection is not believed to be appropriate or obtainable. Thus,
Pharmos protects its proprietary technology and processes, in part, by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
Legal Proceedings and Disputes
The Company is involved in separate disputes with two of its licensors
regarding the applicability of the Company's license to a new technology being
developed by the licensor and the priority of a licensed patent. The Company
believes that its position is correct in both of these disputes and that it will
prevail. Although the ultimate outcome of such actions and proceedings cannot
be predicted with certainty at this time, the Company believes that losses, if
any, in excess of amount accrued resulting from those actions will not have a
significant impact on the Company's financial position or results of the
operations.
Extensive Government Regulation
4
<PAGE>
The Company's products require the approval of the FDA before they can be
marketed in the U.S. In addition, approvals are also required from health
authorities in most foreign countries before the Company's products can be
marketed in such countries. Before an NDA, a type of submission used to obtain
FDA approval to market a new drug, can be filed with the FDA, a product must
undergo, among other things, extensive animal testing and human clinical trials,
which can take up to seven years to complete. Except for Lotemax(Trademark),
the Company has not yet filed NDAs on its products. The time required for
regulatory approval of the Company's products after acceptance for filing an NDA
can vary and is usually one to three years or more, and the FDA may require
additional animal studies and/or clinical trials before granting approval.
There can be no assurance that the FDA and foreign regulatory agencies will be
satisfied with the information, including that emanating from clinical trials,
submitted to them in applications (like NDAs) seeking approval and will approve
the marketing of any of the Company's potential products, or that problems will
not arise that could delay or prevent the commercialization of the Company's
future products.
There can be no assurance that any potential products developed by the
Company alone or in conjunction with others will be proven to be safe and
effective in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing approval. Data obtained from
preclinical testing and clinical trials can be susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. In
addition, delays or disapprovals may be encountered based upon additional
government regulation resulting from future legislation or administrative action
or changes in FDA policy made during the period of product development and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any potential products developed by the Company.
If regulatory approval of a product is granted, such approval will be limited to
those therapeutic uses for which the product has been demonstrated through
clinical studies and other means to be safe and effective. Furthermore,
approval may entail ongoing requirements for post-marketing studies. Even if
regulatory approval is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections. The regulatory standards for manufacturing are currently being
applied stringently by the FDA. Discovery of previously unknown problems with a
product, manufacturer or facility may result in FDA restrictions being placed on
such product or manufacturer or facility, including an order to withdraw a
specific product from the market, and may also result in court enforced
sanctions against the product, manufacturer or facility.
The Company may establish collaborative relationships to conduct clinical
testing and seek regulatory approvals to market its products in major markets
outside the U.S. There can be no assurance that the Company will be successful
in establishing such relationships or that such approvals will be received in a
timely manner, if at all. To market its products abroad, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing the design and conduct of human clinical
trials, pricing and marketing. The approval procedure varies among countries
and can involve additional testing, and the time required to obtain approval may
differ from that required to obtain FDA
5
<PAGE>
approval. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union ("EU") certain registration
procedures are available to companies wishing to market a product in more than
one EU member country. If a regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, marketing
authorization is almost always granted. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries.
Lack of Sales and Marketing Capability
The Company has no experience in sales, marketing or distribution. To
market any of its products directly, the Company must develop a marketing force
and sales force with technical expertise and with supporting distribution
capability. Alternatively, the Company may obtain the assistance of a
pharmaceutical company with an established distribution system and sales force.
The Company has entered into an agreement with Bausch & Lomb to market
Lotemax(Trademark). There can be no assurance, however, that the Company will
be able to establish sales and distribution capabilities or be successful in
gaining market acceptance for its products.
Lack of Manufacturing Capability
The Company currently has limited manufacturing capacity to produce its
products for clinical trials. The Company's agreement with Bausch & Lomb
addresses the manufacturing of Lotemax(Trademark). The proposed products under
development by the Company have never been manufactured on a commercial scale
and there can be no assurances that such products can be manufactured at a cost
or in quantities necessary to make them commercially viable. Any delay in
availability of products may result in delay in the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products, which would have a material adverse effect on the Company.
Need to Attract and Retain Key Employees and Consultants
The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors to assist the Company in formulating its research and development
strategy. Retaining and attracting qualified personnel, consultants and
advisors will be critical to the Company's success. In order to pursue its
product development and marketing plans, the Company will be required to hire
additional qualified scientific personnel to perform research and development,
as well as personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. The Company faces competition for qualified
individuals from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. There can be no assurance that
the Company will be able to attract and retain such individuals on acceptable
terms or at all.
The Company's clinical development is conducted under agreements with
universities and medical institutions. The Company depends on the availability
of a principal investigator for
6
<PAGE>
each such program, and the Company cannot assure that these individuals or their
research staffs will be available to conduct clinical development. The
Company's academic collaborators are not employees of the Company. As a result,
the Company has limited control over their activities and can expect that only
limited amounts of their time will be dedicated to Company activities. The
Company's academic collaborators may have relationships with other commercial
entities, some of which compete with the Company.
Uncertainty of Health Care Reform Measures and Third-Party Reimbursement
The levels of revenues and profitability of biotechnology and
pharmaceutical companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the U.S., there have been, and the Company expects that there will continue
to be, a number of federal and state proposals to control health care costs.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect such proposals may have on its business,
the uncertainty surrounding such proposals could have a material adverse effect
on the Company. Furthermore, the Company's ability to commercialize its
potential product portfolio may be adversely affected to the extent that such
proposals have a material adverse effect on the business, financial condition
and profitability of other companies that are prospective collaborators for
certain of the Company's proposed products.
Dependence on Reimbursement
Pharmos' ability to commercialize its products successfully may depend in
part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. Third-party
payors are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available to enable Pharmos to maintain price levels sufficient
to realize an appropriate return on its investment in product development.
Risk of Product Liability; Availability of Insurance
The design, development and manufacture of the Company's products involve
an inherent risk of product liability claims and associated adverse publicity.
Although the Company currently maintains general liability insurance, there can
be no assurance that the coverage limits of the Company's insurance policies
will be adequate. Similarly, the Company currently maintains clinical trial
liability insurance, but there can be no assurance that the coverage limit of
the Company's insurance policies will be adequate. The Company currently has no
product liability insurance, and there can be no assurance that the Company will
be able to obtain or maintain product liability insurance on acceptable terms or
with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in
7
<PAGE>
the future on acceptable terms or at all. A successful claim brought against
the Company in excess of the Company's insurance coverage could have a material
adverse effect upon the Company and its financial condition.
Use of Hazardous Materials; Potential Liability to Comply with Environmental
Problems
The Company's research and development involves the controlled use of
hazardous materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply in all material respects
with the standard prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, and any such liability could exceed the resources
of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
Market for the Company's Securities; Shares Eligible for Future Sale; Possible
Volatility of Share Prices
The market price of the Company's Common Stock, like that of other
emerging pharmaceutical companies, has fluctuated significantly in recent years
and is likely to fluctuate in the future. Announcements by the Company or
others regarding scientific discoveries, technological innovations, litigation,
products, patents or proprietary rights, the progress of clinical trials,
government regulation, public concern as to the safety of drugs and the
reliability of the Company's testing processes and general market conditions may
have a significant impact on the market price of the Common Stock. The addition
of the shares being offered hereby and the shares issuable upon exercise of the
Company's currently outstanding warrants and options to the number of
publicly-traded shares of the Company's Common Stock may affect the volatility
of share prices of the Company's Common Stock.
Outstanding Stock Options and Warrants
As of September 30, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 552,186 shares of Common Stock at an average
exercise price of $2.19 per share and non-qualified stock options to purchase an
aggregate of 442,192 at an average exercise price of $3.10 per share issued to
employees, directors and consultants pursuant to stock option plans and
individual agreements with management and directors of the Company and warrants
to purchase 3,302,674 shares of the Company's Common Stock at an average price
of $2.33 per share, excluding the Warrants.
The Company may issue additional capital stock, warrants and/or options to
raise capital in the future. The Company regularly examines opportunities to
expand its technology base and product line through means such as licenses,
joint ventures and acquisition of assets or ongoing businesses and may issue
securities in connection with such transactions. However, no commitments to
enter into or pursue any such transaction have been made and there can be no
8
<PAGE>
assurance that any such discussions will result in any such transaction being
concluded. In order to attract and retain key personnel, the Company may also
issue additional securities, including stock options, in connection with its
employee benefit plans. During the terms of such options and warrants, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Company's Common Stock. The exercise of such options and warrants
may have an adverse effect on the market value of the Company's Common Stock.
Also, the existence of such options and warrants may adversely affect the terms
on which the Company can obtain additional equity financing.
Anti-Takeover Provisions
The Company is subject to Sections 78.411-.444 of the Nevada General
Corporation Law ("Nevada Law"), an anti-takeover law, which may discourage
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over the current prices, and may limit the
ability of the stockholders to approve a transaction that they may deem to be in
their best interests. In addition, the Board of Directors has the authority
without action by the stockholders to fix the rights and preferences of and
issue shares of Preferred Stock, which may have the effect of delaying or
preventing a change in control of the Company.
Potential Future Acquisitions
Due to the current uncertainties of the capital markets for emerging
pharmaceutical companies, the Company has had preliminary discussions with
several emerging pharmaceutical and biotechnology companies about potential
business and/or product consolidations, joint ventures, acquisitions, mergers or
other business combinations (collectively "acquisitions"). In the event the
Company undertakes any such acquisitions it may use some of its cash, including
part of the cash received in connection with the Private Placement Transaction,
or may issue its stock in connection therewith. Although management would
attempt to structure such acquisitions in a manner that will minimize dilution
of the equity owned by current stockholders, no assurance can be given that
acquisitions will not result in such dilution or that control of the Company
will not be changed as a result of such acquisitions. Such acquisitions may be
negotiated or may be sought on an unsolicited basis and may involve speculative
and risky undertakings by the Company with increased risks to its stockholders.
Under Nevada law, acquisitions do not require shareholders' approval except when
accomplished by merger or consolidation. The Company does not, in general,
intend to submit acquisitions to shareholder vote except where required by
Nevada law. The Company has not entered into any preliminary undertaking with
any third parties involving any acquisitions or other business combination
transactions.
9
<PAGE>
Special Considerations of Doing Business in Israel
A significant part of the operations of the Company is conducted in Israel
through its wholly-owned subsidiary, Pharmos Limited ("Pharmos Ltd."), and is
directly affected by economic, political and military conditions there. In
addition, Pharmos Ltd. has received certain funding from the Office of the Chief
Scientist of the Israel Ministry of Industry and Trade (the "Chief Scientist")
relating to its proprietary SubMicron Emulsion Technology and expects to file an
application to receive funding with respect to Dexanabinol, a new chemical
entity. Such funding prohibits the transfer or license of know-how and the
manufacture of resulting products outside of Israel without the permission of
the Chief Scientist. Although it is the Company's belief that the Chief
Scientist does not unreasonably withhold this permission if the request is based
upon commercially justified circumstances and any royalty obligations to the
Chief Scientist are sufficiently assured, there can be no assurance that such
consent, if requested, would be granted upon terms satisfactory to the Company
or granted at all.
Absence of Dividends
No dividends have been paid on the Common Stock to date, and the Company
does not expect to pay cash dividends in the foreseeable future.
DILUTION
As of June 30, 1996, the net tangible book value of the Company was
$1,485,797 or $0.05 per share. Net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less liabilities) of
the Company by the number of shares of Common Stock outstanding at that date.
If all 50,000 of the Warrants exercisable at an exercise price of $1.75
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,269,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and the purchasers of shares through the exercise
of such Warrants at a price of $1.75 per share would suffer immediate dilution
of $1.70 per share.
If all 65,000 of the Warrants exercisable at an exercise price of $1.34
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,284,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and the purchasers of shares through the exercise
of such Warrants at a price of $1.34 per share would suffer immediate dilution
of $1.29 per share.
If all 15,000 of the Warrants exercisable at an exercise price of $2.31
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,234,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and
10
<PAGE>
the purchasers of shares through the exercise of such Warrants at a price of
$2.31 per share would suffer immediate dilution of $2.26 per share.
If all of the Warrants are exercised (each of the Warrants purchasing one
share of Common Stock), there would be 29,349,969 shares of Common Stock
outstanding with a net tangible book value of $0.06. The purchasers of shares
through the exercise of such Warrants at a price of $1.75 per share would suffer
immediate dilution of $1.69 per share; the purchasers of shares through the
exercise of such Warrants at a price of $1.34 per share would suffer immediate
dilution of $1.28 per share; and the purchasers of shares through the exercise
of such Warrants at a price of $2.31 per share would suffer immediate dilution
of $2.25 per share.
USE OF PROCEEDS
The Company will receive no proceeds from the 3,166,667 shares of Common
Stock to be offered and resold by the Selling Stockholders.
Assuming that all of the 130,000 Warrants whose underlying Common Stock is
being offered hereby are exercised, the gross proceeds to be received by the
Company will be $209,250. Such proceeds will be added to working capital and
used for general corporate purposes. The amount of proceeds to be received by
the Company, however, depends on the number of Warrants exercised.
The Company believes that its current cash resources and interest income
thereon, including the funds obtained from the Private Placement Transaction,
combined with the proceeds from the exercise of the Warrants, assuming all of
the Warrants are exercised (as to which there can be no assurances), should be
sufficient to fund its operating expenses and capital requirements as currently
planned through the first quarter of 1997. The amounts and timing of
expenditures for each purpose will depend on the progress of the Company's
research and development programs, technological advances, determinations as to
commercial potential, the terms of any collaborative arrangements entered into
by the Company for development and licensing, regulatory approvals, and other
factors, many of which are beyond the Company's control.
Pending such uses, the cash received in connection with the Private
Placement Transaction and the net proceeds from the exercise of the Warrants (if
exercised) will be invested in short-term, interest-bearing investment grade
securities. Due to the current uncertainties of the capital markets for
emerging pharmaceutical companies the Company has had preliminary discussions
with several emerging pharmaceutical and biotechnology companies about potential
acquisitions. Any such transaction might involve the use of the Company's cash
resources as consideration, including part of the proceeds of this Offering.
The Company has not entered into any preliminary understanding with any third
parties involving any acquisitions and is not currently in any negotiations.
See "Risk Factors -- Potential Acquisitions."
11
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Common Stock being offered hereby (i) by the Selling Stockholders,
(ii) by the Company upon the exercise of the Warrants, and (iii) by any
"affiliate" of the Company upon the resale of such Common Stock obtained from
exercising the Warrants is fully described in the Company's Registration
Statement on Form 8-A dated January 30, 1984, filed pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See
"Incorporation of Certain Documents by Reference".
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 50,000,000 shares of Common Stock. There are currently
29,219,969 shares outstanding, or 33,517,021 shares taking into account exercise
of all outstanding stock options (and stock options which the Company is
contractually obligated to issue) and warrants (including the Warrants).
Series A Preferred Stock
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 1,250,000 shares of Preferred Stock. Of the authorized
Preferred Stock, 1,900 shares, designated as 5% Series A Preferred Stock, are
currently issued and outstanding and held by 3 stockholders. The Series A
Preferred Stock was issued in connection to the Private Placement Transaction.
Holders of Series A Preferred Stock have the right to convert their shares as
follows: up to 25% of their initial investment after 80 days from September 30,
1996 (the "Closing Date"), up to a cumulative of 50% of their initial investment
after 180 days from the Closing Date, up to a cumulative of 75% of their initial
investment after 270 days from the Closing Date, and up to a cumulative of 100%
of their initial investment after 360 days from the Closing Date, at prevailing
market prices at time of sale.
Warrants
The 50,000 Warrants exercisable at an exercise price of $1.75 are
exercisable commencing September 30, 1997, and expire on September 30, 2000.
The 65,000 Warrants exercisable at an exercise price of $1.34 are exercisable
from September 30, 1997 until September 30, 2007. The 15,000 Warrants
exercisable at an exercise price of $2.31 are exercisable from March 15, 1997
until March 14, 2002. All of the Warrants contain anti-dilution provisions
providing for an adjustment to their respective exercise prices in the event
that the Company effects a stock split or stock dividend. In addition, the
number and kind of shares of Common Stock underlying the Warrants are subject to
adjustments in the event of any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the Company with
another corporation or entity (other than a subsidiary of the Company in which
the Company is the surviving or continuing corporation and no change occurs in
the Company's Common Stock). In addition, the 50,000 warrants exercisable at
$1.75 and the 65,000 warrants exercisable at $1.34 contain additional
anti-dilution provisions providing for an adjustment to their respective
exercise prices in the event of the issuance of securities below market prices.
12
<PAGE>
Other Securities--Preferred Stock
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 1,250,000 shares of Preferred Stock, of which 1,900 shares of
Series A Preferred Stock, issued in connection the Private Placement
Transaction, is currently issued and outstanding, and empower the Board of
Directors, without the necessity of further action or authorization by the
stockholders, to authorize the issuance of Preferred Stock from time to time in
one or more series and to fix the relative rights, preferences and limitations
of each such series. The issuance of Preferred Stock could adversely affect the
voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any additional shares of Preferred
Stock.
Other Securities--Options and Warrants
As of September 30, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 552,186 shares of Common Stock at an average
exercise price of $2.19 per share and non-qualified stock options to purchase an
aggregate of 442,192 at an average exercise price of $3.10 per share issued to
employees, directors and consultants pursuant to stock option plans and
individual agreements with management and directors of the Company and warrants
(excluding the Warrants) to purchase 3,302,674 shares of the Company's Common
Stock at an average price of $2.33 per share, consisting of: 396,243 warrants
which can be exercised until November 1998 each to purchase a single share of
Common Stock for $3.06; 223,342 warrants which can be exercised until November
1996 to each purchase a single share of Common Stock for $5.23; 36,393 Class A
warrants which can be exercised until March 1998 to purchase 36,393 shares of
Common Stock for $2.29 per share and 41,083 Class B warrants, which Class B
warrants expire in March 1999 and allow the holder to purchase one share of
Common Stock for $2.84; unit purchase options expiring in March 1998 which allow
the holder to purchase 331,328 shares of Common Stock for $1.66 per share and
200,146 Class A Warrants which can be exercised to purchase 200,146 shares of
Common Stock for $2.29 per share and 225,940 Class B Warrants, which warrants
can be exercised to purchase one share of Common Stock per warrant for $2.84 per
share; 63,913 warrants which can be exercised until September 1999 each to
purchase a single share of Common Stock for $2.30; 214,286 warrants which can be
exercised until October 1999 each to purchase a single share of Common Stock for
$0.84; 75,000 warrants which can be exercised until February 2000 each to
purchase a single share of Common Stock for $0.52; 500,000 warrants which can be
exercised from April 1996 until April 2005 to purchase one share of Common Stock
per warrant for $2.75 per share; 10,000 Warrants which can be exercised from
April 1996 until April 2005 to purchase one share of Common Stock per warrant
for $0.78 per share; 25,000 Warrants which can be exercised from May 1996 until
April 2000 to purchase one share of Common Stock per warrant for $.75 per share;
25,000 Warrants which can be exercised from May 1996 until April 2000 to
purchase one share of Common Stock per warrant for $1.00 per share; 25,000
Warrants which can be exercised from May 1996 until April 2000 to purchase one
share of Common Stock per warrant for $1.50 per share; 900,000 Warrants which
can be exercised from September 14, 1996 until September 14, 2000 to purchase
one share of Common Stock per warrant for $1.80 per share; and 10,000 Warrants
which can be exercised from October 31, 1996 until October 31, 2001 to purchase
one share of Common Stock per warrant for $1.88 per share.
13
<PAGE>
Nevada Anti-Takeover Laws
The Company is subject to the provisions of Sections 78.411 through 78.444
of the Nevada Law, an anti-takeover statute (the "Business Combination
Statute"). In general, the Business Combination Statute prohibits a
publicly-held Nevada corporation from engaging in a "combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless such
combination is approved in a prescribed manner or satisfies certain fair value
requirements. For the purposes of the Business Combination Statute,
"combination" includes a merger, an asset sale, the issuance or transfer by the
corporation of its shares in one transaction or a series of transactions, having
an aggregate fair market value equal to five percent or more of the aggregate
market value of the corporation's outstanding shares, to the interested
stockholder or to an associate of the interested stockholder, and certain other
types of transactions resulting in a financial benefit the interested
stockholder. An "interested stockholder" is a person who is the beneficial
owner, directly or indirectly, of ten percent or more of the corporation's
voting stock or an affiliate or associate of the corporation that at any time
within the three years immediately preceding the date in question was the
beneficial owner, directly or indirectly, of ten percent or more of the
corporation's voting stock.
By an amendment to its By-laws, the Company has exempted itself from the
provisions of Sections 78.378 through 78.3793 of the Nevada Law, a "control
share" statute which otherwise prohibits an acquiring person, under certain
circumstances, from voting certain shares of a target corporation's stock after
such acquiring person's percentage of ownership of such corporation's stock
crosses certain thresholds, unless the target corporation's disinterested
stockholders approve the granting of voting rights to such shares.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer and Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Stockholders are 3,166,667 shares
of Common Stock issuable upon conversion of 1,900 shares ($1,900,000 principal
amount) Series A Preferred Stock issued to the holders thereof by the Company in
connection with the Private Placement Transaction. This prospectus also covers
the issuance by the Company of up to 209,250 shares of Common Stock upon the
exercise of the Warrants, 50,000 of which were issued in connection with the
Private Placement Transaction, 65,000 of which were issued to a finder in
connection with the Private Placement Transaction, and 15,000 of which were
issued to an advisor of the Company in connection his efforts on behalf of the
Company.
The sale of all or a portion of the Shares and Warrant Shares offered
hereby by the Selling Stockholders may be effected from time to time on the
over-the-counter market at prevailing prices at the time of such sales, at
prices related to such prevailing prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling to or though
14
<PAGE>
one or more broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
in the distribution may under certain circumstances be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by such broker-dealers and any profits realized on the resale of shares
by them may be deemed to be underwriting discounts and commissions under the
Securities Act. The Company and the Selling Stockholders may agree to indemnify
such broker-dealers against certain liabilities, including, without limitation,
certain liabilities under the Securities Act, or, if such indemnity is
unavailable, to contribute toward amounts required to be paid in respect of such
liabilities.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any such broker-dealers, (b) the
number of shares involved, (c) the price at which such shares are to be sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this prospectus, as supplemented, and (f) other facts material to the
transaction.
There is no assurance that any of the Selling Stockholders will sell any
or all of the shares of Common Stock hereby.
The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the shares of Common Stock offered hereby,
except that the Selling Stockholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer and
sale of such shares.
The Company has agreed to keep the Registration Statement of which this
Prospectus forms a part continuously effective until the earlier of the date
that all of such Shares have been sold or three years from the date of this
Prospectus.
SELLING SECURITY HOLDERS
The table below sets forth the name of each Selling Stockholder; the total
amount of (i) shares of Common Stock and (ii) shares of Warrant Shares issuable
upon the exercise of the Warrants beneficially owned by such security holder;
the aggregate amount of Common Stock and/or Warrant Shares which may be offered
for sale for the account of such security holder, in his/her discretion from
time to time pursuant to this Prospectus; and the amount of Common Stock which
would be beneficially owned by such security holder after sale of all securities
offered by the Selling Stockholder pursuant to this Prospectus, if they are
offered and sold, and assuming that any other shares held by such security
holders are not sold. None of the Selling Stockholders referred to herein has
held any position or office, or had any material relationship, with the Company
or any of its predecessors or affiliates within the last three years, except as
noted below, and none of the Selling Stockholders will own 1% or more of the
outstanding stock of the Company after completion of the offering, except as
noted below.
Because the initial issuance by the Company of the Warrant Shares to
non-affiliated holders is covered by the Registration Statement of which this
Prospectus forms a part and the resale thereof by such non-affiliated holders
need not be registered under the Securities Act, the table below does not
include the non-affiliated holders of the Warrants.
15
<PAGE>
Amount of
Warrant Shares Shares of
Shares of Issuable upon Common Stock
Common Stock Exercise of and/or Warrant Shares Owned
Names Held(1) Warrants Held Shares Offered(2) After Sale
----- ------------ -------------- ----------------- ------------
Paresco, Inc. 2,500,000 39,473 2,500,000 0
Libertyview Plus Fund 500,000 7,895 500,000 0
Libertyview Fund, LLC 166,667 2,632 166,667 0
Alan M. Mark 0 65,000 65,000(3) 0
____________________
(1) Includes number of shares of Common Stock received upon conversion of
Preferred Stock, assuming conversion price of $0.60. Does not include
Common Stock issuable upon exercise of Warrants held by Selling
Stockholders.
(2) Does not include the Warrant Shares because the initial issuance by the
Company of the Warrant Shares to non-affiliated holders is covered by the
Registration Statement of which this Prospectus forms a part and the
resale thereof by such non-affiliated holders need not be registered under
the Securities Act.
(3) Includes Mr. Mark's Warrant Shares since Mr. Mark is currently an
affiliate of the Company, and, therefore, the Registration of which this
Prospectus forms a part covers the issuance of his Warrant Shares by the
Company upon the exercise of his Warrants and his resale of his Warrant
Shares.
RECENT DEVELOPMENTS
On October 2, 1996, the Company announced that it received approval from
the Israeli Minister of Health to immediately commence a phase II study with its
lead neuroprotective agent, Dexanabinol (HU-211). The double-blinded
placebo-controlled study will be conducted in six medical centers in Israel in
patients with moderate to severe head injury.
John Howes, Ph.D., Vice President of Clinical Affairs departed from the
Company effective August 31, 1996. Dr. Howes' primary responsibility had been
the clinical trial programs of Lotemax(Trademark) and the allergy line
extension. The Company's Uveitis study is in the final stage of patient
recruitment and the Company has concluded its allergy studies. As a result, the
Company does not expect to appoint a replacement in the near term.
On August 26, 1996, the Company announced that Fredric D. Price was
appointed to its Board of Directors. Price replaced former board member William
C. Hulley, who resigned from the board to devote more time to other business
interests.
On July 10, 1996, the Company announced the award of $1 million from U.S.
Binational Industrial Research Development Foundation ("BIRD-F") to support the
development of a product containing its site-active steroid, Lotemax(Trademark)
and the antibiotic tobramycin. The Foundation provides funding to stimulate
collaboration between Israeli and U.S. companies. The grant is based on a
budget allocated to the development of Lotemax(Trademark), which is shared
equally by the Company and Bausch & Lomb Pharmaceuticals.
16
<PAGE>
Effective July 1, 1996, Alan M. Mark was appointed to the position of
Acting Chief Financial Officer. Mark replaced Colin Neill, who assisted the
Company during a transition period.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, filed pursuant to Section 13 of the Exchange Act.
(b) The Company's Quarterly Reports on Form 10-Q, for the quarters ending
March 31, and June 30, 1996, filed pursuant to Section 13 of the Exchange Act.
(c) The Company's Current Report on Form 8-K, dated April 18, 1996, filed
pursuant to Section 13 of the Exchange Act, describing the settlement of the
Company's dispute with Dr. Nicholas Bodor regarding the License Agreement
between the Company and Dr. Bodor relating to Lotemax(Trademark).
(d) The Company's Current Report on Form 8-K, dated February 15, 1996,
filed pursuant to Section 13 of the Exchange Act, describing a favorable ruling
the Company received in its dispute with Dr. Bodor.
(e) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated January 30, 1984, filed pursuant to
Section 12 of the Exchange Act.
In addition, all reports and other documents to be filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities offered hereby
then remaining unsold, as well as all such reports filed after the date hereof
and prior to the termination of this offering, shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of the filing of each such report or document.
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article 12 of the Company's Restated Articles of Incorporation directs the
Company to provide in its bylaws for provisions relating to the indemnification
of directors and officers to the full extent permitted by law, including the
federal securities law. Section 78.751 of the Nevada Revised Statutes, as
amended, authorizes the Company to indemnify any director or officer under
certain prescribed circumstances and subject to certain limitations against
certain
17
<PAGE>
costs and expenses, including attorneys' fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Company if it is determined that such person
acted in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company may also purchase and maintain insurance for
the benefit of any director or officer which may cover claims for which the
Company could not indemnify such person.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers, and controlling persons of the Company, or
to underwriters (or controlling persons thereof) of which an officer, partner,
or controlling person thereof is one of the foregoing pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by any such persons, in the successful
defense of any action, suit or proceeding) is asserted by any such persons in
connection with the securities being registered, the Company 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
LEGAL OPINIONS
Legal matters in connection with the securities being offered hereby will
be passed upon for the Company by Eilenberg & Zivian, 666 Third Avenue, New
York, New York 10017.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1995, have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
18
<PAGE>
PHARMOS CORPORATION
-------------------
__________, 1996
INDEX
-----
Page No.
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 14
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . 15
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 16
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . 17
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES . . . . . . . . . . . . . . . . . . . 17
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, assuming all of the
Warrants are exercised at their respective exercise price (all of which will be
borne by the Registrant).
Securities and Exchange Commission Fee . .$ 1,428
Printing and Engraving Expenses. . . . . . 100
Accountants' Fees and Expenses . . . . . . 3,000
Legal Fees and Expenses. . . . . . . . . . 15,000
Blue Sky Filing Fees . . . . . . . . . . . 1,500
Miscellaneous. . . . . . . . . . . . . . . 72
TOTAL $21,100
Item 15. Indemnification of Directors and Officers.
Article 12 of the Registrant's Certificate of Incorporation directs the
Registrant to provide in its bylaws for provisions relating to the
indemnification of directors and officers to the full extent permitted by law.
Section 78.751 of the Nevada Revised Statutes, as amended, authorizes the
Registrant to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions.
The Registrant may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Registrant could
not indemnify such person.
Item 16. Exhibits
4(a) Specimen of Common Stock Certificate (incorporated by
reference to Form S-3 Registration Statement of the
Company dated November 25, 1994 [No. 33-86720])
4(b) Restated Articles of Incorporation (incorporated by
reference to Appendix E to the Joint Proxy Statement/
Prospectus included in the Form S-4 Registration
Statement of the Registrant dated September 28, 1992
[No. 33-52398])
II-1
<PAGE>
4(c) Certificate of Amendment of Restated Articles of
Incorporation (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December
31, 1994 [No. 0-11550])
*4(d) Certificate of Designation, Rights, Preferences and
Privileges of Series A Preferred Stock of the Company
4(e) Amended and Restated By-Laws (incorporated by reference to
Form S-1 Registration Statement of the Company dated June
30, 1994 [No. 33-80916])
*4(f) Form of 5% Preferred Stock Securities Purchase Agreement
dated as of September 30, 1996 between the Company and
the Investors
*4(g) Form of Stock Purchase Warrant dated as of September 30,
1996 between the Company and the Investors
*4(h) Form of Stock Purchase Warrant dated as of September 30,
1996 between the Company and Alan M. Mark
*4(i) Form of Warrant Agreement dated as of March 15, 1996
between the Company and Michael E. Lewis, Ph.D.
*5 Opinion re: legality
23(a) Consent of Eilenberg & Zivian (included in the Opinion
filed as Exhibit 5)
*23(b) Consent of Price Waterhouse LLP
_______________
* Filed herewith
Item 17. Undertakings.
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(a)(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,
II-2
<PAGE>
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 (i) and (ii) above do not apply if the
Registration Statement is on Form S-3 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 Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose 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.
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 Act
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 Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alachua and State of Florida on the 30th day of
October, 1996.
PHARMOS CORPORATION
By:/s/ HAIM AVIV
---------------------------------------
Dr. Haim Aviv, Chairman, Chief
Scientist, Chief Executive Officer
and Director (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this registration
statement or amendment has been signed below by the following persons in the
capacities and on the dates
indicated:
Signature Title Date
- --------- ----- ----
/s/ ALAN M. MARK Acting Chief October 30, 1996
- --------------------------- Financial Officer
Alan M. Mark (Principal Financial and
Accounting Officer)
/s/ MARVIN P. LOEB Director October 30, 1996
- ---------------------------
Marvin P. Loeb
/s/ E. ANDREWS GRINSTEAD III Director October 30, 1996
- ----------------------------
E. Andrews Grinstead III
/s/ STEPHEN C. KNIGHT Director October 30, 1996
- ---------------------------
Stephen C. Knight
/s/ DAVID SCHLACHET Director October 30, 1996
- ---------------------------
David Schlachet
/s/ FREDRIC D. PRICE Director October 30, 1996
- ---------------------------
Fredric D. Price
<PAGE>
EXHIBIT 4(d)
II-5
<PAGE>
STATEMENT OF DESIGNATION, RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES A PREFERRED STOCK
OF
PHARMOS CORPORATION,
a Nevada Corporation
The designation, rights, preferences and privileges of, and other matters
relating to, the Company's Series A Preferred Stock or the holders of record
thereof are as follows:
Section 1. Designation and Amount. The series of Preferred Stock
designated and known as the "Series A Preferred Stock" shall have a par value of
$.03 per share and the number of shares constituting the Series A Preferred
Stock shall be 2000. The Series A Preferred Stock shall have a stated value of
$1,000 per share, with a 5% per annum dividend as set forth herein.
Section 2. Rank. The Series A Preferred Stock shall rank: (i) prior to all
of the Company's Common Stock, par value $.03 per share ("Common Stock") and
(ii) prior to any class or series of capital stock of the Company hereafter
created (unless it specifically, by its terms, ranks on parity with the Series A
Preferred Stock), in each case as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (all
such distributions being referred to collectively as "Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear a 5%
dividend, payable at the time of conversion in cash or Common Stock, at the
Company's option.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the Holders of shares of Series A
Preferred Stock shall be entitled to receive, immediately after any
distributions to any senior securities required by the Company's Certificate of
Incorporation or any certificate of designation, an amount per share equal to
the sum of (i) $1,000 for each outstanding share of Series A Preferred Stock
plus (ii) an amount equal to all accrued unpaid dividends. If upon the
occurrence of such event, and after payment in full of the preferential amounts
with respect to the senior securities, the assets and funds available to be
distributed among the Holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series A Preferred Stock, then the entire
assets and funds of the Company legally available for distribution shall be
distributed among the Holders of the Series A Preferred Stock.
(b) A sale, conveyance or disposition of all or substantially all of the
assets of the Company shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 4; provided further that, a
consolidation, merger, acquisition, or other business combination of the Company
with or into any other Company or Companies or the effectuation by the Company
of a transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of shall not be treated as a
liquidation, dissolution or winding up within the meaning of this Section 4, but
instead shall be treated pursuant to Section 5(f) hereof.
II-6
<PAGE>
Section 5. Conversion. The record Holders of this Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series A Preferred Stock shall
be entitled (at the times and in the amounts set forth below and subject to the
Company's right of mandatory conversion set forth in Section 6(a)), to convert
(in multiples of twenty preferred shares) (1) up to one-quarter (1/4) of the
shares of Series A Preferred Stock held by such Holder at any time beginning 81
days following the date of the closing of the sale of shares of Series A
Preferred Stock to such Holder (the "Closing Date"), and at anytime thereafter,
(2) up to an additional one-quarter (1/4) of the shares of Series A Preferred
Stock held by such Holder at any time beginning 181 days following the Closing
Date, and at anytime thereafter, (3) up to an additional one-quarter (1/4) of
the shares of Series A Preferred Stock held by such Holder at any time beginning
271 days following the Closing Date, and at anytime thereafter, and (4) all
remaining Series A Preferred Stock held by such Holder at any time beginning 361
days following the Closing Date at the office of the Company or any transfer
agent for the Series A Preferred Stock (the "Transfer Agent"), into that number
of fully-paid and non-assessable shares of Common Stock of the Company at a
price (the "Conversion Price") equal to 83% of the average of the Closing Bid
Prices (as defined herein) for the 3 consecutive trading days ending on the
trading day prior to the Date of Conversion (as defined herein); provided,
however, that following the conversion of 475 shares of Series A Preferred
Stock, the Conversion Price shall be equal to 80% of the average of the Closing
Bid Prices for the 3 consecutive trading days ending on the trading day prior to
the Date of Conversion.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq SmallCap Market, or if no longer traded on the Nasdaq
SmallCap Market, the closing bid price on the principal national securities
exchange on which the Common Stock is so traded and if not available, the mean
of the high and low prices on the principal national securities exchange on
which the Common Stock is so traded.
(b) Acceleration.
(i) Mandatory Acceleration. Notwithstanding Section 5(a) above, if
after the 90th day following the Closing Date, (i) the Closing Bid Price exceeds
200% of the closing price on the Closing Date for a period of 5 consecutive
trading days, each Holder may convert an additional one-quarter (1/4) of the
shares of Series A Preferred Stock held by such Holder or (ii) the Closing Bid
Price exceeds 300% of the closing price on the Closing Date for a period of 5
consecutive trading days, each Holder may convert all of the shares of Series A
Preferred Stock held by such Holder.
(ii) Company's Option. Notwithstanding Sections 5(a) and 5(b)(i)
above, the Company may at any time and at its sole discretion accelerate
Holders' right to convert shares of Series A Preferred Stock pursuant to this
Section 5.
(c) Mechanics of Conversion. In order to convert Series A Preferred Stock
into full shares of Common Stock, the Holder shall (i) fax a copy of the fully
executed notice of conversion ("Notice of Conversion") to the Company at the
office of the Company or its designated Transfer Agent for the Series A
Preferred Stock that the Holder elects to convert the same, which notice
II-7
<PAGE>
shall specify the number of shares of Series A Preferred Stock to be converted,
the applicable conversion price and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the first
page of each certificate to be converted) prior to Midnight, New York City time
(the "Conversion Notice Deadline") on the date of conversion specified on the
Notice of Conversion and (ii) within 3 business days of the date of conversion,
deliver the original certificates representing the Series A Preferred Stock
being converted (the "Preferred Stock Certificates"), duly endorsed, along with
a copy of the Notice of Conversion by express courier to the office of the
Company or the Transfer Agent for the Series A Preferred Stock; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the Preferred Stock Certificates are delivered to the Company or its
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (i) below). In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue the number of Shares that are not disputed. The Company shall submit the
disputed calculations to its outside accountant via facsimile within three (3)
days of receipt of Holder's Notice of Conversion. The accountant shall audit the
calculations and notify Company and Holder of the results no later than 48 hours
from the time it receives the disputed calculations. The Accountant's
calculation shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series A Preferred
Stock into Common Stock.
(ii) Delivery of Certificate Upon Conversion. The Company shall
issue and deliver within three (3) business days after delivery to the Company
of a faxed copy of the Notice of Conversion and a faxed copy of the Series A
Preferred Stock Certificates to be converted (or, in the case of lost or stolen
certificates, after provision of agreement and indemnification required by (i)
above), to such Holder of Series A Preferred Stock at the address of the Holder
on the books of the Company, a certificate or certificates for the number of
shares of Common Stock to which the Holder shall be entitled as aforesaid
provided, however, that in no event shall the Company be obligated to deliver
such Common Stock certificates sooner than one day following its receipt of the
actual Preferred Stock Certificate.
(iii) No Fractional Shares. If any conversion of the Series A
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that a copy of the Notice of Conversion is faxed to the
Company before midnight, New York
II-8
<PAGE>
City time, on the Date of Conversion, and (ii) that the original Preferred Stock
Certificates representing the shares of Series A Preferred Stock to be converted
are surrendered by depositing such certificates with either overnight courier or
2-day courier, as provided above, and received by the Transfer Agent or the
Company within three (3) business days thereafter. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of Common Stock on the Date of Conversion. If the original Preferred Stock
Certificates representing the Series A Preferred Stock to be converted are not
received by the Transfer Agent or the Company within three (3) business days
after the Date of Conversion or if the facsimile of the Notice of Conversion is
not received by the Company or its designated Transfer Agent prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Company's option,
may be declared null and void.
(d) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series A Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(e) Automatic Conversion. Each share of Series A Preferred Stock
outstanding on the third anniversary of the Closing Date automatically shall be
converted into Common Stock on such date at the rate calculated in accordance
with the formula in Section 5(a) above and such date shall be deemed the Date of
Conversion with respect to such conversion.
(f) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, or other similar event, the Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a reverse stock split, combination or reclassification of
shares, or other similar event, the Conversion Price shall be proportionately
increased. In such event the Company shall notify the Transfer Agent of such
change on or before the effective date thereof.
(ii) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity, or
other property, then the Holders of Series A Preferred Stock shall, upon being
given at least 30 days advance written notice of such transaction, thereafter
have the right to purchase and receive upon conversion of Series A Preferred
Stock, upon the basis and upon the terms and conditions
II-9
<PAGE>
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such shares of stock and/or securities or
other property as may be issued or payable with respect to or in exchange for
the number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of Series A Preferred Stock held by such Holders
had such merger, consolidation, exchange of shares, recapitalization or
reorganization not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holders of the
Series A Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Rate and of the
number of shares issuable upon conversion of the Series A Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock or securities thereafter deliverable upon the conversion
thereof. The Company shall not effect any transaction described in this
subsection 5(f) unless (1) Holder has been given at least 30 days advance
written notice of such transaction, and (2) the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the obligation to
deliver to the Holders of the Series A Preferred Stock such shares of stock
and/or securities or other property as, in accordance with the foregoing
provisions, the Holders of the Series A Preferred Stock may be entitled to
receive upon conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any adjustment under this Section
5(f) would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
higher number of shares.
Section 6. Conversion By Company.
(a) Company's Right to Convert. If the Closing Bid Price exceeds 200% of
the closing price on the Closing Date for a period of 5 consecutive trading
days, the Company shall have the right, in its sole discretion, to convert in
whole or in part the remaining outstanding shares of Series A Preferred Stock on
the day following any such 5 consecutive trading days (the "Mandatory Conversion
Date").
(b) Mechanics of Conversion by Company. The Company shall effect each such
conversion by giving notice of its election to convert to, by facsimile, by
Midnight, New York City time on the Mandatory Conversion Date, and the Company
shall provide a copy of such notice by overnight or 2-day courier, to (A) the
Holder of the Series A Preferred Stock to be converted at the address and
facsimile number of such Holder appearing in the Company's register for the
Series A Preferred Stock and (B) the Company's Transfer Agent. Such notice shall
indicate whether the Company will convert all or part of the Series A Preferred
Stock held by such Holder and the applicable conversion price.
Section 7. Voting Rights. The Holders of the Series A Preferred Stock
shall have no voting power whatsoever, except as otherwise provided by the
Nevada Corporation Laws.
Section 8. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 5 or Section 6 hereof,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall not
be issuable by the Company as Series A Preferred Stock.
II-10
<PAGE>
Section 9. Preference Rights. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one or more series
of Preferred Stock with dividend and/or liquidation preferences junior to the
dividend and liquidation preferences of the Series A Preferred Stock.
<PAGE>
EXHIBIT 4(f)
<PAGE>
[FORM OF 5% PREFERRED STOCK SECURITIES PURCHASE AGREEMENT]
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
5% PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
PHARMOS CORPORATION
THIS AGREEMENT is made as of the 30th day of September, 1996,
between PHARMOS CORPORATION, Nasdaq Symbol "PARS" (the "Company"), a Nevada
corporation, with its principal office at 2 Innovation Drive, Alachua, FL 32615,
and _____________________ (the "Purchaser"), with its principal office at 101
Hudson Street, Jersey City, NJ 07302.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement:
"Closing Date" means the date agreed to by the parties for the
delivery of the stock certificate against a wire transfer of the funds to the
Company.
"Closing" means the completion of the purchase and sale of the
Shares on the Closing Date.
"Common Stock" means the Underlying Common Stock of the Company,
$.03 par value.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to the Company.
"Convertible Preferred Stock" means the Shares of Preferred Stock of
the Company convertible into common stock of the Company as hereinafter
provided.
"Conversion Price" means (a) for the first twenty-five (25%) percent
of the Shares converted, an amount equal to a seventeen (17%) percent discount
from the average closing price, and (b) for the remaining seventy-five (75%)
percent of the Shares converted, an amount
<PAGE>
equal to a twenty (20%) percent discount from the average closing price of the
Common Stock as reported by Nasdaq for the previous three (3) business days
ending on the day before the Conversion Date.
"Purchase Price" means the aggregate purchase price of the Shares
purchased.
"Shares" means the purchased Convertible Preferred Shares.
Section 2. Authorization and Sale of Shares.
2.1 Authorization. Subject to the terms and conditions of this
Agreement, the Company has authorized the sale and issuance of the Shares.
2.2 Agreement to Sell and Purchase the Shares. The Company will sell
and the Purchaser will buy Shares in reliance upon the representations and
warranties of the Company and Purchaser contained in this Agreement, upon the
terms and conditions hereinafter set forth, ______ shares of Preferred Shares
for an aggregate purchase price of ______________________ ($____________)
Dollars based on U.S. $1,000 per share. The Shares shall pay a 5% cumulative
dividend, payable in cash or Common Stock at the Conversion Price, at the
discretion of the Company, at the time of each conversion. Such purchase and
sale shall occur on the Closing Date. In addition, Company will sell to
Purchaser _________ warrants to purchase Common Stock for a period of three (3)
years at an exercise price of $1.75 per share as per the terms of a separate
Stock Purchase Warrant.
2.3 Time and Place of Closing. The Closing shall be held at the
offices of Sheldon E. Goldstein, P.C. ("Escrow Agent"), 65 Broadway, New York,
NY 10006, as promptly as practicable as agreed to by the parties to this
Agreement.
2.4 Payment and Delivery. At or prior to the Closing, the following
shall occur:
(a) Purchaser shall remit by wire transfer the Purchase Price
to Escrow Agent as per separate Escrow Agreement, as payment in full for the
Shares.
(b) Company shall deliver or cause to be delivered to Escrow
Agent a certificate representing the Shares, registered in the name of Purchaser
(or any nominee designated by Purchaser at least three days before the Closing
Date), free and clear of all liens, claims, charges and encumbrances.
(c) Wire instructions for Sheldon E. Goldstein, P.C. are as
follows:
Chase Manhattan Bank, N.A.
ABA #021000021
For the Account of
United States Trust Company of New York
Account #920-1-073195
In Favor of
Sheldon E. Goldstein, P.C. Attorney Trust Account
Account #59-02347
<PAGE>
Section 3. General Representations and Warranties of the Company.
The Company hereby represents and warrants to, and covenants with, the Purchaser
that the following are true and correct as of the date hereof and as of the
Closing Date.
3.1 Organization; Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Nevada and is in
good standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 Shares of Common Stock, $.03 par value, and 1,250,000
Shares of non-voting Preferred Stock, no par value, which have been designated
Series A Convertible Preferred Stock, no par value. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The Company will reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the conversion in full of the outstanding Shares. As of the Closing Date,
the Company had reserved sufficient shares of Common Stock for issuance upon
exercise of the Shares which are convertible, at Purchaser's option, at the
Conversion Price, as per Section 9 of this Agreement.
3.3 Authorization. The Company has all requisite corporate right,
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares and the performance of
the Company's obligations hereunder has been taken. This Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 7.4 of this Agreement.
Upon their issuance and delivery pursuant to this Agreement, the Securities will
be validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Shares are subject to restrictions on
transfer under state and/or federal Shares laws. The issuance and sale of the
Shares will not give rise to any preemptive right or right of first refusal or
right of participation on behalf of any person.
3.4 No Conflict. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto, Bylaws,
Stockholders Agreements and any amendments thereto of the Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Company, its properties or assets.
<PAGE>
3.5 Accuracy of Reports and Information. The Company is in full
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12 (g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Action"). The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and the Common Stock is listed and
trades on Nasdaq.
The Company has filed all material required to be filed pursuant to
all reporting obligations, under either Section 13(a) or 15(d) of the Exchange
Act for a period of at least twelve (12) months immediately preceding the offer
to sale of the Shares (or for such shorter period that the Company has been
required to file such material).
3.6 SEC Filings/Full Disclosure. None of the Company's filings with
the Securities and Exchange Commission since January 1, 1996 contain any untrue
statement of a material fact or omit 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. The Company has, since
January 1, 1996, timely filed all requisite forms, reports and exhibits thereto
with the Securities and Exchange Commission.
There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in writing
to the Purchaser could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise) or in the earnings, business affairs,
business prospects, properties or assets of the Company, or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
3.7 Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as set forth in the Financial Statements or as incurred in
the ordinary course of business after the date of the Financial Statements.
3.8 Governmental Consent, etc. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby, except the filing
with the SEC of a registration statement on Form S-3 for the purpose of
registering the Common Stock underlying the Shares.
3.9 Intellectual Property Rights. Except as disclosed in the Form
10-K, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as contemplated in the Form
10-K. To the Company's knowledge, neither the Company nor its products is
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company.
3.10 Material Contracts. Except as set forth in the Form 10-K, the
agreements to which the Company is a party described in the Form 10-K are valid
agreements, in full force
<PAGE>
and effect, the Company is not in material breach or material default (with or
without notice or lapse of time, or both) under any of such agreements, and, to
the Company's knowledge, the other contracting party or parties thereto are not
in material breach or material default (with or without notice or lapse of time,
or both) under any of such agreements.
3.11 Litigation. There is no action, proceeding or investigation
pending, or to the Company's knowledge threatened, against the Company which
might result, either individually or in the aggregate, in any material adverse
change in the business, prospects, conditions, affairs or operations of the
Company. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
3.12 Title to Assets. Except as set forth in Form 10-K, the Company
has good and marketable title to all properties and material assets described in
the Form 10-K as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company.
3.13 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
association or other business entity, except as stated in the Company's 10-Qs
and 10-Ks.
3.14 Required Governmental Permits. The Company is in possession of
and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
3.15 Listing. The Company will maintain the listing of its Common
Stock on the Nasdaq Small Cap Market or other organized United States market or
quotation system.
3.16 Other Outstanding Securities/Financing Restrictions. There are
no other outstanding securities debt or equity presently convertible into Common
Shares. The Company has no outstanding restricted Shares, or Shares sold under
Regulation S, Regulation D or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
The Company cannot, without the prior approval in writing from the
Purchaser, obtain convertible debt or equity financing for a period of one
hundred eighty (180) days following the Closing Date; however, the Company will
not require prior approval if (a) the Company's share price is greater than 200%
of the Closing Price at the time of such financing, (b) the financing is with a
company or entity with which the Company has a business or strategic
relationship, or (c) the equity securities issued are not registered prior to
one hundred eighty (180) days from the Closing Date.
3.17 Right of First Refusal. In the event the Company wishes to
complete a financing similar in structure to the securities issued hereby within
one hundred and eighty (180) days from the Closing Date, the Purchaser shall
have the right of first refusal to participate in such offering and shall have
three (3) business days to reply in writing after receipt of written
<PAGE>
notice of such proposed financing from the Company. In the event a writing is
not received by the Company, this will be deemed a refusal by the Purchaser.
3.18 Legal Opinion. Purchaser shall, upon purchase of the Shares,
receive an opinion letter from counsel to the Company, and the Company
represents that it will immediately obtain such an opinion from counsel to the
satisfaction of the Transfer Agent, to the effect that:
(i) The Company is duly incorporated and validly existing in
the jurisdiction of its incorporation.
(ii) There is no action, proceeding or investigation pending,
or to such counsel's knowledge, threatened against the Company which might
result, either individually or in the aggregate, in any material adverse
change in the business, prospects, conditions, affairs or operations of
the Company.
(iii) The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.
(iv) There is no action, suit, proceeding or investigation by
the Company currently pending or which the Company currently intends to
initiate.
(v) All issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable.
(vi) The Convertible Preferred Shares, which shall be issued
at the closing, are properly issued under the Company's State of
Incorporation.
(vii) This Securities Purchase Agreement, the issuance of
Convertible Preferred Shares and the issuance of Common Stock, upon
conversion of the Shares, have been duly approved by all required
corporate action and that all such securities, upon delivery, shall be
validly issued and outstanding, fully paid and nonassessable
3.19 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used to fund the Company's research and development
activities and clinical trials of its drugs, possible acquisitions, strategic
alliances, working capital and general corporate purposes.
Section 4. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Company that the following are true and correct as of the date hereof and as of
the Closing Date.
4.1 Authority. The Purchaser's signatory has all right, power,
authority and capacity to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other
<PAGE>
equitable remedies, and to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 7.4 of this Agreement.
4.2 Investment Experience. Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is aware of the
Company's business affairs and financial condition and has had access to and has
acquired sufficient information about the Company, including the SEC Reports, to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser
has such business and financial experience as is required to give it the
capacity to protect its own interests in connection with the purchase of the
Shares.
4.3 Investment Intent. Without limiting its ability to resell the
Shares and underlying Common Stock pursuant to an effective registration
statement, Purchaser represents that it is purchasing the Shares for its own
account as principal for investment purposes. Purchaser understands that its
acquisition of the Shares has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
bona fide nature of Purchaser's investment intent as expressed herein. Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchaser or otherwise acquire or take
a pledge of) any of the Shares except in compliance with the Securities Act and
any applicable state securities laws, and the rules and regulations promulgated
thereunder.
4.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the Shares may not be resold or otherwise
transferred except in a transaction registered under the Securities Act and any
applicable state securities laws or unless an exemption from such registration
is available. Purchaser understands that the certificate(s) evidencing the
Shares will be imprinted with a legend that prohibits the transfer of the Shares
unless (i) they are registered or such registration is not required, and (ii) if
the transfer is pursuant to an exemption from registration other than Rule 144
under the Securities Act and, if the Company shall so request in writing, an
opinion of counsel reasonably satisfactory to the Company is obtained to the
effect that the transaction is so exempt.
4.5 No Legal, Tax or Investment Advice. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Shares constitutes legal, tax or
investment advice. Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchaser of the Shares.
4.6 Purchaser Review. Purchaser hereby represents and warrants that
the Purchaser has carefully examined the SEC Reports, including the Form 10-K
and the financial statements contained therein. The Purchaser acknowledges that
the Company has made available to the Purchaser all documents and information
that it has requested relating to the Company and has provided answers to all of
its questions concerning the Company and the Shares. Nothing stated in the
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Company contained in this Agreement.
4.7 Legend. The certificate or certificates representing the Shares
shall be subject to a legend restricting transfer under the Securities Act of
1933, such legend to be substantially as follows:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN THE
CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS CONFIRMED IN
A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates shall also include any legends required by any applicable state
securities laws.
The legend(s) endorsed on a stock certificate pursuant to this
Section 4.7 shall be removed and the Company shall issue a replacement
certificate without such legend to the holder of such certificate if the Shares
represented by such certificate are registered under the Securities Act or if
such holder provides to the Company an opinion of counsel to the effect that a
public sale, transfer or assignment of such Shares may be made without
registration.
4.8 Restrictions on Conversion of Shares. The Purchaser or any
subsequent holder of the shares (the "Holder") shall be prohibited from
converting any portion of the Shares which would result in the Purchaser or the
Holder being deemed the beneficial owner, in accordance with the provisions of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended, of 4.99% or more
of the then issued and outstanding Common Stock of the Company.
Section 5. Conditions to the Purchaser's Obligation to Purchase. The
Company understands that the Subscriber's obligation to purchase the Stock is
conditioned upon:
(a) Acceptance by Purchaser of this Subscription Agreement for
the sale of the Stock, as evidenced by the execution of this Agreement by its
authorized officers;
(b) Delivery of the Shares into Escrow;
(c) The delivery at the closing of a certificate from an
authorized officer of the Company certifying that all representations and
warranties of the Company are true and correct as of the Closing Date (in the
form annexed hereto as Exhibit A1); and
(d) A filed Certificate of Designation.
Section 6. Conditions to Company's Obligation to Sell. Purchaser
understands that the Company's obligation to sell the Stock is conditioned upon:
(a) The receipt and acceptance by the Company of this
Subscription Agreement for all of the Stock as evidenced by execution of this
Subscription Agreement by the President or any Vice President of the Company;
(b) Delivery into escrow by Purchaser of good funds as payment
in full for the purchase of the Shares; and
(c) The delivery at the closing of a certificate from an
authorized officer or representative of Subscriber certifying that all
representations and warranties of the
<PAGE>
Purchaser are true and correct as of the Closing Date (in the form annexed
hereto as Exhibit A2).
Section 7. Registration of the Shares; Compliance with the
Securities Act.
7.1 Definitions. For the purpose of this Section 7:
(a) the term "Registration Statement" shall mean any
registration statement required to be filed by Section 7.2 below, and shall
include any preliminary prospectus, final prospectus, exhibit or amendment
included in or relating to such registration statement; and
(b) the term "untrue statement" shall include any untrue
statement or alleged untrue statement, or any omission or alleged omission to
state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
7.2 Registration Procedures and Expenses. The Company shall:
(a) within thirty (30) days after the Closing Date and in
sufficient time to have such registration effective ninety (90) days from the
Closing Date, file with the SEC a registration statement under the Securities
Act on a form which is appropriate to register the Common Stock underlying the
Shares and the Shares underlying the Stock Purchaser Warrant of even date;
(b) use its best efforts, subject to receipt of necessary
information from the Purchaser, to cause such Registration Statement to become
effective as promptly after filing as practicable;
(c) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
until termination of such obligation as provided in Section 7.9 below;
(d) furnish to the Purchaser with respect to Common Stock
registered on the Registration Statement (and to each underwriter, if any, of
such Common Stock) such number of copies of prospectuses in conformity with the
requirements of the Securities Act and such other documents as the Purchaser may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Common Stock by the Purchaser; provided, however, that the
obligation of the Company to deliver copies of prospectuses to the Purchaser
shall be subject to the receipt by the Company of reasonable assurances from the
Purchaser that the Purchaser will comply with the applicable provisions of the
Securities Act and of such other securities laws as may be applicable in
connection with any use of such prospectuses;
(e) file such documents as may be required of the Company for
normal securities law clearance for the resale of the Common Stock in which
states of the United States as may be reasonably requested by the Purchaser;
provided, however, that the Company shall not be required in connection with
this paragraph (e) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
<PAGE>
(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section 7.2 and the registration of the
Common Stock on such Registration Statement and the satisfaction of the blue sky
laws of such states, including the reasonable fees and expenses of legal counsel
to the Purchaser in connection with the procedures in paragraph (a) through (e)
of this Section 7.2, other than underwriting discounts and selling commissions
or expenses required by law to be borne by Purchaser; and
(g) in the event of the failure of Company to procure
registration of the Common Stock underlying the Shares within ninety (90) days
from the Closing Date, Company will pay Purchaser by wire transfer, as
liquidated damages for such failure and not as a penalty, $20,000 for each of
the first two months and $40,000 for each month thereafter that the registration
statement is not effective beginning ninety (90) days from the Closing Date or
does not remain effective pursuant to Section 7.7 of this Agreement after such
date. If the Company does not remit the damages to the Purchaser as set forth
above, the Company will pay the Purchaser reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. Such payment
shall be made to the Purchaser immediately if the registration of the Shares is
not effected; provided, however, that the payment of such liquidated damages
shall not relieve the Company from its obligations to register the Shares
pursuant to this Section. The registration of the Shares pursuant to this
provision shall not affect or limit Purchaser's other rights or remedies as set
forth in this Agreement.
7.3 Underwriter. The Company understands that the Purchaser
disclaims being an "underwriter" (as such term is defined under the Securities
Act and the rules and regulations promulgated thereunder (an "Underwriter")),
but Purchaser being deemed an Underwriter shall not relieve the Company of any
obligation it has hereunder.
7.4 Indemnification. Each of the Company and the Purchaser agrees to
indemnify the other and to hold the other harmless from and against any and all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
7.5 Information Available. So long as any registration statement is
effective covering the resale of the Common Stock underlying the Shares, the
Company will furnish to Purchaser:
(a) as soon as possible after available, one copy of (i) its
Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
in the United States of America by a national firm of certified public
accountants); (ii) if not included in substance in the Annual Report to
Stockholders, its annual report on Form 10-K within 100 days after the end of
each fiscal year of the Company, (iii) each of its Quarterly Reports to
Stockholders, and its quarterly report on Form 10-Q within sixty (60) days, and
(iv) a full copy of the registration statement covering the Common Stock
underlying the Shares (the foregoing, in each case, excluding exhibits); and
(b) upon the reasonable request of Purchaser, such other
information that is generally available to the public.
<PAGE>
7.6 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the Shares to the public without registration, the Company agrees to use
its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date on which the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144, and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as Purchaser may reasonably request in
availing itself of any rule or regulation of the SEC allowing Purchaser to sell
any such Shares without registration.
7.7 Temporary Cessation of Offers and Sales by Purchaser. The
Purchaser acknowledges that there may occasionally be times when the Company may
be required to suspend the use of the prospectus forming part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the
Commission, until the prospectus is supplemented or amended to comply with the
Securities Act, or until such time as the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act. The Company agrees to
file any necessary amendments, supplements and reports as soon as practicable
under the circumstances. Purchaser hereby covenants that it will not sell any
Common Stock pursuant to said prospectus during a period of not more than 45
days commencing at the time at which the Company gives the Purchaser notice of
the suspension of the use of said prospectus and ending at the time the Company
gives the Purchaser notice that the Purchaser may thereafter effect sales
pursuant to said prospectus, as the same may have been supplemented or amended.
7.8 Transfer of Common Stock After Registration. Purchaser hereby
covenants with the Company not to make any sale of the Common Stock except
either (i) in accordance with the Registration Statement, in which case
Purchaser covenants to comply with the requirement of delivering a current
prospectus, or (ii) in accordance with Rule 144, in which case Purchaser
covenants to comply with Rule 144.
7.9 Termination of Obligations. The obligations of the Company
pursuant to Sections 7.2, 7.3 and 7.6 hereof shall cease and terminate upon the
earlier to occur of (i) such time as all of the Common Stock have been re-sold,
or (ii) such time as all of the Common Stock may be re-sold in any three-month
period pursuant to Rule 144 under the Securities Act.
Section 8. Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
<PAGE>
Section 9. Conversion. Conversion of the Cumulative Preferred Stock
may be made at the conversion Price as follows:
0 - 80 days None
81 - 180 days Up to 25% of initial investment
181 - 270 days Up to 50% of initial investment (cumulative)
271 - 360 days Up to 75% of initial investment (cumulative)
after 360 days 100% of initial investment
If after ninety (90) days from the Closing Date, the closing bid
price on Nasdaq of the Company's Common Stock exceeds 200% of the Nasdaq closing
price on the Closing Date for a period of five (5) consecutive days, Purchaser
may convert an additional 25% of the Preferred Shares sold to Purchaser under
this Agreement. If after ninety (90) days from the Closing Date, the closing bid
price on Nasdaq of the Company's Common Stock exceeds 300% of the Nasdaq closing
price on the Closing Date, the Purchaser may convert all of its remaining
Cumulative Preferred Shares. Upon the three year anniversary of the Closing Date
all of the Convertible Preferred Shares will be converted into common at a price
based upon a 20% discount from the Nasdaq Closing Bid Prices for the three
business days preceding the third anniversary of the Closing Date. The Company
may, at its option, require the conversion of the Cumulative Preferred Stock
when the average Nasdaq closing bid price is more than 200% above the Nasdaq
closing price on the Closing Date for five (5) consecutive days, prior to the
date notice of such mandatory conversion is given.
9.1 Notice of Conversion. Conversion of the Shares to Common Stock
may be exercised in whole or in part by Purchasers telecopying an executed and
completed Notice of Conversion (in the form annexed hereto as Exhibit B) to the
Company and delivering the original Notice of Conversion and the certificate
representing the shares to the Company by express courier within three (3)
business days of exercise. Each date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the provisions
hereof shall be deemed a Conversion Date. The Company will transmit the
certificates representing the Common Stock issuable upon conversion of all or
any part of the Shares (together with the certificates representing portions of
the Shares not so converted) to the Purchaser via express courier within three
(3) business days after the Company has received the original Notice of
Conversion and shares certificate being so converted. The Notice of Conversion
and certificate representing the portion of the Shares converted shall be
delivered as follows:
To the Company:
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
Attn: Alan Mark
(Tele) (904) 462-1210
(Fax) (904) 462-5401
or to such other person at such other place as the Company shall designate to
the Purchaser in writing.
<PAGE>
In the event that the Shares are not converted within ten (10)
business days of receipt by the Company of a valid Conversion Notice and
certificates representing the Shares to be converted (such date of receipt
referred to as the "Conversion Date"), the Company shall pay to the Purchaser,
by wire transfer, as liquidated damages for such failure and not as a penalty,
an amount in cash equal to one (1%) percent per day of the purchase price of the
Shares to be converted which shall run from the initial Conversion Date.
9.2 Restrictions on Sales by Purchaser. Purchaser agrees that it
will not directly or indirectly sell any of the Common Stock (including short
sales) during five (5) business days prior to a conversion.
Section 10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
Pharmos Corporation
2 Innovation Drive
Alachuna, FL 32615
copy to:
Jeffrey Abbey, Esq.
Fitzpatrick, Eilenberg & Zivian
666 Third Avenue, 30th Fl.
New York, NY 10017
(Tele) (212) 986-2468
(Fax) (212) 986-2399
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to
copy to:
Sheldon E. Goldstein, P.C.
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Sheldon E. Goldstein
or at such other address or addresses as may have been furnished to the Company
in writing; or
<PAGE>
(c) if to any transferee or transferees of a Purchaser, at
such address or addresses as shall have been furnished to the Company at the
time of the transfer or transfers, or at such other address or addresses as may
have been furnished by such transferee or transferees to the Company in writing.
Section 11. Miscellaneous.
11.1 Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement or any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
11.2 Amendments. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and by
Purchaser.
11.3 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
11.4 Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
11.5 Governing Law/Jurisdiction. This Agreement will be construed
and enforced in accordance with and governed by the laws of the State of New
York, except for matters arising under the 1933 Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the courts of or located in the State of New York, specifically the Southern
District of New York and/or the Supreme Court of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
11.6 Recovery of Attorney's Fees. Should any party bring an action
to enforce the terms of this Agreement then, if Purchaser prevails in such
action it should be entitled to recovery of its attorney's fees from the
Company, and if the Company prevails in such action it shall be entitled to
recovery of its attorney's fees from the Purchasers.
11.7 Fees. Notwithstanding Section 11.6, the Company acknowledges
that Purchaser shall have no responsibility for the payment of any of its fees
in connection with this offering.
<PAGE>
11.8 Counterparts/Facsimile. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
11.9 Publicity. The Purchaser shall not issue any press releases or
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
11.10 Survival. The representations and warranties in this Agreement
shall survive Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized representatives the day and year first above
written.
PHARMOS CORPORATION
By_______________________________
Officer
----------------
By_______________________________
Officer
<PAGE>
EXHIBIT A1
PHARMOS CORPORATION
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of PHARMOS CORPORATION, hereby
certifies that the representations and warranties made by ____________ in the 5%
Preferred Stock Securities Purchase Agreement dated September __, 1996 between
Pharmos Corporation and _____________ were true and correct as of the date such
representations and warranties were made and are true and correct in all
material respects as of the date hereof with the same force and effect as
through such representations and warranties had been made on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has signed this Certificate as
of this ___ day of September 1996.
PHARMOS CORPORATION
By________________________
Name______________________
Title_______________________
<PAGE>
EXHIBIT A2
---------------
COMPLIANCE CERTIFICATE
The undersigned, _________________, _________________________, of
___________, a _________ corporation ("___________"), hereby certifies that the
representations and warranties made by _____________ in the 5% Preferred Stock
Securities Purchase Agreement dated September __, 1996 between Pharmos
Corporation and ________ were true and correct as of the date such
representations and warranties were made and are true and correct in all
material respects as of the date hereof with the same force and effect as
through such representations and warranties had been made on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has signed this Certificate as
of this ___ day of September 1996.
------------
By________________________
Name______________________
Title_______________________
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
5% Preferred Stock)
The undersigned hereby irrevocably elects to convert the above Certificate No.
____ into shares of common stock of PHARMOS CORPORATION (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that
All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the Preferred Stock
shall be made in compliance with Regulation D, pursuant to an exemption
from registration under the Act, or pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), subject to any restrictions on sale or transfer set
forth in the Preferred Stock Securities Purchase Agreement between the
Company and the original holder of the Certificate submitted herewith
for conversion.
Upon conversion pursuant to this Notice of Conversion, the undersigned
will not own or deemed to beneficially own (within the meaning of the
Securities Exchange Act of 1934) 4.9% or more of the then issued and
outstanding shares of the company.
____________________________ ______________________________
Date of Conversion Applicable Conversion Price
____________________________ ______________________________
Number of Common Shares upon $ Amount of Conversion
Conversion
____________________________ ______________________________
Signature Name
Address: Delivery of Shares to:
<PAGE>
EXHIBIT 4(g)
<PAGE>
[FORM OF STOCK PURCHASE WARRANT BETWEEN THE COMPANY
AND THE INVESTORS]
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
To Purchase _________ Shares of Common Stock of
PHARMOS CORPORATION
THIS CERTIFIES that, for value received, ___________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after September 30, 1997 (the "Initial
Date of Exercise") and on or prior to September 30, 2000 (the "Termination
Date") but not thereafter, to subscribe for and purchase from PHARMOS
CORPORATION, a Nevada corporation (the "Company"), _________ shares of Common
Stock (the "Warrant Shares"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be One Dollar and Seventy-Five
Cents ($1.75). The Exercise Price and the number of shares for which the Warrant
is exercisable shall be subject to adjustment as provided herein. This warrant
is being issued pursuant a Preferred Stock Securities Purchase Agreement dated
September 30, 1996 complete with all listed exhibits thereto (the "Agreement")
between the Company and the Investor and is subject to its terms. In the event
of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company, by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole or in part, on or
after the Initial Date of Exercise and before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 11 below, by the surrender of this Warrant and the
Subscription Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be entitled
to receive a certificate for the number of shares of Common Stock so purchased
immediately. In the event upon exercising the Warrant, the transfer agent
requires an opinion of counsel, the Company shall have such opinion furnished to
the transfer agent to the transfer agent's satisfaction. In the event the
Investor is relying on another exemption from registration under the 1933 Act,
the Shares shall be issued immediately, if the Investor furnishes an opinion of
counsel, reasonably satisfactory to the Company, that another exemption from
registration is available. Certificates for shares purchased hereunder shall be
delivered to the holder hereof within five business days after the date on which
this Warrant shall have been exercised as aforesaid. Payment of the Exercise
Price of the shares may be by certified check or cashier's check or by wire
transfer to an account designated by the Company in an amount equal to the
Exercise Price multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof, together with evidence satisfactory to the Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock, the Company
may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record
<PAGE>
owner of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
<PAGE>
(c) Subject to the terms and conditions of the Preferred Stock
Securities Purchase Agreement of even date. The Company is required to register
certain Common Stock underlying the Common Stock underlying this Warrant.
12. Registration Rights. If, upon exercise of all or any part of the
Warrant effected by the Investor pursuant to the terms of any part of this
Warrant and the terms of the Preferred Stock Securities Purchase Agreement at
any time after ninety (90) days from the date of this Warrant, the Company fails
to issue certificates for the shares of Common Stock issuable upon such exercise
to the Investor bearing no restrictive legend for any reason, other than a
breach of contract by Investor concerning the representations and warranties
made by Investor in this Agreement or the Notice of Exercise found herein were
untrue when made, then the Company shall be required, at the request of the
Investor and at the Company's expense, to effect the registration of the shares
of Common Stock issuable upon exercise of the shares of Common Stock under the
1933 Act, and relevant Blue Sky laws as promptly as is practicable. The Company
and the Investor shall cooperate in good faith in connection with the furnishing
of information required for such registration and the taking of such other
actions as may be legally or commercially necessary in order to effect such
registration. The Company shall commence to prepare and file a registration
statement within 10 days of Investor's demand therefor and shall use its best
efforts to cause such registration statement to become effective as soon as
practicable thereafter. Such best efforts shall include, but not be limited to,
promptly responding to all comments received from the staff of the Securities
and Exchange Commission with respect to such registration statement and promptly
preparing and filing amendments to such registration statement which are
responsive to the comments received from the staff of the Securities and
Exchange Commission. Once declared effective by the Securities and Exchange
Commission, the Company shall cause such registration statement to remain
effective until the earlier of (i) the sale by the Investor of all Securities
registered, or (ii) 120 days after the effective date of such registration
statement.
In the event that the Company has not effected the registration of
the shares of Common Stock issuable upon the exercise of the Warrant under the
1933 Act and relevant Blue Sky Laws as soon as practicable after the date of the
Investor's demand therefor, the Company shall pay to the Investor by wire
transfer, as liquidated damages for such failure and not as a penalty, an amount
in cash equal to $10,000. If the Company does not remit the damages to the
Investor as set forth above, the Company will pay the Investor reasonable costs
of collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Investor immediately if the registration of
the shares of Common Stock is not effected; provided, however, that the payment
of such liquidated damages shall not relieve the Company from its obligations to
register the shares of Common Stock pursuant to this Section. The registration
of the shares of Common Stock pursuant to this provision shall not effect or
limit Investor's other rights or remedies as set forth in this Agreement.
13. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter set forth:
(a) In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its
<PAGE>
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to
holders of its outstanding Common Stock entitling them (for a period within 45
days after the record date mentioned below) to subscribe for or purchase shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock at a Price Per Share (as defined in paragraph (e) below) which
is lower at the date of issuance thereof than the then Current Market Price (as
defined in paragraph (f) below) per share of Common Stock at such date, the
number of Warrant Shares hereafter purchasable upon the exercise of this Warrant
shall be determined by multiplying the number of Warrant Shares theretofore
purchasable upon exercise of this Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock actually subscribed for and purchased, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
of Common Stock which the aggregate Proceeds (as defined in paragraph (e) below)
received by the Company on exercise of such rights, options and warrants would
purchase at the Current Market Price per share of Common Stock at the date of
issuance of such rights, options or warrants. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
on the date of distribution retroactive to the record date for the determination
of stockholders entitled to receive such rights, options or warrants.
(c) In case the Company shall distribute to holders of its shares of
Common Stock evidences of its indebtedness or assets (excluding dividends or
distributions referred to in paragraph (a) above or in the paragraph immediately
following this paragraph and excluding any dividend or distribution paid out of
the retained earnings of the Company) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in paragraph (b)
above), then in each case the number of Warrant Shares thereafter purchasable
upon the exercise of this Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of this Warrant by a
fraction, of which the numerator shall be the then Current Market Price per
share of Common Stock on the date of such distribution, and of which the
denominator shall be such Current Market Price, less the then fair value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.
<PAGE>
(d) For purposes of this Section 13, "Price Per Share" shall be
defined and determined according to the following formula:
R
P = ------------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the Company which
(i) in the case of shares of Common Stock is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such shares; (ii) in the case of rights,
options or warrants to subscribe for or purchase shares of
Common Stock or of securities convertible into or exchangeable
or exercisable for shares of Common Stock, is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such rights, options, warrants or
convertible or exchangeable or exercisable securities, plus
the minimum aggregate amount of additional consideration,
other than the surrender of such convertible or exchangeable
securities, payable to the Company upon exercise, conversion
or exchange thereof; and (iii) in the case of rights, options
or warrants to subscribe for or purchase convertible or
exchangeable or exercisable securities, is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such rights, options or warrants, plus
the minimum aggregate amount of additional consideration other
than the surrender of such convertible or exchangeable
securities, payable upon the exercise, conversion or exchange
of such rights, options or warrants and upon the conversion or
exchange or exercise of the convertible or exchangeable or
exercisable securities; provided that in each case the
proceeds received or receivable by the Company shall be deemed
to be the gross cash proceeds without deducting therefrom any
compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or
other performing similar services or any expenses incurred in
connection therewith,
and
N = the "Number of shares," which (i) in the case of Common
Stock is the number of shares issued; (ii) in the case of
rights, options or warrants to subscribe for or purchase
shares of Common Stock or of securities convertible into or
exchangeable or exercisable for shares of Common Stock, is the
maximum number of shares of Common Stock initially issuable
upon exercise, conversion or exchange thereof; and (iii) in
the case of rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable
securities, is the maximum number of shares of
<PAGE>
Common Stock initially issuable upon conversion, exchange or
exercise of the convertible, exchangeable or exercisable
securities issuable upon the exercise of such rights, options
or warrants.
If the Company shall issue shares of Common Stock or rights,
options, warrants or convertible or exchangeable or exercisable securities for a
consideration consisting, in whole or in part, of property other than cash, the
amount of such consideration shall be determined in good faith by the Board of
Directors of the Company whose determination shall be conclusive.
(e) For the purpose of any computation under paragraphs (b), (c) or
(d) of this Section 13, the "Current market Price" per share of Common Stock at
any date shall be the average of the Closing NASDAQ Price of the Common Stock
for the thirty (30) trading days commencing 30 trading days before the date of
determination.
(f) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(g) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an increase
or decrease of at least one percent (1%) percent of the Exercise Price; provided
that any adjustments which by reason of this paragraph (h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(h) No adjustment in the number of Warrant Shares purchasable upon
the exercise of this Warrant need be made under paragraph (b), (c) or (d) if the
Company issues or distributes to the holder of this Warrant the shares, rights,
options, warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which the holder of this
Warrant would have been entitled to receive had this Warrant been exercised
prior to the happening of such event or the record date with respect thereto. In
no event shall the Company be required or obligated to make any such
distribution otherwise than in its sole discretion. No adjustment in the number
of Warrant shares purchasable upon the exercise of this Warrant need by made for
sales of Common Stock pursuant to a Company plan for reinvestment of dividends
or interest. No adjustment need be made for a change in the par value of the
Common Stock.
(i) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of this Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs (a) through (i), inclusive, above.
<PAGE>
14. Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the transfer agent for the Common Stock and to the holder of this Warrant
notice of such adjustment or adjustments setting forth the number of Warrant
Shares (and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth computation by which such adjustment was made. Such notice, in
absence of manifest error, shall be conclusive evidence of the correctness of
such adjustment.
16. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of NASDAQ
or any domestic securities exchange upon which the Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been issued and delivered
by the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: September 30, 1996
PHARMOS CORPORATION
By__________________________
Officer
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is _______________
_______________________________________________________________________________.
________________________________________________________________________________
Dated: ______________, 199_
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT 4(h)
<PAGE>
[FORM OF STOCK PURCHASE WARRANT BETWEEN THE COMPANY
AND ALAN M. MARK]
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
To Purchase 65,000 Shares of Common Stock of
PHARMOS CORPORATION
THIS CERTIFIES that, for value received, ALAN M. MARK (the
"Finder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after September 30, 1997 (the "Initial Date of
Exercise") and on or prior to September 30, 2007 (the "Termination Date") but
not thereafter, to subscribe for and purchase from PHARMOS CORPORATION, a Nevada
corporation (the "Company"), 65,000 Shares of Common Stock (the "Warrant
Shares"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be One Dollar and Thirty-Four Cents ($1.34). The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This warrant is being issued
pursuant a Preferred Stock Securities Purchase Agreement dated September 30,
1996 complete with all listed exhibits thereto (the "Agreement") between the
Company, Paresco, Inc., Liberty Plus Fund and Liberty Fund, LLC, and is subject
to its terms. In the event of any conflict between the terms of this Warrant and
the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company, by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole or in part, on or
after the Initial Date of Exercise and before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 11 below, by the surrender of this Warrant and the
Subscription Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be entitled
to receive a certificate for the number of shares of Common Stock so purchased
immediately. In the event upon exercising the Warrant, the transfer agent
requires an opinion of counsel, the Company shall have such opinion furnished to
the transfer agent to the transfer agent's satisfaction. In the event the Finder
is relying on another exemption from registration under the 1933 Act, the Shares
shall be issued immediately, if the Finder furnishes an opinion of counsel,
reasonably satisfactory to the Company, that another exemption from registration
is available. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within five business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof, together with evidence satisfactory to the Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock, the Company
may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record
<PAGE>
owner of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
<PAGE>
(c) Subject to the terms and conditions of the Preferred Stock
Securities Purchase Agreement of even date. The Company is required to register
certain Common Stock underlying the Common Stock underlying this Warrant.
12. Registration Rights. If, upon exercise of all or any part of the
Warrant effected by the Finder pursuant to the terms of any part of this Warrant
and the terms of the Preferred Stock Securities Purchase Agreement at any time
after ninety (90) days from the date of this Warrant, the Company fails to issue
certificates for the shares of Common Stock issuable upon such exercise to the
Finder bearing no restrictive legend for any reason, other than a breach of
contract by Finder concerning the representations and warranties made by Finder
in this Agreement or the Notice of Exercise found herein were untrue when made,
then the Company shall be required, at the request of the Finder and at the
Company's expense, to effect the registration of the shares of Common Stock
issuable upon exercise of the shares of Common Stock under the 1933 Act, and
relevant Blue Sky laws as promptly as is practicable. The Company and the Finder
shall cooperate in good faith in connection with the furnishing of information
required for such registration and the taking of such other actions as may be
legally or commercially necessary in order to effect such registration. The
Company shall commence to prepare and file a registration statement within 10
days of Finder's demand therefor and shall use its best efforts to cause such
registration statement to become effective as soon as practicable thereafter.
Such best efforts shall include, but not be limited to, promptly responding to
all comments received from the staff of the Securities and Exchange Commission
with respect to such registration statement and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the Securities and Exchange Commission. Once declared
effective by the Securities and Exchange Commission, the Company shall cause
such registration statement to remain effective until the earlier of (i) the
sale by the Finder of all Securities registered, or (ii) 120 days after the
effective date of such registration statement.
In the event that the Company has not effected the registration of
the shares of Common Stock issuable upon the exercise of the Warrant under the
1933 Act and relevant Blue Sky Laws as soon as practicable after the date of the
Finder's demand therefor, the Company shall pay to the Finder by wire transfer,
as liquidated damages for such failure and not as a penalty, an amount in cash
equal to $10,000. If the Company does not remit the damages to the Finder as set
forth above, the Company will pay the Finder reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. Such payment
shall be made to the Finder immediately if the registration of the shares of
Common Stock is not effected; provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to
register the shares of Common Stock pursuant to this Section. The registration
of the shares of Common Stock pursuant to this provision shall not effect or
limit Finder's other rights or remedies as set forth in this Agreement.
13. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter set forth:
(a) In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii)
<PAGE>
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to
holders of its outstanding Common Stock entitling them (for a period within 45
days after the record date mentioned below) to subscribe for or purchase shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock at a Price Per Share (as defined in paragraph (e) below) which
is lower at the date of issuance thereof than the then Current Market Price (as
defined in paragraph (f) below) per share of Common Stock at such date, the
number of Warrant Shares hereafter purchasable upon the exercise of this Warrant
shall be determined by multiplying the number of Warrant Shares theretofore
purchasable upon exercise of this Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock actually subscribed for and purchased, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
of Common Stock which the aggregate Proceeds (as defined in paragraph (e) below)
received by the Company on exercise of such rights, options and warrants would
purchase at the Current Market Price per share of Common Stock at the date of
issuance of such rights, options or warrants. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
on the date of distribution retroactive to the record date for the determination
of stockholders entitled to receive such rights, options or warrants.
(c) In case the Company shall distribute to holders of its shares of
Common Stock evidences of its indebtedness or assets (excluding dividends or
distributions referred to in paragraph (a) above or in the paragraph immediately
following this paragraph and excluding any dividend or distribution paid out of
the retained earnings of the Company) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in paragraph (b)
above), then in each case the number of Warrant Shares thereafter purchasable
upon the exercise of this Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of this Warrant by a
fraction, of which the numerator shall be the then Current Market Price per
share of Common Stock on the date of such distribution, and of which the
denominator shall be such Current Market Price, less the then fair value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.
<PAGE>
(d) For purposes of this Section 13, "Price Per Share" shall be
defined and determined according to the following formula:
R
P = ------------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the Company which
(i) in the case of shares of Common Stock is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such shares; (ii) in the case of rights,
options or warrants to subscribe for or purchase shares of
Common Stock or of securities convertible into or exchangeable
or exercisable for shares of Common Stock, is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such rights, options, warrants or
convertible or exchangeable or exercisable securities, plus
the minimum aggregate amount of additional consideration,
other than the surrender of such convertible or exchangeable
securities, payable to the Company upon exercise, conversion
or exchange thereof; and (iii) in the case of rights, options
or warrants to subscribe for or purchase convertible or
exchangeable or exercisable securities, is the total amount
received or receivable by the Company in consideration for the
sale and issuance of such rights, options or warrants, plus
the minimum aggregate amount of additional consideration other
than the surrender of such convertible or exchangeable
securities, payable upon the exercise, conversion or exchange
of such rights, options or warrants and upon the conversion or
exchange or exercise of the convertible or exchangeable or
exercisable securities; provided that in each case the
proceeds received or receivable by the Company shall be
deemed to be the gross cash proceeds without deducting
therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or
dealers or other performing similar services or any expenses
incurred in connection therewith,
and
N = the "Number of shares," which (i) in the case of Common
Stock is the number of shares issued; (ii) in the case of
rights, options or warrants to subscribe for or purchase
shares of Common Stock or of securities convertible into or
exchangeable or exercisable for shares of Common Stock, is the
maximum number of shares of Common Stock initially issuable
upon exercise, conversion or exchange thereof; and (iii) in
the case of rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable
securities, is the maximum number of shares of Common Stock
initially issuable upon conversion, exchange or
<PAGE>
exercise of the convertible, exchangeable or exercisable
securities issuable upon the exercise of such rights, options
or warrants.
If the Company shall issue shares of Common Stock or rights,
options, warrants or convertible or exchangeable or exercisable securities for a
consideration consisting, in whole or in part, of property other than cash, the
amount of such consideration shall be determined in good faith by the Board of
Directors of the Company whose determination shall be conclusive.
(e) For the purpose of any computation under paragraphs (b), (c) or
(d) of this Section 13, the "Current market Price" per share of Common Stock at
any date shall be the average of the Closing NASDAQ Price of the Common Stock
for the thirty (30) trading days commencing 30 trading days before the date of
determination.
(f) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(g) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an increase
or decrease of at least one percent (1%) percent of the Exercise Price; provided
that any adjustments which by reason of this paragraph (h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(h) No adjustment in the number of Warrant Shares purchasable upon
the exercise of this Warrant need be made under paragraph (b), (c) or (d) if the
Company issues or distributes to the holder of this Warrant the shares, rights,
options, warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which the holder of this
Warrant would have been entitled to receive had this Warrant been exercised
prior to the happening of such event or the record date with respect thereto. In
no event shall the Company be required or obligated to make any such
distribution otherwise than in its sole discretion. No adjustment in the number
of Warrant shares purchasable upon the exercise of this Warrant need by made for
sales of Common Stock pursuant to a Company plan for reinvestment of dividends
or interest. No adjustment need be made for a change in the par value of the
Common Stock.
(i) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of this Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs (a) through (i), inclusive, above.
14. Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange
<PAGE>
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the transfer agent for the Common Stock and to the holder of this Warrant
notice of such adjustment or adjustments setting forth the number of Warrant
Shares (and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth computation by which such adjustment was made. Such notice, in
absence of manifest error, shall be conclusive evidence of the correctness of
such adjustment.
16. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of NASDAQ
or any domestic securities exchange upon which the Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been issued and delivered
by the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
<PAGE>
Dated: September 30, 1996
PHARMOS CORPORATION
By__________________________
Officer
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is _______________
_______________________________________________________________________________.
________________________________________________________________________________
Dated: ______________, 199_
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT 4(i)
<PAGE>
[FORM OF WARRANT AGREEMENT BETWEEN THE COMPANY AND
MICHAEL E. LEWIS, PH.D.]
MICHAEL E. LEWIS
Warrant Agreement
WARRANT AGREEMENT dated as of March 15, 1996 between PHARMOS CORPORATION,
a Nevada corporation (the "Company"), and Michael E. Lewis, Ph.D., BioDiligence
Partners, Inc., 1007 Saber Road, West Chester, PA 19382 (the "Holder").
W I T N E S S E T H:
WHEREAS, the Holder shall be issued an aggregate of 15,000 warrants,
exercisable from March 15, 1997 until March 14, 2002, to purchase 15,000 shares
of Common Stock of the Company ("Common Stock") at an exercise price of $2.31
per share.
NOW, THEREFORE, in consideration of the premises herein set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Issue. The Company hereby issues to the Holder a certificate (the
"Warrant Certificate") dated as of the date hereof providing such Holder with
the right to purchase, at any time from March 15, 1997 until 5:30 p.m., New York
time, on March 14, 2002, 15,000 shares of Common Stock (subject to adjustment as
provided in Section 8 hereof) at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) equal to $2.31 per share.
2. Warrant Certificate. The Warrant Certificate to be delivered pursuant
to this Agreement shall be in the form set forth in Exhibit X, attached hereto
and made a part hereof, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Agreement.
3. Exercise of Warrant. The Warrants, when initially exercisable, are
exercisable at an aggregate initial exercise price per share set forth in
Section 6 hereof payable by certified check or official bank check in New York
Clearing House funds. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the
Company's principal offices in Florida (presently located at 2 Innovation Drive,
Alachua, Florida 32615) the registered holder of a Warrant Certificate
("Holder") shall be entitled to receive a certificate or certificates for the
Warrant Shares so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock underlying the
Warrants). In the case of the purchase of less than all the Warrant Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof
<PAGE>
and shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Warrant Shares purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for Warrant Shares or other securities, properties or
rights underlying such Warrants shall be made forthwith (and in any event within
five (5) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The certificates representing the Warrant Shares (and/or other securities,
property or rights issuable upon exercise of the Warrants) shall be executed on
behalf of the Company by the manual or facsimile signature of the then present
Chairman or Vice Chairman of the Board of Directors or President or any Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or any
Assistant Secretary of the Company. The Warrant Certificate shall be dated the
date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Transfer of Warrants. The Holder of a Warrant Certificate, by its
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof. The Warrants may
be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole
or in part, without restriction, subject to compliance with applicable
securities laws.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be the price set forth in Section 1 hereof per Warrant Share issued thereunder.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The Warrants,
the Warrant Shares and any of the other securities issuable upon exercise of the
Warrants have not been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in whole or in part, of the Warrants, certificates
representing the Warrant Shares underlying the Warrants, and any of the other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Securities") shall bear the following legend
<PAGE>
unless such Warrant Shares previously have been registered under the Act in
accordance with the terms hereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 8.3 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
Section 8.4 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
<PAGE>
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants.
(b) If the amount of said adjustment shall be less than two cents
(2 cents) per Warrant Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2 cents) per Warrant Share.
(c) Upon the issuance or sale of Common Stock or warrants, options
or convertible securities, to be issued and/or sold to employees,
advisors, directors or officers of, or consultants to, the Company or any
of its subsidiaries pursuant to a stock grant, stock option plan, stock
purchase plan, pension or profit sharing plan or other stock agreement or
arrangement currently existing or approved by the Company's Board of
Directors.
(d) Upon the issuance of shares of Common Stock, warrants, options
and convertible securities pursuant to warrants, options and convertible
securities outstanding as of the date hereof.
(e) Upon the issuance of shares of Common Stock, warrants, options
and convertible securities in connection with strategic partnerships or
other business and/or product consolidations or joint ventures.
9. Exchange and Replacement of Warrant Certificates. The Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants
<PAGE>
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock may then be listed and/or quoted
on NASDAQ.
12. Notices to Warrant Holder. Nothing contained in this Agreement shall
be construed as conferring upon the Holder by virtue of his holding the Warrant
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and their exercise,
any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale or any such earlier date
that notice of such event is given to stockholders of the Company. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
the Holder as shown on the books of the Company; or
<PAGE>
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Holder may from time
to time supplement or amend this Agreement in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Holder may deem necessary or desirable and which the Company and the Holder deem
shall not adversely affect the interests of the Holder of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on the fifth anniversary of the issuance of the Warrants.
17. Governing Law. This Agreement and the Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the laws of
the State of New York without giving effect to the rules of the State of New
York governing the conflicts of laws.
18. Entire Agreement; Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
registered Holder of the Warrant Certificates or Warrant Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Holder of the
Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
PHARMOS CORPORATION
By: /s/ GAD RIESENFELD
---------------------------------
Name: Gad Riesenfeld
Title: Executive Vice President
/s/ MICHAEL E. LEWIS
---------------------------------
Michael E. Lewis, Ph.D.
<PAGE>
EXHIBIT X
TO
MICHAEL E. LEWIS WARRANT AGREEMENT
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
EXERCISABLE FROM ______________________, 1997
UNTIL 5:30 P.M., NEW YORK TIME, _____________, 2002
No. W-96A-1 _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________________ [Name of
holder] or his registered assigns, is the registered holder of _______ Warrants
to purchase initially, at any time from ___________, 1997 until 5:30 p.m. New
York time on ____________, 2002 ("Expiration Date"), up to _______ fully-paid
and non-assessable shares of common stock, par value $.03 per share ("Common
Stock") of PHARMOS CORPORATION, a Nevada corporation (the "Company"), at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), equal to $2.31 per share upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the Warrant Agreement dated as of
__________, 1996 between the Company and ____________ ___________ [Name of
holder]. Payment of the Exercise Price shall be made by certified check or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the word "holder" meaning the registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder hereof as the
absolute owner of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Dated as of March __, 1996.
PHARMOS CORPORATION
By:/s/ GAD RIESENFELD
---------------------------------
Name: Gad Riesenfeld
Title: Executive Vice President
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock and herewith tenders in payment for such securities a certified check or
official bank check payable in New York Clearing House Funds to the order of
PHARMOS CORPORATION in the amount of $______, all in accordance with the terms
of Section 3 of the Warrant Agreement dated as of ___________, 1996 between
Pharmos Corporation and _________________. The undersigned requests that a
certificate for such securities be registered in the name of __________________
whose address is _______________ and that such Certificate be delivered to
__________________ whose address is ________________.
Dated:
Signature _________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ____________ Signature:________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
EXERCISABLE FROM MARCH 15, 1997
UNTIL 5:30 P.M., NEW YORK TIME, ON MARCH 14, 2002
No. W-96A-1 15,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Michael E. Lewis or his
registered assigns, is the registered holder of 15,000 Warrants to purchase
initially, at any time from March 15, 1997 until 5:30 p.m. New York time on
March 14, 2002 ("Expiration Date"), up to 15,000 fully-paid and non-assessable
shares of common stock, par value $.03 per share ("Common Stock") of PHARMOS
CORPORATION, a Nevada corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), equal to
$2.31 per share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement dated as of March 15,
1996 between the Company and Michael E. Lewis. Payment of the Exercise Price
shall be made by certified check or official bank check in New York Clearing
House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the word "holder" meaning the registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
<PAGE>
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder hereof as the
absolute owner of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed.
Dated as of March 15, 1996.
PHARMOS CORPORATION
By:/s/ GAD RIESENFELD
-----------------------------------
Name: Gad Riesenfeld
Title: Executive Vice President
<PAGE>
EXHIBIT 5
<PAGE>
October 31, 1996
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 (the "Registration
Statement") to be filed by you with the Securities and Exchange Commission in
connection with the offer of certain selling stockholders named therein (the
"Selling Stockholders") to sell from time to time up to 3,166,667 shares (the
"Shares") of the Common Stock, par value $.03 per share, of Pharmos Corporation
(the "Company") upon conversion of the Preferred Stock issued in connection with
the September 30, 1996 private placement transaction (the "Private Placement
Transaction") and up to 130,000 shares of the Company's Common Stock (the
"Warrant Shares") issuable upon the exercise of certain warrants issued in
connection with the Private Placement Transaction and certain warrants issued to
an advisor of the Company (the "Warrants"). As your counsel in connection with
the Private Placement Transaction and the offer and sale of the Shares and the
issuance of the Warrants, we have examined the originals, or photostatic or
certified copies, of such records of the Company, certificates of the Company
and of public officials and such other matters and documents as we have deemed
necessary or relevant as a basis for this opinion.
Based on these examinations, it is our opinion that the Shares and the Warrant
Shares, when issued upon payment therefor, will be validly issued, fully paid
and non-assessable shares of Common Stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Opinions" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
EILENBERG & ZIVIAN
/s/ EILENBERG & ZIVIAN
----------------------
<PAGE>
EXHIBIT 23(b)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Pharmos Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 29, 1996 appearing in Pharmos Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
New York, New York
October 30, 1996
