As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 333-_________
- --------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit Price Fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common stock to be 10,000,000(2) $1.37(4) $13,700,000 $4,152
sold by Selling Security
holders(1)
Shares of Common Stock 159,000(3) $1.75 $278,250 $84
issuable upon exercise of
Warrants to purchase 159,000
Shares at $1.75 per share
- -----------------------------------------------------------------------------------------------------------------
Total Registration Fee $13,978,250 $4,236
</TABLE>
(1) To be offered by selling security holders, after conversion of preferred
shares, which can be converted in initially two 40% increments and then in
a 20% increment over a period of 270 days.
(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 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 April 25, 1997.
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
<TABLE>
<CAPTION>
Registration Statement Prospectus Caption
Item and Heading of Location
---------------- -----------
<S> <C> <C>
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
</TABLE>
<PAGE>
PHARMOS CORPORATION
-------------------
10,000,000 SHARES OF COMMON STOCK,
$.03 PAR VALUE, TO BE SOLD BY
SELLING SECURITY HOLDERS
159,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.75 PER SHARE
This Prospectus covers the proposed offer and resale of up to 10,000,000
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 6,000 shares ($6,000,000 principal amount) of 5% Preferred Stock
(the "Series B Preferred Stock") convertible into such shares in a private
placement transaction in March 1997 (the "Private Placement Transaction"). The
Private Placement Transaction, in which the Company issued 6,000 shares of
Series B Preferred Stock to the Selling Stockholders for the principal amount of
$6,000,000, was completed on March 31, 1997 (the "Closing Date"). The preferred
shares can be converted by the Selling Stockholders as follows: up to 40% of
their initial investment after 90 days from the Closing Date, up to a cumulative
of 80% of their initial investment after 180 days from the Closing Date, and up
to a cumulative of 100% of their initial investment after 270 days from the
Closing Date, at between 80% to 83% of prevailing market prices at time of
conversion.
This Prospectus also covers the offer and proposed sale by the Company of
up to (i) 159,000 shares of Common Stock issuable upon the exercise by the
holders thereof of warrants to purchase 159,000 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 the Selling Stockholders in
connection with the Private Placement Transaction. (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 to
<PAGE>
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 April 25, 1997 was $1.41.
<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 _________________________
<PAGE>
The laws of many states provide exemptions from registration, particularly
for sales of securities by persons other than issuers, such as 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 California, Connecticut, Florida, Massachusetts, Michigan, New
Jersey, New York, Pennsylvania and Texas. Holders of Shares, therefore, must
sell their Shares (through a broker/dealer or otherwise), either: (i) 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, reasonably 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, President and Chief Operating Officer, Pharmos Corporation,
2 Innovation Drive, Alachua, Florida 32615, (904) 462-1210.
<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.
<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.
<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(TM), 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(TM) 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(TM),
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 December 31, 1996, the Company had an accumulated deficit of
approximately $62 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.
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<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 $5.8 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 1998. 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
agreements with Bausch & Lomb to manufacture and market the Company's lead
product, Lotemax(TM), in the United States and throughout Europe, Canada and
selected other countries. The agreements also cover the co-development of
Lotemax(TM) line extension products currently being developed by the Company.
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
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,
2
<PAGE>
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
agreements with Bausch & Lomb for the manufacture and marketing of Lotemax(TM).
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 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.
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<PAGE>
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
There are currently no material legal proceedings pending against or
involving the Company.
Extensive Government Regulation
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(TM), 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
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<PAGE>
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 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
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<PAGE>
the assistance of a pharmaceutical company with an established distribution
system and sales force. The Company has entered into agreements with Bausch &
Lomb to market Lotemax(TM). 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 agreements with Bausch & Lomb
address the manufacturing of Lotemax(TM). 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 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
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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 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
Laws
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.
7
<PAGE>
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 December 31, 1996 the Company had outstanding incentive stock options
to purchase an aggregate of 513,253 shares of Common Stock at an average
exercise price of $2.13 per share and non-qualified stock options to purchase an
aggregate of 432,182 at an average exercise price of $3.12 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 3,138,789 shares of the Company's Common Stock at an average price
of $2.13 per share.
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
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.
Convertible Securities; Potential Dilution and Adverse Impact on Additional
Financing
As of December 31, 1996, the Company had outstanding options and warrants
to purchase an aggregate of 4,084,224 shares of Common Stock, at a weighted
average exercise price of $2.2347591 per share. The Company is obligated to
issue up to 7,400,000 shares of Common Stock upon conversion of 1,400 shares of
the Series A Preferred Stock and 6,000 shares of the Series B Preferred Stock
(collectively, the "Preferred Stock") outstanding as of April 4, 1997, based on
a conversion price of $1.00, which is derived from 80% of the closing
8
<PAGE>
price of the Common Stock as of April 4, 1997. The exact number of shares of
Common Stock issuable upon conversion cannot be estimated with certainty
because, generally, such issuances of Common Stock will vary inversely with the
market price of the Common Stock at the time of such conversion, and there is no
limit on the number of shares of Common Stock that may be issuable. The number
of shares of Common Stock issuable upon conversion of the Preferred Stock is
also subject to various adjustments to prevent dilution resulting from stock
splits, stock dividends or similar transactions. Further, the Company may, at
its election, choose to issue additional shares of Common Stock in lieu of cash
dividends due to the holders of the Preferred Stock.
To the extent shares of Common Stock are issued in lieu of cash dividends
or due to conversions of the Preferred Stock, substantial dilution of the
interests of the Company's stockholders is likely to result and the market price
of the Common Stock may be materially adversely affected. Such dilution will be
greater if the future market price of the Common Stock decreases. For the life
of the Preferred Stock, the holders will have the opportunity to profit from a
rise in the price of the underlying securities. The existence of the Preferred
Stock is likely to affect materially and adversely the terms on which the
Company can obtain additional financing, and the holders of the Preferred Stock
can be expected to convert shares of the Preferred Stock at a time when the
Company would otherwise, in all likelihood, be able to obtain additional capital
by an offering of its unissued capital stock on terms more favorable to the
Company then those provided by the Preferred Stock.
The Company has registered the Common Stock issuable upon conversion of the
Preferred Stock, certain of which are being offered pursuant to this Prospectus.
Shares of Common Stock issuable upon conversion of the Series A Preferred Stock
are being offered pursuant to a prospectus included in Registration Statement
No. 333-15165. Following conversion, such registered shares of Common Stock can
be sold without any holding period or sales volume limitations.
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
9
<PAGE>
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.
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 has filed 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 December 31, 1996, the net tangible book value of the Company was
$1,150,479 or $0.04 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 of the 159,000 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 30,868,169 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.
10
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the 10,000,000 shares of Common
Stock to be offered and resold by the Selling Stockholders.
Assuming that all of the 159,000 Warrants whose underlying Common Stock is
being offered hereby are exercised, the gross proceeds to be received by the
Company will be $278,250. 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,
should be sufficient to fund its operating expenses and capital requirements as
currently planned through the first quarter of 1998 (if 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), the Company should have
sufficient resources to fund its operating expenses and capital requirements as
currently planned through the first quarter of 1998). 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. 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."
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. As of April 4, 1997, there
are currently 31,166,115
11
<PAGE>
shares outstanding, or 36,744,602 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. As of April 4, 1997,
1,400 shares, designated as Series A Preferred Stock, are currently issued and
outstanding and held by 3 stockholders. The Series A Preferred Stock was issued
in connection with a private placement completed on September 30, 1996. 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
"Series A Preferred Stock Closing Date"), up to a cumulative of 75% of their
initial investment after 180 days from the Series A Preferred Stock Closing
Date, and up to a cumulative of 100% of their initial investment after 360 days
from the Series A Preferred Stock Closing Date, at 80% to 83% of prevailing
market prices at time of conversion.
Of the authorized Preferred Stock, 6,000 shares, designated as Series B
Preferred Stock, are currently issued and outstanding and held by 4
stockholders. The Series B Preferred Stock was issued in connection with the
Private Placement Transaction. Holders of Series B Preferred Stock have the
right to convert their shares as follows: up to 40% of their initial investment
after 90 days from March 31, 1997 (the "Series B Preferred Stock Closing Date"),
up to a cumulative of 80% of their initial investment after 180 days from the
Series B Preferred Stock Closing Date, and up to a cumulative of 100% of their
initial investment after 270 days from the Series B Preferred Stock Closing
Date, at prevailing market prices at time of sale.
Warrants
The 159,000 Warrants exercisable at an exercise price of $1.75 are
exercisable commencing March 31, 1998 and expire on March 31, 2001. 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).
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 1,400 shares of
Series A Preferred Stock, issued in connection with a private placement
completed in September 1996 and 6,000 shares of Series B Preferred Stock issued
in connection with the Private Placement Transaction, are currently issued and
outstanding as of April 4, 1997, and empower the Board of Directors, without the
necessity of further action or authorization by the stockholders, to authorize
the
12
<PAGE>
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 December 31, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 513,253 shares of Common Stock at an average
exercise price of $2.13 per share and non-qualified stock options to purchase an
aggregate of 432,182 at an average exercise price of $3.12 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 3,138,789 shares of the Company's Common
Stock at an average price of $2.13 per share, consisting of: 240,744 warrants
which can be exercised until March 1998 each to purchase a single share of
Common Stock for $2.25; 268,917 warrants which can be exercised until March 1998
each to purchase a single share of Common Stock for $2.82; 333,335 warrants
which can be exercised until March 1998 each to purchase a single share of
Common Stock for $1.65; 406,880 warrants which can be exercised until August
1998 each to purchase a single share of Common Stock for $2.98; 63,913 warrants
which can be exercised until September 1999 each to purchase a single share of
Common Stock for $2.30; 200,000 warrants which can be exercised until October
1999 each to purchase a single share of Common Stock for $0.84; 500,000 warrants
which can be exercised until April 2005 each to purchase a single share of
Common Stock for $2.75; 10,000 Warrants which can be exercised until April 2005
each to purchase a single share of Common Stock for $0.78; 15,000 warrants which
can be exercised until April 2000 each to purchase a single share of Common
Stock for $.75; 25,000 Warrants which can be exercised until April 2000 each to
purchase a single share of Common Stock for $1.00; 25,000 warrants which can be
exercised until April 2000 each to purchase a single share of Common Stock for
$1.50; 900,000 warrants which can be exercised until September 14, 2000 each to
purchase a single share of Common Stock for $1.80; 10,000 warrants which can be
exercised until October 2001 each to purchase a single share of Common Stock for
$1.88; 15,000 warrants which can be exercised until March 2002 each to purchase
a single share of Common Stock for $2.31; 50,000 warrants which can be exercised
from September 1997 until September 2000 each to purchase a single share of
Common Stock for $1.75; 65,000 warrants which can be exercised from September
1997 until September 2007 each to purchase a single share of Common Stock for
$1.34; and 10,000 warrants which can be exercised from November 1997 until
November 2002 each to purchase a single share of Common Stock for $1.39.
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
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<PAGE>
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 10,000,000 shares
of Common Stock issuable upon conversion of 6,000 shares ($6,000,000 principal
amount) Series B 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 159,000 shares of Common Stock upon the
exercise of the Warrants, which were issued in connection with the Private
Placement Transaction.
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, or by any
other persons permitted under the Securities Act. The Selling Stockholders may
effect such transactions by selling to or though 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
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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 beneficially owned by such security holder
as of April 4, 1997; (ii) Warrant Shares issuable upon the exercise of the
Warrants beneficially owned by such security holder; (iii) 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 (iv) the amount and percentage 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. The information included below is based upon information
provided by the Selling Stockholders. 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.
For the purposes of calculating the number of shares of Common Stock
beneficially owned by the Selling Stockholders, the number of shares of Common
Stock calculated to be issuable in connection with the conversion of the Series
A Preferred Stock and the Series B Preferred Stock is based on a conversion
price of $1.00, which is derived from 80% of the closing price of the Common
Stock as of April 4, 1997. The calculation of the total number of shares of
Common Stock to be offered hereby, however, is based on a hypothetical market
price of the Common Stock at the time of such conversion of $0.72 per share
(approximate conversion price of $0.60), which price is below the market price
of the Common Stock as of April 4, 1997
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(which was $1.25). The use of such hypothetical price is not intended, and
should in no way be construed, to constitute a prediction as to the future
market price of the Common Stock.
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 list
the warrants held by the non-affiliated Selling Stockholders.
<TABLE>
<CAPTION>
===================================================================================================================================
Shares of Amount of Shares of
Common Stock Warrant Shares Common Stock
Names Beneficially Issuable upon and/or Warrant Shares and Percentage of
(and position or office held in Owned Prior Exercise of Shares Shares Owned After
the Company) to Offering(1) Warrants Held Offered(2) Completion of Offering
--------------------------------------
Shares Percentage(3)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Elliott Associates, L.P. 4,000,000(4) 106,000 6,666,667 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Paresco, Inc. 2,740,000(5) 42,400 2,666,667 1,140,000 3.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Libertyview Fund, LLC 155,009(6) 2,650 166,667 55,009 *
- -----------------------------------------------------------------------------------------------------------------------------------
Libertyview Plus Fund 505,000(7) 7,950 500,000 205,000 *
===================================================================================================================================
</TABLE>
- --------------------
* Indicates ownership of less than 1%
(1) Does not include warrants/and or options which are not currently
exercisable, including the Warrants.
(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) Based on 31,166,115 shares of Common Stock outstanding as of April 4, 1997,
plus each individual's shares of Common Stock issuable upon conversion of
Series A Preferred Stock, and/or currently exercisable warrants and/or
options.
(4) Based on 4,000 shares of Series B Preferred Stock held by the Selling
Stockholder as of April 4, 1997.
(5) Based on 1,140 shares of Series A Preferred Stock and 1,600 shares of
Series B Preferred Stock held by the Selling Stockholder as of April 4,
1997.
(6) Based on 9 shares of Common Stock, 55 shares of Series A Preferred Stock
and 100 shares of Series B Preferred Stock held by the Selling Stockholder
as of April 4, 1997.
(7) Based on 205 shares of Series A Preferred Stock and 300 shares of Series B
Preferred Stock held by the Selling Stockholder as of April 4, 1997.
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RECENT DEVELOPMENTS
None.
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, 1996, filed pursuant to Section 13 of the Exchange Act.
(b) 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 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
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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, 1996, 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
__________________, 1997
INDEX
Page No.
THE COMPANY ............................................................ 1
RISK FACTORS ........................................................... 1
DILUTION ............................................................... 10
USE OF PROCEEDS ........................................................ 11
DESCRIPTION OF SECURITIES .............................................. 11
PLAN OF DISTRIBUTION ................................................... 14
SELLING SECURITY HOLDERS ............................................... 15
RECENT DEVELOPMENTS .................................................... 17
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 $ 4,236
Printing and Engraving Expenses 100
Accountants' Fees and Expenses 3,000
Legal Fees and Expenses 40,000
Blue Sky Filing Fees 1,000
Miscellaneous 1,664
-------
TOTAL $50,000
=======
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
II-1
<PAGE>
Form S-4 Registration Statement of the Registrant dated September
28, 1992 [No. 33-52398])
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 (incorporated by reference
to Form S-3 Registration Statement of the Company dated December
20, 1996 [No. 333-15165])
*4(e) Certificate of Designation, Rights, Preferences and Privileges of
Series B Preferred Stock of the Company
4(f) 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(g) Form of 5% Preferred Stock Securities Purchase Agreement dated as
of March 31, 1997 between the Company and the Investors
*4(h) Form of Stock Purchase Warrant dated as of March 31, 1997 between
the Company and the Investors
*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;
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<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that Paragraphs (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.
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<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
April, 1997.
PHARMOS CORPORATION
By:/s/ Dr. 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Alan M. Mark Acting Chief Financial Officer April 30, 1997
- ---------------------------- (Principal Financial and Accounting
Alan M. Mark Officer)
/s/ Dr. Gad Riesenfeld President, Chief Operating Officer April 30, 1997
- ---------------------------- and Acting Secretary
Dr. Gad Riesenfeld
/s/ Marvin P. Loeb Director April 30, 1997
- ----------------------------
Marvin P. Loeb
/s/ E. Andrews Grinstead III Director April 30, 1997
- ----------------------------
E. Andrews Grinstead III
/s/ Stephen C. Knight Director April 30, 1997
- ----------------------------
Stephen C. Knight
/s/ David Schlachet Director April 30, 1997
- ----------------------------
David Schlachet
/s/ Fredric D. Price Director April 30, 1997
- ----------------------------
Fredric D. Price
</TABLE>
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<PAGE>
EXHIBIT 4(e)
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<PAGE>
CERTIFICATE OF DESIGNATION, RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES B PREFERRED STOCK
OF
PHARMOS CORPORATION
A Nevada Corporation
Pursuant to Nevada Revised Statutes, Section 78.1955, the undersigned
hereby certifies as follows:
1. That he is the President and Acting Secretary of Pharmos
Corporation, a Nevada corporation (the "Corporation"); and
2. That, pursuant to the authority conferred on the Corporation's
Board of Directors (the "Board") by ARTICLE IV, Section 2 of the
Corporation's Restated Articles of Incorporation, the Board, at a special
meeting of the Board held on March 27, 1997, (a) adopted resolutions
providing for the issuance of shares of the Corporation's Preferred Stock
to be designated as shares of "Series B Preferred Stock" and fixing the
number of such shares of Series B Preferred Stock and the powers,
designations, privileges, preferences, limitations, restrictions, price and
relative rights of such Series B Preferred Stock as more fully set forth in
the Statement of Designation, Rights, Preferences and Privileges of Series
B Preferred Stock of the Corporation attached hereto and incorporated
herein by this reference; and (b) authorized the filing of this Certificate
with the Nevada Secretary of State.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Designation, Rights, Preferences and Privileges of Series B Preferred Stock of
PHARMOS CORPORATION on this 27th day of March, 1997.
/s/ Gad Riesenfeld
------------------------
Gad Riesenfeld
President
/s/ Gad Riesenfeld
-------------------------
Gad Riesenfeld
Acting Secretary
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<PAGE>
STATE OF Florida )
) ss.
COUNTY OF Alachua )
On this 27th day of March 1997, personally appeared before the undersigned,
a Notary Public, as the President and Acting Secretary of PHARMOS CORPORATION, a
Nevada corporation, known to me to be the person described in and who executed
the foregoing instrument freely and voluntarily and for the uses and purposes
mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the day and year in this certificate first written above.
/s/ Sandra V. Burgess
---------------------------
NOTARY PUBLIC
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<PAGE>
STATEMENT OF DESIGNATION, RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES B PREFERRED STOCK
OF
PHARMOS CORPORATION,
a Nevada Corporation
The designation, rights, preferences and privileges of, and other matters
relating to, the Company's Series B Preferred Stock or the holders ("Holders")
of record thereof are as follows:
Section 1. Designation and Amount. The series of Preferred Stock
designated and known as the "Series B Preferred Stock" shall have a par
value of $.03 per share and the number of shares constituting the Series B
Preferred Stock shall be 6,000. The Series B 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 B Preferred Stock shall rank: (i) prior to
all of the Company's Common Stock, par value $.03 per share ("Common
Stock"); (ii) pari passu with all the Company's Series A Preferred Stock
("Series A Preferred Stock"); and (iii) 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 B 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 B Preferred Stock will bear a 5% per
annum cumulative dividend, payable at the time of conversion in cash or
Common Stock at the Conversion Price (as defined herein), 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 Series B Preferred
Stock, pari passu with the Holders of Series A Preferred Stock, shall be
entitled to receive an amount per share equal to the sum of (i) $1,000 for
each outstanding share of Series B Preferred Stock (subject to adjustments
for Reclassifications (as defined in herein), plus (ii) an amount equal to
all accrued and unpaid dividends (which shall accrue through the Conversion
Date, Redemption Date (both as defined herein) or the date liquidated
damages are paid, as applicable) and any then unpaid liquidated damages
(interest on which shall accrue at a rate of 2% per month) arising under
Sections 5(c) or (g) (the "Liquidation Preference"). If upon the occurrence
of such event, the assets and funds available to be distributed among the
Holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to such
Holders, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the Holders of the Series B and
Series A Preferred Stock on a pro rata basis.
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<PAGE>
(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(i)(ii) hereof.
Section 5. Conversion. The record Holders of this Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series B Preferred Stock
shall be entitled to convert shares of Series B Preferred Stock (at a
minimum of twenty (20) shares per conversion) as follows: (1) up to forty
percent (40%) of the aggregate Liquidation Preference for the shares of
Series B Preferred Stock held by such Holder (the "Aggregate Liquidation
Preference") at any time beginning 91 days following the date of the
closing of the sale of shares of Series B Preferred Stock to such Holder
(the "Closing Date"), and at anytime thereafter; (2) up to eighty percent
(80%) of the Aggregate Liquidation Preference at any time beginning 181
days following the Closing Date, and at anytime thereafter; and (3) 100% of
the Aggregate Liquidation Preference at any time beginning 271 days
following the Closing Date, and at anytime thereafter, into that number of
fully-paid and non-assessable shares of Common Stock of the Company
calculated in accordance with the following formula (the "Conversion
Rate"):
Number of shares issued upon conversion of one (1) share of Series B
Preferred Stock =
Liquidation Preference
----------------------
Conversion Price
where, "Conversion Price" means (i) an amount equal to a seventeen (17%) 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 (the "Average Closing Price") for the first 25% of Holder's
Aggregate Liquidation Preference converted; or (ii) an amount equal to a twenty
(20%) percent discount from the Average Closing Price for amounts converted in
excess of 25% of Holder's Aggregate Liquidation Preference. The closing price
referred to above shall be the last reported sales price, or if no reported sale
takes place on such day, the average of the closing bid and asked prices. If the
Common Stock is not traded on Nasdaq, the Average Closing Price shall be the
average closing price (and if not available, the mean of the high and low
prices) of the Common Stock on the over-the-counter-market or the principal
national securities exchange or the National Market System on which the Common
Stock is traded for the previous three (3) business days ending on the day
before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly on a pro rata
basis in the event of the happening of certain events that would affect the
Common Stock or the Series B
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<PAGE>
Preferred Stock's value including, but not limited to, forward and reverse
splits, dividend payments on shares, subdivision of shares, combinations,
reclassifications, issuance of rights, warrants, options or any other event
described in Section 5(i) (collectively "Reclassifications"). An adjustment made
pursuant to this section shall become effective immediately after the effective
date of such event retroactive to the record date, if any, for such an event.
(b) Acceleration.
(i) 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 bid
price on the Closing Date for a period of five (5) consecutive days, each Holder
may convert an additional 25% of such Holder's Aggregate Liquidation Preference.
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 closing bid price on the
Closing Date, each Holder may convert 100% of its Aggregate Liquidation
Preference without any remaining conversion restrictions.
(ii) Each Holder may also convert 100% of its Aggregate Liquidation
Preference commencing on the date which is two weeks after any of the following
events ("Acceleration Events"), except that there shall be no such two week
delay in the event of a Change in Control Transaction or a Going Private
Transaction (both as defined herein):
(A) the date the Company's Common Stock is delisted from the Nasdaq
Small Cap Market and is not otherwise listed on a national securities
exchange or the Nasdaq National Market (a "Delisting");
(B) the date the Company (I) sells or otherwise conveys all or
substantially all of its assets or (II) effects a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is
disposed of, directly or indirectly, or if within any 12 month period there
is a change of more than 50% of the members of the Company's Board of
Directors, or if any affiliate of the Company or any other person, entity
or group (as defined in Section 13(d) of the Exchange Act) acquires in
excess of 50% of the Common Stock (collectively, a "Change in Control
Transaction");
(C) the date the Company completes any transaction or series of
transactions the result of which would cause the Common Stock to cease
being publicly traded, included without limitation pursuant to Rule 13e-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than a transaction, that is not a Change in Control
Transaction, in which the Common Stock is exchanged for other publicly
traded securities) (a"Going Private Transaction");
(D) the date of a suspension (a "Suspension") of the use of the
prospectus forming part of the registration statement (the "Registration
Statement") filed under the Securities Act of 1933, as amended (the
"Securities Act") registering the shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock has occurred and is continuing
or the date that is the 15th day in the aggregate that more than one
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<PAGE>
Suspension has occurred since the effective date of the Registration
Statement (a "Cumulative Suspension");
(E) the Registration Statement is not effective 90 days after the
Closing Date;
(F) the date the number of authorized but unissued shares of Common
Stock are not sufficient to effect the conversion of all outstanding shares
of Series B Preferred Stock then eligible for conversion (whether or not
the Holders have duly delivered Notices of Conversion) ("Insufficient
Authorized Stock"); or
(G) the date the Company receives a deficiency notice from the U.S.
Food and Drug Administration (the "FDA") withdrawing approval of all
filings by the FDA of the Company's New Drug Application submissions for
products utilizing loteprednol etabonate.
(c) Mechanics of Conversion. Conversion of the Series B Preferred Stock to
Common Stock may be exercised in whole or in part by Holder telecopying an
executed and completed notice of conversion ("Notice of Conversion") (in the
form annexed hereto as Exhibit A) to counsel for the Company, with a copy to the
Company, and delivering the original Notice of Conversion and the certificate
representing the shares of Series B Preferred Stock to counsel by hand or by
express courier within three (3) business days of exercise. Each date on which a
Notice of Conversion is telecopied to and received by counsel for 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 of Series B Preferred Stock
(together with any certificates for replacement shares of Series B Preferred
Stock not previously converted but included in the original certificate
presented for conversion) to the Holder via express courier within three (3)
business days after counsel for the Company has received the original Notice of
Conversion and certificate for the shares of Series B Preferred Stock being so
converted. The Notice of Conversion and certificate representing the portion of
the shares of Series B Preferred Stock converted shall be delivered as follows:
To counsel:
Eilenberg & Zivian
666 Third Avenue, 30th Fl.
New York, NY 10017
(Tele) (212) 986-2468
(Fax) (212) 986-2399
To the Company:
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
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<PAGE>
Attn: President
(Tele) (904) 462-1210
(Fax) (904) 462-5401
or to such other person at such other place as the Company shall designate to
the Holder in writing.
In the event that the shares of Series B Preferred Stock are not converted
within three (3) business days of receipt by counsel for the Company of a valid
Notice of Conversion and certificates representing the Shares to be converted
(such date of receipt referred to as the "Conversion Date"), the Company shall
be liable to Purchaser for actual damages incurred from the fourth business day
following the Conversion Date through the ninth business day following the
Conversion Date for such failure (provided that Purchaser has delivered the
original valid Notice of Conversion and the original certificate(s) representing
the shares of Series B Preferred Stock to be converted, or an affidavit and
indemnity agreement as to lost certificates reasonably satisfactory to the
Company). In the event that the shares of Series B Preferred Stock are not
converted by the tenth (10th) business day following the Conversion Date, the
Company shall pay to the Holder, 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 Liquidation Preference for the Series B Preferred Stock to be
converted which shall run from the initial Conversion Date; provided, however,
that actual damages and liquidated damages for a failure to deliver certificates
of Common Stock shall be determined in accordance with Section 5(g), if both of
the following conditions are satisfied by the Company: (i) the failure to
deliver certificates of Common Stock is the result of a lack of available
authorized but unissued shares of Common Stock and (ii) the Company commences,
within ten (10) business days after the initial Conversion Date, and uses its
best efforts to obtain stockholder approval to amend its Articles of
Incorporation to increase the number of authorized shares of Common Stock by an
amount sufficient to permit conversion of all shares of Series B Preferred Stock
then outstanding at the Hypothetical Conversion Price (as hereinafter defined)
then in effect.
(i) Lost or Stolen Certificates. Upon receipt by the Company of evidence of
the loss, theft, destruction or mutilation of any certificates representing
shares of Series B 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 certificate(s), if mutilated, the
Company shall execute and deliver new certificate(s) of like tenor and date.
However, Company shall not be obligated to re-issue such lost or stolen
certificates if Holder contemporaneously requests Company to convert such Series
B Preferred Stock into Common Stock.
(ii) No Fractional Shares. If any conversion of the Series B 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.
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<PAGE>
(d) Restrictions on Conversion of the Series B Preferred Stock.
Notwithstanding anything to the contrary contained herein, no shares of Series B
Preferred Stock may be converted by a Holder to the extent that, after giving
effect to the shares of Common Stock issuable pursuant to a Notice of
Conversion, the total number of shares of Common Stock deemed beneficially owned
by such Holder (other than by virtue of the ownership of the Series B Preferred
Stock or the warrants issued to Holder in connection with the issuance of the
Series B Preferred Stock or ownership of other securities that have limitations
on a Holder's rights to convert or exercise similar to those limitations set
forth herein), together with all shares of Common Stock deemed beneficially
owned by Holder's "affiliates" (as defined in Rule 144 under the Securities Act)
that would be aggregated for purposes of determining whether a group under
Section 13(d) of the Exchange Act exists, would exceed 4.99% of the total issued
and outstanding shares of Common Stock, provided that each Holder shall have the
right to waive this restriction, in whole or in part, immediately in case of a
pending Change in Control Transaction (as defined in Section 5(b)(ii)(B)) and in
any other case upon 61 days prior notice to the Company. The delivery of a
Notice of Conversion by any Holder shall be deemed a representation by such
Holder it is in compliance with this Section 5(d). A transferee of the Series B
Preferred Stock shall not be bound by this provision unless it expressly agrees
to be so bound. The term "deemed beneficially owned" as used in this Section
5(d) shall exclude shares that might otherwise be deemed beneficially owned by
reason of the convertibility of the Series B Preferred Stock.
(e) Mandatory Conversion. The Series B Preferred Stock is subject to
mandatory conversion after three (3) years from the Closing Date, at which time
all shares of Series B Preferred Stock will automatically be converted at the
Conversion Price, upon the terms set forth in this section. Such three year
period will be extended by the number of days during such period that (i) the
Company's Common Stock has been Delisted and/or (ii) a Suspension has been in
effect and by the number of days after the 90th day from the date hereof that
the Registration Statement was not declared effective. Any particular day in
which more than one of the foregoing condition events shall have been in effect
shall only be counted once in determining the number of days by which to extend
the three year period prior to mandatory conversion. Mandatory conversion shall
not occur in the event of the occurrence of one or both of the following at the
time of such mandatory conversion: (x) the Company is unable, or admits in
writing its inability, to pay its debts, or is not paying its debts generally as
they come due, or has made any assignment for the benefit of creditors; or (y)
the Company has commenced, or there has been commenced against the Company, any
case, proceeding, or other action seeking to have an order for relief entered
with respect to the Company, or to adjudicate the Company as a bankrupt or
insolvent.
(f) 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, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all then outstanding shares of
Series B Preferred Stock, the sufficiency of which shall be determined by using
a Conversion Price (the "Hypothetical Conversion Price") derived from a
hypothetical closing market price that is 75% of either (i) the actual Average
Closing Price on the Closing Date or (ii) the actual Average Closing Price from
time to time, whichever is lower. The Company hereby covenants and agrees that
if at any time the
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<PAGE>
Hypothetical Conversion Price falls to a level that would not enable all
outstanding shares of Series B Preferred Stock to be fully converted, the
Company will promptly use its best efforts to obtain stockholder approval,
within 90 days thereafter, to amend its Articles of Incorporation to increase
the number of authorized shares of Common Stock by an amount sufficient to
permit the conversion of all shares of Series B Preferred Stock then outstanding
at the Hypothetical Conversion Price then in effect.
(g) Liquidated Damages. In the event of a Delisting, a Cumulative
Suspension or Insufficient Authorized Stock, or in the event the Registration
Statement is not effective within 90 days of the Closing Date (each a "Damage
Event"), the Company will pay to all Holders of the Series B Preferred Stock, by
wire transfer, as liquidated damages for such non-availability and not as a
penalty, an amount in cash equal to 2% per month of the Liquidation Preference
of only those shares of Series B Preferred Stock then eligible for conversion,
without regard to Section 5(d), for the first two months after the occurrence of
a Damage Event, and 3% per month for each month thereafter. Similar liquidated
damages shall be paid with respect to any shares of Series B Preferred Stock not
initially eligible for conversion, when the Damage Event first occurred but
which subsequently become eligible for conversion, without regard to Section
5(d), commencing in the first month that such shares of Series B Preferred Stock
become eligible for such conversion. Such liquidated damages shall continue to
accrue and shall be payable until the Damage Event has been cured (and, if
unpaid, shall bear interest at a rate of 2% per month), and, at the Holder's
election, may be paid in cash or may be added to the principal of the shares of
Series B Preferred Stock for subsequent conversion purposes; provided, however,
that in the case of a Delisting, after six months from the date of such
Delisting, the Company shall have the option to either (i) force Holder to as
promptly as possible convert (in increments of no less than $50,000) all or part
of its shares of Series B Preferred Stock, subject to Purchaser being able to
sell the underlying shares of Common Stock issuable upon conversion, and
simultaneously sell such shares (where the conversion price therefor shall not
be the Conversion Price but instead shall equal 83% of the Holder's sale price
of the shares of Common Stock issued upon conversion, for the first 25% of
Holder's Aggregated Liquidation Preference converted, and 80% of the actual sale
price of the shares of Common Stock issued upon conversion for the remainder,
all as determined by Holder's actual trading records (to be provided to the
Company) or (ii) redeem Holder's shares of Series B Preferred Stock pursuant to
Section 5(h) below. In no event, may the Company force Holder to convert less
than $50,000 of Series B Preferred Stock.
(h) Redemption By Company.
(i) Company's Right to Redeem. The Company shall have the right, in its
sole discretion, to redeem in whole or in part the Series B Preferred Stock when
the average Nasdaq closing bid price is more than 200% above the Nasdaq closing
price on the Closing Date for the five (5) consecutive days prior to the date
the Company makes such election to redeem. If the Company elects to redeem some,
but not all, of the shares of Series B Preferred Stock, the Company shall redeem
the shares of Series B Preferred Stock pro rata among the Holders of all of the
Series B Preferred Stock then outstanding. The date of the
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Company's redemption of the Series B Preferred Stock shall be referred to as the
"Redemption Date."
(ii) Redemption Price. The redemption price per share of Series B Preferred
Stock shall equal:
Liquidation Preference
----------------------
80%
(iii) Mechanics of Redemption; Holder's Conversion Rights. The Company
shall effect each such redemption by giving notice of its election to redeem
("Redemption Notice"), which shall be irrevocable, by facsimile, by 5 P.M. New
York City time the next business day following its election to redeem shares of
Series B Preferred Stock and shall provide a copy of such redemption notice by
overnight or 2-day courier, to Holder, all other Holders of shares of Series B
Preferred Stock and the Company's transfer agent for the Series B Preferred
Stock ("Transfer Agent"). Such redemption notice shall indicate (i) whether the
Company will redeem all or part of the Series B Preferred Stock, (ii) the
applicable redemption price and (iii) that the average Nasdaq closing bid price
has exceeded by 200% the Nasdaq closing price on the Closing Date for the five
(5) consecutive days prior to the date the Company elects to redeem shares of
Series B Preferred Stock. Notwithstanding the foregoing, Holder shall have five
business days following receipt of the Redemption Notice from the Company to
elect, in its sole discretion, to convert all or part of the Series B Preferred
Stock otherwise being redeemed. Such conversion shall be effected in accordance
with the Certificate of Designation, and if an appropriate Notice of Conversion
is delivered to the Company in a timely manner, such shares of Series B
Preferred Stock shall be deemed to be converted and not redeemed.
(iv) Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Redemption Notice and begin the
redemption procedure hereunder unless it has:
(A) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar
financial institution; or
(B) immediately available credit facilities, in the full amount of the
redemption price with a bank or similar financial institution; or
(C) a combination of the items set forth in (A) and (B) above,
aggregating the full amount of the redemption price.
(v) Payment of Redemption Price. Upon receipt of a Redemption Notice Holder
shall send its shares of Series B Preferred Stock being redeemed to the Company
or its Transfer Agent, and the Company shall pay the applicable redemption price
within three (3) business days of receipt of the shares of Series B Preferred
Stock. The Company shall not be obligated to deliver the redemption price unless
the shares of Series B Preferred Stock so redeemed are delivered to the Company
or its Transfer Agent, or, in the event one or more certificates have been lost,
stolen, mutilated or destroyed, Holder delivers to the
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Company a lost certificate affidavit and indemnification agreement reasonably
satisfactory to Company and the Transfer Agent.
(vi) Blackout Period. Notwithstanding the foregoing, the Company may not
either send out a redemption notice or effect a redemption during a Blackout
Period (defined as a period during which the Company's officers or directors
would not be entitled to buy or sell stock because of their holding of material
non-public information). In the event the Company initiates a redemption during
a Blackout Period without having first made public material non-public
information, the Company shall disclose the non-public information that resulted
in the Blackout Period, and no redemption shall be effected until at least 10
days after the Company shall have given the Holder written notice that the
Blackout Period has been lifted.
(i) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series B 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 B 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 B 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 B Preferred
Stock, upon the basis and upon the terms and conditions 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 B 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 B 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 B 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
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(if not the Company) assumes by written instrument the obligation to deliver to
the Holders of the Series B Preferred Stock such shares of stock and/or
securities or other property as, in accordance with the foregoing provisions,
the Holders of the Series B Preferred Stock may be entitled to receive upon
conversion of the Series B Preferred Stock.
(iii) No Fractional Shares. If any adjustment under this Section 5(i) 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. Voting Rights. The Holders of the Series B Preferred Stock shall
have no voting power whatsoever, except with respect to any amendment to the
Company's Certificate of Incorporation which would have an adverse effect on the
Series B Preferred Stock or as otherwise provided by the Nevada Corporation
Laws.
Section 7. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 5 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 B Preferred Stock.
Section 8. 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 B Preferred Stock.
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EXHIBIT A
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 ___Shares represented
by 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 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.
- -------------------------------- --------------------------------
Date of Conversion Applicable Conversion Price
- -------------------------------- --------------------------------
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
- ----------------------------- -------------------------------
Signature Name
Address: Delivery of Shares to:
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EXHIBIT 4(g)
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[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 "SECURITIES 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 31st day of March, 1997, 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
- ----------------------------------------------------.
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 counsel for the Company.
"Convertible Preferred Stock" means the shares of Series B Preferred
Stock of the Company, $.03 par value, convertible into Common Stock as
hereinafter provided and which has the rights, preferences and privileges
set forth in the Certificate of Designation attached hereto as Exhibit A
(the "Certificate of Designation").
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"Conversion Price" means an amount equal to a seventeen (17%) percent
discount from the closing price of the Common Stock as reported by Nasdaq
averaged for the previous three (3) business days ending on the day before
the Conversion Date (the "Average Closing Price") for the first 25% of
Purchaser's Aggregate Liquidation Preference (as defined herein); and for
amounts converted in excess of 25% of Purchaser's Aggregate Liquidation
Preference, the discount shall be twenty (20%) percent from the Average
Closing Price. The closing price referred to above shall be the last
reported sales price, or if no reported sale takes place on such day, the
average of the closing bid and asked prices. If the Common Stock is not
traded on Nasdaq, the Average Closing Price shall be the average closing
price (and if not available, the mean of the high and low prices) of the
Common Stock on the over-the-counter-market or the principal national
securities exchange or the National Market System on which the Common Stock
is traded for the previous three (3) business days ending on the day before
the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly on a pro
rata basis in the event of the happening of certain events that would
affect the Common Stock or Convertible Preferred Stock's value including,
but not limited to, forward and reverse splits, dividend payments on
shares, subdivision of shares, combinations, reclassifications, issuance of
rights, warrants, options or the like (collectively "Reclassifications").
An adjustment made pursuant to this section shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such an event.
"Purchase Price" means the aggregate purchase price of the Shares
purchased.
"Shares" means the shares of Convertible Preferred Stock purchased
hereunder.
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 Convertible
Preferred Stock 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 issue to Purchaser, for no additional consideration, ______
four-year warrants ("Warrants") to purchase Common Stock, initially exercisable
on the first anniversary of the date hereof and for a period of three years
thereafter, at an exercise price of $1.75 per share as per the terms of a
separate Stock Purchase Warrant.
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2.3 Time and Place of Closing. The Closing shall be held at the offices of
Eilenberg & Zivian, 666 Third Avenue, New York, NY 10016, as promptly as
practicable as agreed to by the parties to this Agreement, but no later than
April 4, 1997 at which time either party may terminate 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 as
payment in full for the Shares to, at its discretion, either (i) Sheldon E.
Goldstein, P.C. ("Escrow Agent"), counsel for certain purchasers of Shares,
as per a separate escrow agreement between Escrow Agent and the Company, or
(ii) directly to the Company, provided that Purchaser has been notified by
Eilenberg & Zivian that the Company has delivered certificates representing
the Shares and Warrants as provided in Section 2.4(b) below.
(b) Company shall deliver or cause to be delivered to Escrow Agent (or
to Eilenberg & Zivian if Purchaser has elected to pay Company directly)
certificates representing the Shares and the Warrants, registered in the
name of Purchaser (or any nominee designated by Purchaser at prior to the
Closing Date), free and clear of all liens, claims, charges and
encumbrances. Purchaser shall receive such certificates from Escrow Agent
or Eilenberg & Zivian, as applicable, after the Company has received the
Purchase Price from the Escrow Agent or directly from Purchaser, as the
case may be.
(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
(d) Wire instructions for the Company are as follows:
State Street Bank & Trust Company
108 Myrtle Street
North Quincy, MA
ABA Routing #: 011000028
Credit DDA #: 56730328
Account #: DE0175
Account Name: Pharmos Corporation
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<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, of which 31,095,510 shares
are currently issued and outstanding, and 1,250,000 Shares of non-voting
Preferred Stock, $.03 par value, of which 1,900 shares have been designated
Series A Preferred Stock ("Series A Stock"), $.03 par value, and of which 1,460
shares are currently issued and outstanding, and of which 6,000 shares have been
designated Series B Preferred Stock, par value $.03. 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 and the exercise in full
of the Warrants. 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, and upon exercise of the Warrants.
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 Shares,
Warrants and shares of Common Stock issuable upon conversion of the Shares (the
"Conversion Shares") and exercise of the Warrants (the "Warrant Shares)
(collectively, the "Securities") will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that the Shares and Warrants are subject to restrictions on transfer under state
and/or federal securities laws. The issuance and sale of the Shares and Warrants
will not give rise to any preemptive right or right of first refusal or right of
participation on behalf of any person. Upon registration of the Conversion
Shares and the Warrant Shares pursuant to Section 7 of this
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Agreement, there shall be no restriction on the transferability thereof other
than applicable prospectus delivery requirements.
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.
3.5 Accuracy of Reports and Information. The Company is in full compliance,
to the extent applicable, with all reporting obligations under Section 12(b), 12
(g) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). 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 or
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 ("SEC"). The Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (the "1995 10-K"), its
Quarterly Reports for the periods ended March 31, June 30 and September 30, 1996
and all Current Reports on Form 8-K filed by the Company from January 1, 1996 to
date are referred to as the "SEC Reports."
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 which 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 included in the SEC
Reports or in the current draft of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (the
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<PAGE>
"Draft 1996 10-K") provided to the Purchaser pursuant to a confidentiality
agreement and being filed with the SEC on March 31, 1997 (collectively 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 and the Warrants.
3.9 Intellectual Property Rights. Except as disclosed in the SEC Reports or
the Draft 1996 10-K, the Company has sufficient trademarks, trade names, patent
rights, copyrights and licenses to conduct its business as contemplated therein.
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 SEC Reports or the
Draft 1996 10-K, the agreements to which the Company is a party described
therein are valid agreements, in full force 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 SEC Reports or the Draft 1996
10-K, the Company has good and marketable title to all properties and material
assets described therein 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 SEC Reports or the Draft 1996
10-K.
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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, comparable United States market
or quotation system; provided, however, that the sole remedy for Purchaser for
breach of this representation shall be liquidated damages as provided in Section
9.6.
3.16 Other Outstanding Securities/Financing Restrictions. Except for the
outstanding shares of Series A Stock and outstanding non-vested warrants to
purchase 1,130,000 shares of Common Stock issued to employees in February 1997
and except as disclosed in the September 30, 1996 10-Q, there are no other
outstanding debt or equity securities presently convertible into shares of
Common Stock. The Company has no outstanding restricted shares of Common Stock,
or shares of Common Stock sold under Regulation S or Regulation D under the
Securities Act of 1933, as amended (the "Securities Act") 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, or is entering into, a business or
strategic relationship, or (c) the equity securities issued are not registered
prior to 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 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 Purchaser, to the effect that:
(a) The Company is duly incorporated, validly existing and in good
standing in the jurisdiction of its incorporation.
(b) 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.
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(c) 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.
(d) There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to
initiate.
(e) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
(f) This Securities Purchase Agreement and the Stock Purchase Warrant,
the issuance of the Shares and Warrants and the issuance of the Conversion
Shares and Warrant 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.
(g) The execution, delivery and performance of this Securities
Purchase Agreement and the Stock Purchase Warrant by the Company, and the
consummation of the transactions contemplated thereby, will not, with or
without the giving of notice or the passage of time or both:
(i) Violate the provisions of any law, rule or regulation
applicable to the Company;
(ii) Violate the provisions of the charter or bylaws of the
Company; or
(iii) To the best of counsel's knowledge, violate any judgment,
decree, order or award of any court, governmental body or arbitrator.
(iv) To the best of counsel's knowledge, conflict with, or result
in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or cause
the creation of any lien, charge or encumbrance upon the properties or
assets of the Company pursuant to, any note, bond, indenture,
mortgage, lease, deed of trust or other instrument, obligation, or
agreement to which the Company is a party or by which the Company, or
any of its properties is or may be bound.
(h) This Securities Purchase Agreement and the Stock Purchase Warrant
constitute the valid and legally binding obligations of the Company and are
enforceable against the Company in accordance with their respective 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, with
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respect to the Securities Purchase Agreement, to limitations of public
policy as they may apply to the indemnification provisions set forth in
Section 7.4 thereof.
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.
3.20 No Poison Pill. The Company represents that it does not have, and has
no current intention to adopt, a stockholder rights plan ("poison pill").
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 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 and the
acquisition of the Warrants.
4.3 Investment Intent. Without limiting its ability to resell the Shares
and the Warrants and underlying Common Stock pursuant to an effective
registration statement, Purchaser represents that it is purchasing the Shares
for investment purposes. Purchaser understands that its acquisition of the
Shares and the Warrants 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, purchase or otherwise acquire or take
a pledge of) any of the Shares or the Warrants 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 and the Warrants may not be resold or otherwise
transferred
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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
and the Warrants will be imprinted with a legend, subject to Section 4.7 below,
that prohibits the transfer thereof 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 and the acquisition and issuance of the
Warrants 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 purchase of the Shares
and acquisition of the Warrants.
4.6 Purchaser Review. Purchaser hereby represents and warrants that the
Purchaser has carefully examined the SEC Reports, including the 1995 10-K, and
the Draft 1996 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, the Shares and
the Warrants. 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 Securities
shall be subject to a legend restricting transfer under the Securities Act, such
legend to be substantially as follows:
"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
or on any certificate representing any of the Securities shall be removed and
the Company shall issue a replacement certificate without such legend to the
holder of such certificate if the Securities 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 Securities may be made without registration.
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4.8 Restrictions on Conversion of Shares. Notwithstanding anything to the
contrary contained herein, no Shares may be converted by a holder of Shares
("Holder") to the extent that, after giving effect to the Conversion Shares
issued pursuant to a Notice of Conversion, the total number of shares of Common
Stock deemed beneficially owned by such Holder (other than by virtue of the
ownership of Shares or Warrants or ownership of other securities that have
limitations on a Holder's rights to convert or exercise similar to those
limitations set forth herein), together with all shares of Common Stock deemed
beneficially owned by Holder's "affiliates" (as defined in Rule 144 under the
Securities Act) that would be aggregated for purposes of determining whether a
group under Section 13(d) of the Exchange Act exists, would exceed 4.99% of the
total issued and outstanding shares of Common Stock, provided that each Holder
shall have the right to waive this restriction, in whole or in part, immediately
in case of a pending Change in Control Transaction (as defined in Section 9.2)
and in any other case upon 61 days prior notice to the Company. The delivery of
a Notice of Conversion by any Holder shall be deemed a representation by such
Holder it is in compliance with this Section 4.8. A transferee of Shares shall
not be bound by this provision unless it expressly agrees to be so bound. The
term "deemed beneficially owned" as used in this Section 4.8 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the Shares.
Section 5. Conditions to the Purchaser's Obligation to Purchase. The
Company understands that the Purchaser's obligation to purchase the Shares is
conditioned upon:
(a) Acceptance by Purchaser of this Agreement for the sale of the
Shares, as evidenced by the execution of this Agreement by its authorized
officers;
(b) Delivery of the Shares and Warrants to the Escrow Agent (or to
Eilenberg & Zivian, if the Purchaser elects to wire funds directly to the
Company);
(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 B1); 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 Shares is conditioned
upon:
(a) The receipt and acceptance by the Company of this Agreement to
issue the Shares as evidenced by execution of this Agreement by the
President or any Vice President of the Company;
(b) Delivery into escrow (or to the Company) 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 Purchaser certifying that all representations
and warranties of the
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Purchaser are true and correct as of the Closing Date (in the form annexed
hereto as Exhibit B2).
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 Conversion Shares and the
Warrant Shares;
(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 the 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
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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;
(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, two (2%) percent of the
Liquidation Preference (as defined below) of the Shares that have not been
converted, for each of the first two (2) months and three (3%) percent per
month thereafter that the Registration Statement is not effective, or in
the event of a Suspension 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. In addition, pursuant to Section 9.2, the restrictions
on conversion set forth in Section 9.1 shall be eliminated, and Purchaser's
right to convert the Shares shall be accelerated, on the 104th day after
the Closing Date if the Registration Statement is not effective by such
day. The "Liquidation Preference" for a Share shall equal $1,000 (subject
to adjustments for Reclassifications), plus all accrued and unpaid
dividends (which shall accrue through the Conversion Date, Redemption Date
or the date liquidated damages are paid, as applicable) and any then unpaid
liquidated damages (interest on which shall accrue at a rate of 2% per
month) arising under Sections 7.2(g), 9.2(c) or 9.6.
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.
(a) General 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.
(b) Indemnification for Registration Statement.
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(i) By Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the directors, if any, of
such Holder, the officers, if any, of such Holder who sign the
Registration Statement, each person, if any, who controls such Holder,
any underwriter (as defined in the Securities Act) for the Holders and
each person, if any, who controls any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, expenses or liabilities (joint or several) to which
any of them may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of
the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstance in which they are made, not misleading or (iii) any
violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Company will reimburse the Holders and each
such underwriter or controlling person, promptly as such expenses are
incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability action or proceeding; provided, however, that the
indemnity agreement contained in this Section 7.4(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by the Holders or any such underwriter or
controlling person, as the case may be. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of the Holders or any such underwriter or controlling person
and shall survive the transfer of the Securities by Holders.
(ii) By Holders. To the extent permitted by law, each Holder,
severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed
the Registration Statement, each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act,
any underwriter and any other stockholder selling securities pursuant
to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any
losses, claims, damages or liabilities (joint or several) to which any
of them may become subject, under the Securities Act, the Exchange Act
or other federal state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for use in
connection with such registration, and such Holder will reimburse any
legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 6(b) shall not apply to amounts
paid in settlement of such loss,
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claim, damage, liability or action if such settlement is effected
without the consent of such Holder, which consent shall not be
unreasonably withheld; and provided further, that the Holder shall be
liable under this paragraph for only that amount of losses, claims,
damages and liabilities as does not exceed the net proceeds to such
Holder as a result of the sale of the Securities pursuant to such
registration.
(c) Procedure for Indemnification. Promptly after receipt by an
indemnified party under this Section 7.4 of notice of the commencement
of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7.4, deliver to the indemnifying
party a written notice of commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party, if,
in the reasonable opinion of counsel for the indemnifying party,
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 7.4 only to the extent prejudicial to its ability
to defend such action, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party other than under this Section 7.4.
The indemnification required by this Section 7.4 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, promptly as such expense, loss, damage or
liability is incurred.
(d) Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying
party agrees to make the maximum contribution with respect to any
amounts for which it otherwise would be liable under this Section 7.4
to the extent permitted by law, provided that (i) no contribution
shall be made under the circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in
this Section 7.4, (ii) no seller of the Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any seller
of the Securities who was not guilty of such fraudulent
misrepresentation and (iii) contribution by any seller of the
Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Securities.
7.5 Information Available. So long as any registration statement is
effective covering the resale of the Conversion Shares or Warrant 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
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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 Conversion Shares and Warrant 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.
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 Conversion Shares and the Warrant 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 Conversion Shares or Warrant 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 (a "Suspension") 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. The Company agrees to use its best efforts to cause a
Suspension to be lifted within 10 business days during which time Purchaser
agrees that it will not sell any shares of Common Stock pursuant to such
prospectus.
7.8 Transfer of Conversion Shares or Warrant Shares Stock After
Registration. Purchaser hereby covenants with the Company not to make any sale
of the Conversion Shares or Warrant Shares except either (i) in accordance with
the Registration Statement, in which case Purchaser covenants to comply with the
requirement of delivering a current prospectus, (ii) in
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accordance with Rule 144, in which case Purchaser covenants to comply with Rule
144, or (iii) as otherwise permitted by applicable law.
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 Conversion Shares or Warrant Shares have
been re-sold, or (ii) such time as all of the Common Stock may be re-sold
pursuant to Rule 144(k) 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.
Section 9. Conversion; Acceleration; Liquidated Damages.
9.1 Restrictions on Conversion. Conversion of the Shares may be made at the
Conversion Price as follows:
0 - 90 days None
91 - 180 days Up to 40% of the aggregate Liquidation Preference
for the Shares (the "Aggregate Liquidation
Preference")
181 - 270 days Up to 80% of the Aggregate Liquidation Preference
after 270 days 100% of the Aggregate Liquidation Preference
9.2 Acceleration of Conversion.
(a) 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 bid price on the Closing Date for a period of five (5) consecutive
days, Purchaser may convert an additional 25% of the Aggregate Liquidation
Preference. 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
closing bid price on the Closing Date, the Purchaser may convert 100% of
the Aggregate Liquidation Preference without any remaining conversion
restrictions.
(b) Purchaser may also convert 100% of its Aggregate Liquidation
Preference commencing on the date which is two weeks after any of the
following events ("Acceleration Events"), except that there shall be no
such two week delay in the event of a Change in Control Transaction or a
Going Private Transaction (both as defined herein):
(i) the date the Company's Common Stock is delisted from the
Nasdaq Small Cap Market and is not otherwise listed on a national
securities exchange or the Nasdaq National Market (a "Delisting");
(ii) the date the Company (I) sells or otherwise conveys all or
substantially all of its assets or (II) effects a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of, directly or indirectly, or if within
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any 12 month period there is a change of more than 50% of the members
of the Company's Board of Directors, or if any other person, entity or
group (as defined in Section 13(d) of the Exchange Act) and/or any of
their affiliates or associates acquires in excess of 50% of the Common
Stock (collectively, a "Change in Control Transaction");
(iii) the date the Company completes any transaction or series of
transactions the result of which would cause the Common Stock to cease
being publicly traded, included without limitation pursuant to Rule
13e-3 promulgated under the Exchange Act (other than a transaction,
that is not a Change in Control Transaction, in which the Common Stock
is exchanged for other publicly traded securities) (a"Going Private
Transaction");
(iv) the date a Suspension has occurred and is continuing or the
date that is the 15th day in the aggregate that more than one
Suspension has occurred since the effective date of the Registration
Statement (a "Cumulative Suspension");
(v) the Registration Statement is not effective 90 days after the
Closing Date;
(vi) the date the number of authorized but unissued shares of
Common Stock are not sufficient to effect the conversion of all
outstanding Shares then eligible for conversion (whether or not the
Holders have duly delivered Notices of Conversion) ("Insufficient
Authorized Stock"); or
(vii) the date the Company receives a deficiency notice from the
U.S. Food and Drug Administration (the "FDA") withdrawing approval of
all filings by the FDA of the Company's New Drug Application
submissions for products utilizing loteprednol etabonate.
(c) Notice of Conversion. Conversion of the Shares to Common Stock may
be exercised in whole or in part by Purchaser telecopying an executed and
completed Notice of Conversion (in the form annexed hereto as Exhibit C) to
counsel for the Company, with a copy to the Company, and delivering the
original Notice of Conversion and the certificate representing the Shares
to counsel by hand or 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 any certificates for replacement Shares not
previously converted but included in the original certificate presented for
conversion) to the Purchaser via express courier within three (3) business
days after counsel for the Company has received the original Notice of
Conversion and the certificate representing the Shares being so converted.
The Notice of Conversion and certificate representing the portion of the
Shares converted shall be delivered as follows:
To counsel:
Eilenberg & Zivian
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666 Third Avenue, 30th Fl.
New York, NY 10017
(Tele) (212) 986-2468
(Fax) (212) 986-2399
To the Company:
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
Attn: President
(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.
In the event that the Shares are not converted within three (3) business
days of the Conversion Date, the Company shall be liable to Purchaser for actual
damages incurred from the fourth business day following the Conversion Date
through the ninth business day following the Conversion Date for such failure
(provided that Purchaser has delivered the original valid Notice of Conversion
and the original certificate(s) representing the Shares to be converted, or an
affidavit and indemnity agreement as to lost certificates reasonably
satisfactory to the Company). In the event the Shares are not converted by the
tenth (10th) business day following 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
Liquidation Preference for the Shares to be converted which shall run from the
tenth (10th) business day following the Conversion Date; provided, however, that
actual damages and liquidated damages for a failure to deliver certificates of
Common Stock shall be determined in accordance with Section 9.6, if both of the
following conditions are satisfied by the Company: (i) the failure to deliver
certificates of Common Stock is the result of a lack of available authorized but
unissued shares of Common Stock and (ii) the Company commences, within ten (10)
business days after the initial Conversion Date, and uses its best efforts to
obtain stockholder approval to amend its Articles of Incorporation to increase
the number of authorized shares of Common Stock by an amount sufficient to
permit conversion of all Shares then outstanding at the Hypothetical Conversion
Price (as hereinafter defined) then in effect.
9.3 Restrictions on Sales by Purchaser. Purchaser agrees that neither it
nor any person or entity for whom it is holding Shares will directly or
indirectly sell any of the Common Stock (including short sales) during three (3)
business days prior to a conversion by Purchaser.
9.4 Mandatory Conversion. The Shares are subject to mandatory conversion
after three (3) years from the Closing Date, at which time all Shares will
automatically be converted at the Conversion Price, upon the terms set forth in
this section. Such three year period will be extended by the number of days
during such period that (i) the Company's
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Common Stock has been Delisted and/or (ii) a Suspension has been in effect and
by the number of days after the 90th day from the date hereof that the
Registration Statement was not declared effective. Any particular day in which
more than one of the foregoing condition events shall have been in effect shall
only be counted once in determining the number of days by which to extend the
three year period prior to mandatory conversion. In addition, mandatory
conversion shall not occur for so long as certain default events specified in
Section 5(e) of the Certificate of Designation are continuing.
9.5 Reservation of Common Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common 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
Shares and Warrants, the sufficiency of which shall be determined (in the case
of the Shares) by using a Conversion Price (the "Hypothetical Conversion Price")
derived from a hypothetical closing market price that is 75% of either (i) the
actual Average Closing Price on the Closing Date or (ii) the actual Average
Closing Price from time to time, whichever is lower, and in the case of the
Warrants, by the exercise price thereof. The Company hereby covenants and agrees
that if at any time the Hypothetical Conversion Price falls to a level that
would not enable all outstanding Shares to be fully converted and the
outstanding Warrants to be fully exercised, the Company will promptly use its
best efforts to obtain stockholder approval, within 90 days thereafter, to amend
its Articles of Incorporation to increase the number of authorized shares of
Common Stock by an amount sufficient to permit the conversion of all Shares then
outstanding at the Hypothetical Conversion Price then in effect.
9.6 Liquidated Damages. In the event of a Delisting, a Cumulative
Suspension or Insufficient Authorized Stock (each a "Damage Event"), the Company
will pay to Purchaser (and to all other holders of the Shares), by wire
transfer, as liquidated damages for such nonavailability and not as a penalty,
an amount in cash equal to 2% per month of the Liquidation Preference of only
those Shares then eligible for conversion, without regard to Section 4.8, for
the first two months after the occurrence of a Damage Event, and 3% per month
for each month thereafter. Similar liquidated damages shall be paid with respect
to any Shares not initially eligible for conversion when the Damage Event first
occurred but which subsequently become eligible for conversion, without regard
to Section 4.8, commencing in the first month that such Shares become eligible
for such conversion. Such liquidated damages shall continue to accrue and shall
be payable until the Damage Event has been cured, and, if not paid, interest
thereon shall accrue at a rate of 2% per month. At the Purchaser's election,
such liquidated damages may be paid in cash or may be added to the principal of
the Shares for subsequent conversion purposes. Notwithstanding the foregoing, in
the case of a Delisting, after six months from the date of such Delisting, the
Company shall have the option to either (i) force Purchaser to as promptly as
possible convert (in increments of no less than $50,000) all or part of its
Shares, subject to Purchaser being able to sell the underlying Conversion
Shares, and simultaneously sell such Conversion Shares (where the conversion
price therefor shall not be the Conversion Price but instead shall equal 83% of
the Purchaser's sale price of the Conversion Shares, for the first 25% of
Purchaser's Aggregate Liquidated Preference converted, and 80% of Purchaser's
sale price of the Conversion Shares for the remainder, all as determined by
Purchaser's actual trading records (to be provided to the Company) or (ii)
redeem Purchaser's Shares pursuant to Section
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10 below. In no event may the Company force Purchaser to convert less than
$50,000 of Shares at any one time.
Section 10. Redemption By Company.
10.1 Company's Right to Redeem. The Company shall have the right, in its
sole discretion, to redeem in whole or in part the Shares when the average
Nasdaq closing bid price is more than 200% above the Nasdaq closing price on the
Closing Date for the five (5) consecutive days prior to the date the Company
makes such election to redeem. If the Company elects to redeem some, but not
all, of the Shares, the Company shall redeem the Shares pro rata among the
Holders of all Shares then outstanding. The date of the Company's redemption of
Shares shall be referred to as the "Redemption Date."
10.2 Redemption Price. The redemption price per Share shall equal:
Liquidation Preference
80%
10.3 Mechanics of Redemption; Purchaser's Conversion Rights. The Company
shall effect each such redemption by giving notice of its election to redeem
("Redemption Notice"), which shall be irrevocable, by facsimile, by 5 P.M. New
York City time the next business day following its election to redeem Shares and
shall provide a copy of such redemption notice by overnight or 2-day courier, to
Purchaser, all other Holders of Shares and the Company's Transfer Agent. Such
redemption notice shall indicate (i) whether the Company will redeem all or part
of the Shares, (ii) the applicable redemption price and (iii) that the average
Nasdaq closing bid price has exceeded by 200% the Nasdaq closing price on the
Closing Date for the five (5) consecutive days prior to the date the Company
elects to redeem Shares. Notwithstanding the foregoing, Purchaser shall have
five business days following receipt of the Redemption Notice from the Company
to elect, in its sole discretion, to convert all or part of the Shares otherwise
being redeemed. Such conversion shall be effected in accordance with the
Certificate of Designation, and if an appropriate Notice of Conversion is
delivered to the Company in a timely manner, such Shares shall be deemed to be
converted and not redeemed.
10.4 Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Redemption Notice and begin the
redemption procedure hereunder unless it has:
(i) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar
financial institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
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(iv) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the redemption price.
10.5 Payment of Redemption Price. Upon receipt of a Redemption Notice
Purchaser shall send its Shares being redeemed to the Company or its Transfer
Agent, and the Company shall pay the applicable redemption price within three
(3) business days of receipt of the Shares. The Company shall not be obligated
to deliver the redemption price unless the Shares so redeemed are delivered to
the Company or its Transfer Agent, or, in the event one or more certificates
have been lost, stolen, mutilated or destroyed, Purchaser delivers to the
Company a lost certificate affidavit and indemnification agreement reasonably
satisfactory to Company and the Transfer Agent.
10.6 Blackout Period. Notwithstanding the foregoing, the Company may not
either send out a redemption notice or effect a redemption during a Blackout
Period (defined as a period during which the Company's officers or directors
would not be entitled to buy or sell stock because of their holding of material
non-public information). In the event the Company initiates a redemption during
a Blackout Period without having first made public material non-public
information, the Company shall disclose the non-public information that resulted
in the Blackout Period, and no redemption shall be effected until at least 10
days after the Company shall have given the Holder written notice that the
Blackout Period has been lifted.
Section 11. 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, or shall be sent by overnight
courier or by facsimile, and shall be deemed given when received:
(a) if to the Company, to
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
(Tele) 904-462-1210
(Fax) 904-462-5401
copy to:
Adam D. Eilenberg, Esq.
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;
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<PAGE>
(b) if to the Purchaser, to
--------------------------
--------------------------
--------------------------
copy to:
--------------------------
--------------------------
--------------------------
or at such other address or addresses as may have been furnished to the Company
in writing; or
(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 12. Miscellaneous.
12.1 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.
12.2 Amendments. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and by Purchaser.
12.3 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.
12.4 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.
12.5 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 Securities Act, without reference to
principles of conflicts of law. Each
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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. In addition, the parties agree that the party against whom such
judgment was obtained will pay the legal fees of the party obtaining such
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.
12.6 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 Purchaser.
12.7 Fees. Notwithstanding Section 12.6, the Company acknowledges that
Purchaser shall have no responsibility for the payment of any of its fees in
connection with this offering.
12.8 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.
12.9 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.
12.10 Survival. The representations and warranties in this Agreement shall
survive Closing.
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<PAGE>
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
_____________, PURCHASER
By
-------------------------
Officer
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EXHIBIT A
CERTIFICATE OF DESIGNATION
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<PAGE>
CERTIFICATE OF DESIGNATION, RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES B PREFERRED STOCK
OF
PHARMOS CORPORATION
A Nevada Corporation
Pursuant to Nevada Revised Statutes, Section 78.1955, the undersigned
hereby certifies as follows:
1. That he is the President and Acting Secretary of Pharmos
Corporation, a Nevada corporation (the "Corporation"); and
2. That, pursuant to the authority conferred on the Corporation's
Board of Directors (the "Board") by ARTICLE IV, Section 2 of the
Corporation's Restated Articles of Incorporation, the Board, at a special
meeting of the Board held on March 27, 1997, (a) adopted resolutions
providing for the issuance of shares of the Corporation's Preferred Stock
to be designated as shares of "Series B Preferred Stock" and fixing the
number of such shares of Series B Preferred Stock and the powers,
designations, privileges, preferences, limitations, restrictions, price and
relative rights of such Series B Preferred Stock as more fully set forth in
the Statement of Designation, Rights, Preferences and Privileges of Series
B Preferred Stock of the Corporation attached hereto and incorporated
herein by this reference; and (b) authorized the filing of this Certificate
with the Nevada Secretary of State.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Designation, Rights, Preferences and Privileges of Series B Preferred Stock of
PHARMOS CORPORATION on this 27th day of March, 1997.
/s/ Gad Riesenfeld
------------------------
Gad Riesenfeld
President
/s/ Gad Riesenfeld
------------------------
Gad Riesenfeld
Acting Secretary
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<PAGE>
STATE OF Florida )
) ss.
COUNTY OF Alachua )
On this 27th day of March 1997, personally appeared before the undersigned,
a Notary Public, as the President and Acting Secretary of PHARMOS CORPORATION, a
Nevada corporation, known to me to be the person described in and who executed
the foregoing instrument freely and voluntarily and for the uses and purposes
mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the day and year in this certificate first written above.
/s/ Sandra V. Burgess
---------------------------
NOTARY PUBLIC
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<PAGE>
STATEMENT OF DESIGNATION, RIGHTS, PREFERENCES AND
PRIVILEGES OF SERIES B PREFERRED STOCK
OF
PHARMOS CORPORATION,
a Nevada Corporation
The designation, rights, preferences and privileges of, and other matters
relating to, the Company's Series B Preferred Stock or the holders ("Holders")
of record thereof are as follows:
Section 1. Designation and Amount. The series of Preferred Stock designated
and known as the "Series B Preferred Stock" shall have a par value of $.03 per
share and the number of shares constituting the Series B Preferred Stock shall
be 6,000. The Series B 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 B Preferred Stock shall rank: (i) prior to all
of the Company's Common Stock, par value $.03 per share ("Common Stock"); (ii)
pari passu with all the Company's Series A Preferred Stock ("Series A Preferred
Stock"); and (iii) 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 B 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 B Preferred Stock will bear a 5% per annum
cumulative dividend, payable at the time of conversion in cash or Common Stock
at the Conversion Price (as defined herein), 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 Series B Preferred
Stock, pari passu with the Holders of Series A Preferred Stock, shall be
entitled to receive an amount per share equal to the sum of (i) $1,000 for
each outstanding share of Series B Preferred Stock (subject to adjustments
for Reclassifications (as defined in herein), plus (ii) an amount equal to
all accrued and unpaid dividends (which shall accrue through the Conversion
Date, Redemption Date (both as defined herein) or the date liquidated
damages are paid, as applicable) and any then unpaid liquidated damages
(interest on which shall accrue at a rate of 2% per month) arising under
Sections 5(c) or (g) (the "Liquidation Preference"). If upon the occurrence
of such event, the assets and funds available to be distributed among the
Holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to such
Holders, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the Holders of the Series B and
Series A Preferred Stock on a pro rata basis.
(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
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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(i)(ii) hereof.
Section 5. Conversion. The record Holders of this Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series B Preferred Stock
shall be entitled to convert shares of Series B Preferred Stock (at a
minimum of twenty (20) shares per conversion) as follows: (1) up to forty
percent (40%) of the aggregate Liquidation Preference for the shares of
Series B Preferred Stock held by such Holder (the "Aggregate Liquidation
Preference") at any time beginning 91 days following the date of the
closing of the sale of shares of Series B Preferred Stock to such Holder
(the "Closing Date"), and at anytime thereafter; (2) up to eighty percent
(80%) of the Aggregate Liquidation Preference at any time beginning 181
days following the Closing Date, and at anytime thereafter; and (3) 100% of
the Aggregate Liquidation Preference at any time beginning 271 days
following the Closing Date, and at anytime thereafter, into that number of
fully-paid and non-assessable shares of Common Stock of the Company
calculated in accordance with the following formula (the "Conversion
Rate"):
Number of shares issued upon conversion of one (1) share of Series B
Preferred Stock =
Liquidation Preference
----------------------
Conversion Price
where, "Conversion Price" means (i) an amount equal to a seventeen (17%) 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 (the "Average Closing Price") for the first 25% of Holder's
Aggregate Liquidation Preference converted; or (ii) an amount equal to a twenty
(20%) percent discount from the Average Closing Price for amounts converted in
excess of 25% of Holder's Aggregate Liquidation Preference. The closing price
referred to above shall be the last reported sales price, or if no reported sale
takes place on such day, the average of the closing bid and asked prices. If the
Common Stock is not traded on Nasdaq, the Average Closing Price shall be the
average closing price (and if not available, the mean of the high and low
prices) of the Common Stock on the over-the-counter-market or the principal
national securities exchange or the National Market System on which the Common
Stock is traded for the previous three (3) business days ending on the day
before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly on a pro
rata basis in the event of the happening of certain events that would affect the
Common Stock or the Series B Preferred Stock's value including, but not limited
to, forward and reverse splits, dividend payments on shares, subdivision of
shares, combinations, reclassifications, issuance of rights, warrants, options
or any other event described in Section 5(i) (collectively "Reclassifications").
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An adjustment made pursuant to this section shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such an event.
(b) Acceleration.
(i) 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 bid price on the Closing Date for a period of five (5) consecutive
days, each Holder may convert an additional 25% of such Holder's Aggregate
Liquidation Preference. 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 closing bid price on the Closing Date, each Holder may convert 100%
of its Aggregate Liquidation Preference without any remaining conversion
restrictions.
(ii) Each Holder may also convert 100% of its Aggregate Liquidation
Preference commencing on the date which is two weeks after any of the
following events ("Acceleration Events"), except that there shall be no
such two week delay in the event of a Change in Control Transaction or a
Going Private Transaction (both as defined herein):
(A) the date the Company's Common Stock is delisted from the
Nasdaq Small Cap Market and is not otherwise listed on a national
securities exchange or the Nasdaq National Market (a "Delisting");
(B) the date the Company (I) sells or otherwise conveys all or
substantially all of its assets or (II) effects a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of, directly or indirectly, or if within any 12
month period there is a change of more than 50% of the members of the
Company's Board of Directors, or if any affiliate of the Company or
any other person, entity or group (as defined in Section 13(d) of the
Exchange Act) acquires in excess of 50% of the Common Stock
(collectively, a "Change in Control Transaction");
(C) the date the Company completes any transaction or series of
transactions the result of which would cause the Common Stock to cease
being publicly traded, included without limitation pursuant to Rule
13e-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than a transaction, that is not a
Change in Control Transaction, in which the Common Stock is exchanged
for other publicly traded securities) (a"Going Private Transaction");
(D) the date of a suspension (a "Suspension") of the use of the
prospectus forming part of the registration statement (the
"Registration Statement") filed under the Securities Act of 1933, as
amended (the "Securities Act") registering the shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock has
occurred and is continuing or the date that is the 15th day in the
aggregate that more than one Suspension has occurred since the
effective date of the Registration Statement (a "Cumulative
Suspension");
(E) the Registration Statement is not effective 90 days after the
Closing Date;
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(F) the date the number of authorized but unissued shares of
Common Stock are not sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock then eligible for
conversion (whether or not the Holders have duly delivered Notices of
Conversion) ("Insufficient Authorized Stock"); or
(G) the date the Company receives a deficiency notice from the
U.S. Food and Drug Administration (the "FDA") withdrawing approval of
all filings by the FDA of the Company's New Drug Application
submissions for products utilizing loteprednol etabonate.
(c) Mechanics of Conversion. Conversion of the Series B Preferred
Stock to Common Stock may be exercised in whole or in part by Holder
telecopying an executed and completed notice of conversion ("Notice of
Conversion") (in the form annexed hereto as Exhibit A) to counsel for the
Company, with a copy to the Company, and delivering the original Notice of
Conversion and the certificate representing the shares of Series B
Preferred Stock to counsel by hand or by express courier within three (3)
business days of exercise. Each date on which a Notice of Conversion is
telecopied to and received by counsel for 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 of Series B Preferred Stock
(together with any certificates for replacement shares of Series B
Preferred Stock not previously converted but included in the original
certificate presented for conversion) to the Holder via express courier
within three (3) business days after counsel for the Company has received
the original Notice of Conversion and certificate for the shares of Series
B Preferred Stock being so converted. The Notice of Conversion and
certificate representing the portion of the shares of Series B Preferred
Stock converted shall be delivered as follows:
To counsel:
Eilenberg & Zivian
666 Third Avenue, 30th Fl.
New York, NY 10017
(Tele) (212) 986-2468
(Fax) (212) 986-2399
To the Company:
Pharmos Corporation
2 Innovation Drive
Alachua, FL 32615
Attn: President
(Tele) (904) 462-1210
(Fax) (904) 462-5401
or to such other person at such other place as the Company shall designate
to the Holder in writing.
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In the event that the shares of Series B Preferred Stock are not converted
within three (3) business days of receipt by counsel for the Company of a valid
Notice of Conversion and certificates representing the Shares to be converted
(such date of receipt referred to as the "Conversion Date"), the Company shall
be liable to Purchaser for actual damages incurred from the fourth business day
following the Conversion Date through the ninth business day following the
Conversion Date for such failure (provided that Purchaser has delivered the
original valid Notice of Conversion and the original certificate(s) representing
the shares of Series B Preferred Stock to be converted, or an affidavit and
indemnity agreement as to lost certificates reasonably satisfactory to the
Company). In the event that the shares of Series B Preferred Stock are not
converted by the tenth (10th) business day following the Conversion Date, the
Company shall pay to the Holder, 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 Liquidation Preference for the Series B Preferred Stock to be
converted which shall run from the initial Conversion Date; provided, however,
that actual damages and liquidated damages for a failure to deliver certificates
of Common Stock shall be determined in accordance with Section 5(g), if both of
the following conditions are satisfied by the Company: (i) the failure to
deliver certificates of Common Stock is the result of a lack of available
authorized but unissued shares of Common Stock and (ii) the Company commences,
within ten (10) business days after the initial Conversion Date, and uses its
best efforts to obtain stockholder approval to amend its Articles of
Incorporation to increase the number of authorized shares of Common Stock by an
amount sufficient to permit conversion of all shares of Series B Preferred Stock
then outstanding at the Hypothetical Conversion Price (as hereinafter defined)
then in effect.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any
certificates representing shares of Series B 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 certificate(s), if mutilated, the Company shall
execute and deliver new certificate(s) of like tenor and date.
However, Company shall not be obligated to re-issue such lost or
stolen certificates if Holder contemporaneously requests Company to
convert such Series B Preferred Stock into Common Stock.
(ii) No Fractional Shares. If any conversion of the Series B
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.
(d) Restrictions on Conversion of the Series B Preferred Stock.
Notwithstanding anything to the contrary contained herein, no shares of
Series B Preferred Stock may be converted by a Holder to the extent that,
after giving effect to the shares of Common Stock issuable pursuant to a
Notice of Conversion, the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
the Series B Preferred Stock or the warrants issued to Holder in connection
with the issuance of the Series B Preferred Stock or ownership of other
securities that have limitations on a Holder's rights to convert or
exercise similar to those limitations set forth herein), together with all
shares of Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the Securities Act) that
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would be aggregated for purposes of determining whether a group under
Section 13(d) of the Exchange Act exists, would exceed 4.99% of the total
issued and outstanding shares of Common Stock, provided that each Holder
shall have the right to waive this restriction, in whole or in part,
immediately in case of a pending Change in Control Transaction (as defined
in Section 5(b)(ii)(B)) and in any other case upon 61 days prior notice to
the Company. The delivery of a Notice of Conversion by any Holder shall be
deemed a representation by such Holder it is in compliance with this
Section 5(d). A transferee of the Series B Preferred Stock shall not be
bound by this provision unless it expressly agrees to be so bound. The term
"deemed beneficially owned" as used in this Section 5(d) shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the Series B Preferred Stock.
(e) Mandatory Conversion. The Series B Preferred Stock is subject to
mandatory conversion after three (3) years from the Closing Date, at which
time all shares of Series B Preferred Stock will automatically be converted
at the Conversion Price, upon the terms set forth in this section. Such
three year period will be extended by the number of days during such period
that (i) the Company's Common Stock has been Delisted and/or (ii) a
Suspension has been in effect and by the number of days after the 90th day
from the date hereof that the Registration Statement was not declared
effective. Any particular day in which more than one of the foregoing
condition events shall have been in effect shall only be counted once in
determining the number of days by which to extend the three year period
prior to mandatory conversion. Mandatory conversion shall not occur in the
event of the occurrence of one or both of the following at the time of such
mandatory conversion: (x) the Company is unable, or admits in writing its
inability, to pay its debts, or is not paying its debts generally as they
come due, or has made any assignment for the benefit of creditors; or (y)
the Company has commenced, or there has been commenced against the Company,
any case, proceeding, or other action seeking to have an order for relief
entered with respect to the Company, or to adjudicate the Company as a
bankrupt or insolvent.
(f) 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, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then
outstanding shares of Series B Preferred Stock, the sufficiency of which
shall be determined by using a Conversion Price (the "Hypothetical
Conversion Price") derived from a hypothetical closing market price that is
75% of either (i) the actual Average Closing Price on the Closing Date or
(ii) the actual Average Closing Price from time to time, whichever is
lower. The Company hereby covenants and agrees that if at any time the
Hypothetical Conversion Price falls to a level that would not enable all
outstanding shares of Series B Preferred Stock to be fully converted, the
Company will promptly use its best efforts to obtain stockholder approval,
within 90 days thereafter, to amend its Articles of Incorporation to
increase the number of authorized shares of Common Stock by an amount
sufficient to permit the conversion of all shares of Series B Preferred
Stock then outstanding at the Hypothetical Conversion Price then in effect.
(g) Liquidated Damages. In the event of a Delisting, a Cumulative
Suspension or Insufficient Authorized Stock, or in the event the
Registration Statement is not effective within 90 days of the Closing Date
(each a "Damage Event"), the Company will pay to all Holders of
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the Series B Preferred Stock, by wire transfer, as liquidated damages for
such non-availability and not as a penalty, an amount in cash equal to 2%
per month of the Liquidation Preference of only those shares of Series B
Preferred Stock then eligible for conversion, without regard to Section
5(d), for the first two months after the occurrence of a Damage Event, and
3% per month for each month thereafter. Similar liquidated damages shall be
paid with respect to any shares of Series B Preferred Stock not initially
eligible for conversion, when the Damage Event first occurred but which
subsequently become eligible for conversion, without regard to Section
5(d), commencing in the first month that such shares of Series B Preferred
Stock become eligible for such conversion. Such liquidated damages shall
continue to accrue and shall be payable until the Damage Event has been
cured (and, if unpaid, shall bear interest at a rate of 2% per month), and,
at the Holder's election, may be paid in cash or may be added to the
principal of the shares of Series B Preferred Stock for subsequent
conversion purposes; provided, however, that in the case of a Delisting,
after six months from the date of such Delisting, the Company shall have
the option to either (i) force Holder to as promptly as possible convert
(in increments of no less than $50,000) all or part of its shares of Series
B Preferred Stock, subject to Purchaser being able to sell the underlying
shares of Common Stock issuable upon conversion, and simultaneously sell
such shares (where the conversion price therefor shall not be the
Conversion Price but instead shall equal 83% of the Holder's sale price of
the shares of Common Stock issued upon conversion, for the first 25% of
Holder's Aggregated Liquidation Preference converted, and 80% of the actual
sale price of the shares of Common Stock issued upon conversion for the
remainder, all as determined by Holder's actual trading records (to be
provided to the Company) or (ii) redeem Holder's shares of Series B
Preferred Stock pursuant to Section 5(h) below. In no event, may the
Company force Holder to convert less than $50,000 of Series B Preferred
Stock.
(h) Redemption By Company.
(i) Company's Right to Redeem. The Company shall have the right, in
its sole discretion, to redeem in whole or in part the Series B Preferred
Stock when the average Nasdaq closing bid price is more than 200% above the
Nasdaq closing price on the Closing Date for the five (5) consecutive days
prior to the date the Company makes such election to redeem. If the Company
elects to redeem some, but not all, of the shares of Series B Preferred
Stock, the Company shall redeem the shares of Series B Preferred Stock pro
rata among the Holders of all of the Series B Preferred Stock then
outstanding. The date of the Company's redemption of the Series B Preferred
Stock shall be referred to as the "Redemption Date."
(ii) Redemption Price. The redemption price per share of Series B
Preferred Stock shall equal: Liquidation Preference 80%
(iii) Mechanics of Redemption; Holder's Conversion Rights. The Company
shall effect each such redemption by giving notice of its election to
redeem ("Redemption Notice"), which shall be irrevocable, by facsimile, by
5 P.M. New York City time the next business day following its election to
redeem shares of Series B Preferred Stock and shall provide a copy of such
redemption notice by overnight or 2-day courier, to Holder, all other
Holders of shares of
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Series B Preferred Stock and the Company's transfer agent for the Series B
Preferred Stock ("Transfer Agent"). Such redemption notice shall indicate
(i) whether the Company will redeem all or part of the Series B Preferred
Stock, (ii) the applicable redemption price and (iii) that the average
Nasdaq closing bid price has exceeded by 200% the Nasdaq closing price on
the Closing Date for the five (5) consecutive days prior to the date the
Company elects to redeem shares of Series B Preferred Stock.
Notwithstanding the foregoing, Holder shall have five business days
following receipt of the Redemption Notice from the Company to elect, in
its sole discretion, to convert all or part of the Series B Preferred Stock
otherwise being redeemed. Such conversion shall be effected in accordance
with the Certificate of Designation, and if an appropriate Notice of
Conversion is delivered to the Company in a timely manner, such shares of
Series B Preferred Stock shall be deemed to be converted and not redeemed.
(iv) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice
and begin the redemption procedure hereunder unless it has:
(A) the full amount of the redemption price in cash, available in
a demand or other immediately available account in a bank or similar
financial institution; or
(B) immediately available credit facilities, in the full amount
of the redemption price with a bank or similar financial institution;
or
(C) a combination of the items set forth in (A) and (B) above,
aggregating the full amount of the redemption price.
(v) Payment of Redemption Price. Upon receipt of a Redemption Notice
Holder shall send its shares of Series B Preferred Stock being redeemed to
the Company or its Transfer Agent, and the Company shall pay the applicable
redemption price within three (3) business days of receipt of the shares of
Series B Preferred Stock. The Company shall not be obligated to deliver the
redemption price unless the shares of Series B Preferred Stock so redeemed
are delivered to the Company or its Transfer Agent, or, in the event one or
more certificates have been lost, stolen, mutilated or destroyed, Holder
delivers to the Company a lost certificate affidavit and indemnification
agreement reasonably satisfactory to Company and the Transfer Agent.
(vi) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption during a
Blackout Period (defined as a period during which the Company's officers or
directors would not be entitled to buy or sell stock because of their
holding of material non-public information). In the event the Company
initiates a redemption during a Blackout Period without having first made
public material non-public information, the Company shall disclose the
non-public information that resulted in the Blackout Period, and no
redemption shall be effected until at least 10 days after the Company shall
have given the Holder written notice that the Blackout Period has been
lifted.
(i) Adjustment to Conversion Rate.
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<PAGE>
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when the Series B 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 B 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 B 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 B Preferred Stock, upon the basis and upon the
terms and conditions 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 B 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 B 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 B 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 B
Preferred Stock such shares of stock and/or securities or other
property as, in accordance with the foregoing provisions, the Holders
of the Series B Preferred Stock may be entitled to receive upon
conversion of the Series B Preferred Stock.
(iii) No Fractional Shares. If any adjustment under this Section
5(i) 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. Voting Rights. The Holders of the Series B Preferred Stock shall
have no voting power whatsoever, except with respect to any amendment to the
Company's Certificate of Incorporation which would have an adverse effect on the
Series B Preferred Stock or as otherwise provided by the Nevada Corporation
Laws.
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<PAGE>
Section 7. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 5 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 B Preferred Stock.
Section 8. 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 B Preferred Stock.
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<PAGE>
EXHIBIT A
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 ___Shares represented
by 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 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.
- -------------------------------- ---------------------------
Date of Conversion Applicable Conversion Price
- -------------------------------- ---------------------------
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
- -------------------------------- ---------------------------
Signature Name
Address: Delivery of Shares to:
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<PAGE>
EXHIBIT B1
PHARMOS CORPORATION
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of PHARMOS CORPORATION, hereby
certifies that the representations and warranties made by Pharmos Corporation in
the 5% Preferred Stock Securities Purchase Agreement dated March 31, 1997
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
31st day of March 1997.
PHARMOS CORPORATION
By
----------------------------------
Name
--------------------------------
Title
-------------------------------
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EXHIBIT B2
PURCHASER
COMPLIANCE CERTIFICATE
The undersigned, _________________, _________________________, of
______________________________________ ("Purchaser"), hereby certifies that the
representations and warranties made by Purchaser in the 5% Preferred Stock
Securities Purchase Agreement dated March 31, 1997 between Pharmos Corporation
and Purchaser 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
31st day of March 1997.
PURCHASER
--------------------------
By
-----------------------------
Name
---------------------------
Title
---------------------------
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<PAGE>
EXHIBIT C
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 ___Shares represented
by 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 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.
- --------------------------------- ----------------------------------
Date of Conversion Applicable Conversion Price
- -------------------------------- ----------------------------------
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
- --------------------------------- ----------------------------------
Signature Name
Address: Delivery of Shares to:
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EXHIBIT 4(h)
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<PAGE>
[FORM OF STOCK PURCHASE WARRANT WITH 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 D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS STOCK PURCHASE WARRANT 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.
No. W-97D-__
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 March 31, 1998 (the "Initial Exercise Date") and on or
prior to March 31, 2001 (the "Termination Date") but not thereafter, to
subscribe for and purchase from PHARMOS CORPORATION, a Nevada corporation (the
"Company"), ______ shares of the Company's 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 Warrant Shares shall be subject to adjustment as
provided herein. This warrant is being issued pursuant a Preferred Stock
Securities Purchase Agreement, dated March 31, 1997, 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).
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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 Exercise Date, or such earlier date as provided in paragraph 11(c)
below, 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(a) 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 an 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 such exemption from registration is available. Certificates for
shares purchased hereunder shall be delivered to the holder hereof within three
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
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<PAGE>
deemed to be issued to such holder as the record 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, or shall
issue any shares of its capital stock in a reclassification of the Common
Stock, 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.
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(c) The Initial Exercise Date shall be accelerated in the event of a
Change in Control or a Going Private Transaction, as defined under the
Agreement.
12. Registration Rights. The Company shall register the Warrant Shares
pursuant to Section 7 of the Agreement. In the event of the failure of the
Company to procure registration of the Warrant Shares by the later of (i) the
Initial Exercise Date, as adjusted pursuant to paragraph 11(c) above or (ii)
ninety (90) days from the Closing Date (as defined in the Agreement), or during
a Suspension, as defined under the Agreement, the Company will pay to the
Investor by wire transfer, as liquidated damages for such failure and not as a
penalty, two (2%) percent of the product of the Exercise Price and the number of
Warrants that have not been exercised, for each of the first two (2) months and
three (3%) percent per month thereafter that the registration statement is not
effective or that such Suspension continues. If not paid as required, interest
on such damages will accrue at a rate of 2% per month. 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 Warrant Shares is not effected and
maintained; provided, however, that the payment of such liquidated damages shall
not relieve the Company from its obligations to register the Warrant Shares
pursuant to this paragraph 12. The registration of the Warrant Shares pursuant
to this provision shall not effect or limit Investor's other rights or remedies
as set forth in this Warrant. The obligations of the Company under this
paragraph 12 shall cease and terminate upon the earlier to occur of (x) such
time as all of the Warrant Shares have been re-sold or (y) such time as all of
the Warrant Shares may be re-sold pursuant to Rule 144(k) under the Securities
Act.
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 at any time subdivide its outstanding
shares of Common Stock ("Common Shares") into a greater number of Common
Shares or declare a dividend or distribution upon its Common Shares payable
in Common Shares, the Exercise Price in effect immediately prior to such
subdivision or declaration shall be proportionately reduced, and the number
of Warrant Shares issuable upon exercise of the Warrants shall be
proportionately increased. Conversely, in case the outstanding Common
Shares of the Company shall be combined into a smaller number of Common
Shares, the Exercise Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Warrant Shares
issuable upon exercise of the Warrants shall be proportionately reduced.
(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
(d) below) which is lower at the date of issuance thereof than the then
Current Market Price (as defined in paragraph (e) below) per share of
Common Stock at such date, the number
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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 (d) 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) 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.
(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;
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(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 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. If the Common Stock is not traded on
Nasdaq, the Current Market Price shall be the average closing price (and if
not
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available, the mean of the high and low prices) of the Common Stock on the
over-the-counter-market or the principal national securities exchange or
the National Market System on which the Common Stock is traded 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 be 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 Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
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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. Such reservation of
shares of Common Stock shall be in addition to those shares of Common Stock
reserved pursuant to the Company's Certificate of Designation for its Series B
Preferred Stock. 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. Restrictions on Exercise. Notwithstanding anything to the contrary
contained herein, no Warrants may be converted by a holder of Warrants
("Holder") to the extent that, after giving effect to the shares of Common Stock
issued pursuant to the exercise hereof, the total number of shares of Common
Stock deemed beneficially owned by such Holder (other than by virtue of the
ownership of shares of Series A Preferred Stock or Series B Preferred Stock or
Warrants or ownership of other securities that have limitations on a Holder's
rights to convert or exercise similar to those limitations set forth herein),
together with all shares of Common Stock deemed beneficially owned by Holder's
"affiliates" (as defined in Rule 144 under the 1933 Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended, exists, would exceed 4.99% of
the total issued and outstanding shares of Common Stock, provided that each
Holder shall have the right to waive this restriction, in whole or in part,
immediately in case of a pending Change in Control Transaction (as defined in
the Agreement) and in any other case upon 61 days prior to the exercise
hereunder by Holder. The exercise of all or part of this Warrant by any Holder
shall be deemed a representation by such Holder it is in compliance with this
Section 17. A transferee of Warrants shall not be bound by this provision unless
it expressly agrees to be so bound. The term "deemed beneficially owned" as used
in this Section 17 shall exclude shares that might otherwise be deemed
beneficially owned by reason of the exercisability of the Warrants.
18. Miscellaneous.
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<PAGE>
(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 or the Company
shall be delivered or shall be sent by certified or registered mail,
postage prepaid, or by overnight courier or by facsimile to each such
holder at its address (or fax number) as shown on the books of the Company
or to the Company at the address (or fax number) set forth in the
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: March 31, 1997
PHARMOS CORPORATION
By
------------------------------
Officer
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<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.
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<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 at an Exercise Price of $_________ , 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 the Stock Purchase Warrant of
Pharmos Corporation, dated March 31, 1997. 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)
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<PAGE>
EXHIBIT 5
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<PAGE>
April 30, 1997
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 10,000,000 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 March 31, 1997 private placement transaction (the "Private Placement
Transaction") and up to 159,000 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 (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
---------------------------
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EXHIBIT 23(b)
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<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 31, 1997 appearing in Pharmos Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996. 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
April 29, 1997
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