SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 10, 1998
Pharmos Corporation
(Exact name of registrant as specified in its charter)
Nevada 0-11550 36-3207413
(State or other jurisdiction of Commission File Number (I.R.S. Employer
incorporation or organization) Identification Number)
33 Wood Avenue South, Suite 466, Iselin, NJ 08830
(Address of principal executive offices) (zip code)
(732) 603-3526
(Registrant's telephone number including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
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Item 5 Other Events
Pharmos Corporation (the "Company") has entered into a Private Equity Line
of Credit Agreement (the "Credit Agreement") as of December 10, 1998, and as
amended on December 18, 1998, with Dominion Capital Fund, Ltd. (the "Investor").
Pursuant to the terms of the Credit Agreement, the Company may, from time to
time during a specified term, cause the Investor to purchase up to an aggregate
of $10,000,000 of the Company's common stock, par value $.03 per share (the
"Common Stock"). The price per share of Common Stock to be paid by the Investor
is to be determined at the time of each purchase according to a specified
formula which is based upon the average closing bid price of the Common Stock on
the principal trading exchange or market for the Common Stock (the "Principal
Market") over a prescribed five-day period. With each purchase of Common Stock,
the Investor is also to receive warrants exercisable for a number of shares of
Common Stock equal to ten percent of the number of shares of Common Stock
purchased at an exercise price per share equal to 125% of the closing bid price
of the Common Stock on the Principal Market on a specified date.
Item 7 Exhibits
(a) Exhibits
*10.1 Private Equity Line of Credit Agreement dated as of December 10, 1998
between the Company and Dominion Capital Fund, Ltd.
*10.2 Amendment Agreement dated as of December 18, 1998 between the Company and
Dominion Capital Fund, Ltd.
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* Filed herewith
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMOS CORPORATION
Date: December 23, 1998 /s/ Robert Cook
-------------------------
Robert Cook
Chief Financial Officer
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PRIVATE EQUITY LINE OF CREDIT AGREEMENT
between
Pharmos Corporation.
and
Dominion Capital Fund, Ltd.
December 10, 1998
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PRIVATE EQUITY LINE OF CREDIT AGREEMENT
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of December 10, 1998 (the
"Agreement"), Dominion Capital Fund, Ltd., (hereinafter referred to as the
"Investor"), and PHARMOS CORPORATION, a corporation organized and existing under
the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase (a)
Warrants to purchase up to an aggregate of 1,100,000 Warrant Shares, and (b)
pursuant to the equity line of credit established herein whereby the Company has
the option of exercising (i) its "Initial Put" rights upon the Investor for the
purchase and sale of up to $3,000,000 of the Common Stock, and (ii) its
"Secondary Put" rights upon the Investor for the purchase and sale of up to
$7,000,000 of the Common Stock (as is set forth below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Business Day" means any day except Saturday, Sunday and any
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
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Section 1.4 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into, exchangeable for, or have any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any
security convertible into, or exchangeable for Capital Shares.
Section 1.5 "Closing" shall mean one of the closings of a purchase and sale
of the Common Stock pursuant to Section 2.1.
Section 1.6 "Closing Date" shall mean with respect to a Closing for the Put
Shares the date of receipt by the Escrow Agent of the Put Shares pursuant to the
provisions set forth below; provided all conditions to such Closing have been
satisfied on or before such time.
Section 1.7 "Commitment Amount" shall mean the $10,000,000 up to which the
Investor has agreed to provide to the Company in order to purchase the Warrants
and Put Shares pursuant to the terms and conditions of this Agreement.
Section 1.8 "Commitment Period" shall mean, with respect to (i) the Initial
Put Shares the period commencing on the Subscription Date, and expiring on the
earliest to occur of (x) the date on which the Investor has purchased all of the
Initial Put Shares pursuant to this Agreement for an aggregate Purchase Price of
$3,000,000, (y) the date this Agreement is terminated pursuant to Section 2.4,
or (z) the date occurring 180 calendar days after the Subscription Date, and
(ii) the Secondary Put Shares, the period commencing on the earliest to occur of
(a) 60 calendar days after the date on which the Investor has purchased all of
the Initial Put Shares pursuant to this Agreement for an aggregate Purchase
Price of $3,000,000, or (b) the date occurring 240 calendar days after the
Subscription Date, and expiring on the earliest to occur of (x) the date on
which the Investor has purchased all of the Secondary Put Shares pursuant to
this Agreement for an aggregate Purchase Price of $7,000,000, (y) the date this
Agreement is terminated pursuant to Section 2.4, or (z) the date occurring 24
months after the expiration of the Commitment Period for the Initial Put Shares.
Section 1.9 "Common Stock" shall mean the Company's common stock, $0.03 par
value per share.
Section 1.10 "Condition Satisfaction Date" shall have the meaning set forth
in Section 6.1 for a Closing for Initial Put Shares and Section 6.2 for a
Closing for Secondary Put Shares.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorney's fees and
disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
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Section 1.13 "Escrow Agent" shall mean the law firm of Ehrenreich Eilenberg
Krause & Zivian, LLP or its predecessor, pursuant to the terms of the Escrow
Agreement attached as Exhibit A.
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "Initial Maximum Put Amount" on any Put Date for Initial Put
Shares shall mean $300,000.
Section 1.16 "Initial Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice for the Initial Put Shares requiring
the Investor to purchase shares of the Company's Common Stock, subject to the
terms of this Agreement.
Section 1.17 "Initial Shares Put Date" shall mean the Trading Day during
the Commitment Period that a Put Notice to sell Initial Shares to the Investor
is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.18 "Initial Shares Put Notice" shall mean a written notice to
the Investor setting forth the number of Initial Put Shares that the Company
intends to sell to the Investor, and the Compliance Certification from the
Company as attached hereto as Exhibit B.
Section 1.19 "Initial Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of the Initial Put as set
forth in this Agreement.
Section 1.20 "Initial Put Share Floor Price" shall mean a Bid Price of
Seventy Five Cents ($0.75) per share of Common Stock.
Section 1.21 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.1
hereof.
Section 1.22 "Market Price" on any given date shall mean the average of the
Bid Prices of the Common Stock during the Valuation Period.
Section 1.23 "Material Adverse Effect" shall mean, since September 30,
1998, any effect on the business, Bid Price, trading volume of the Common Stock,
operations, properties, prospects, results of operations, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, individually, or taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, or the
Warrants in any material respect.
Section 1.24 "NASD" shall mean the National Association of Securities
Dealers, Inc.
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Section 1.25 "Notice of Intention" shall mean the Company's Notice of
Intention to make a Put in the form annexed hereto as Exhibit C.
Section 1.26 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.27 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.28 "Principal Market" shall mean the Nasdaq National Market,
Nasdaq Small-Cap Market, or the American Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.29 "Purchase Price" shall mean with respect to (i) the Initial
Put Shares, ninety three percent (93%) of the Market Price upon an Initial
Shares Put Date (or such other date on which the Purchase Price is calculated in
accordance with the terms and conditions of this Agreement), and (ii) the
Secondary Put Shares, ninety three percent (93%) of the Market Price upon a
Secondary Shares Put Date (or such other date on which the Purchase Price is
calculated in accordance with the terms and conditions of this Agreement).
Section 1.30 "Put" shall mean each occasion the Company elects to exercise
its right to tender a Put Notice for either the Initial Put Shares and/or
Secondary Put Shares requiring the Investor to purchase shares of the Company's
Common Stock, subject to the terms of this Agreement.
Section 1.31 "Put Date" shall mean the Trading Day in which the Investor
receive a Put Notice.
Section 1.32 "Put Notice" shall mean any Initial Shares Put Notice and any
Secondary Shares Put Notice.
Section 1.33 "Put Shares" shall mean any Initial Put Shares and any
Secondary Put Shares, and all shares of Common Stock or other securities issued
or issuable pursuant to a Put that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
Section 1.34 "Registrable Securities" shall mean any of the Secondary Put
Shares, and the Warrant Shares (i) in respect of which a Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) which have not been otherwise transferred to holders who may trade such
shares without restriction under the Securities Act, and the Company has
delivered a
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new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) the sales of which, in the opinion of counsel to the
Company, are subject to any time, volume or manner limitations pursuant to Rule
144(e) (or any similar provision then in effect) under the Securities Act.
Section 1.35 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date annexed hereto as Exhibit D.
Section 1.36 "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement, and the Warrants and in accordance
with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.37 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38 "SEC" shall mean the Securities and Exchange Commission.
Section 1.39 "Secondary Maximum Put Amount" on any Put Date for Secondary
Put Shares shall mean $500,000.
Section 1.40 "Secondary Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice for the Secondary Put Shares requiring
the Investor to purchase shares of the Company's Common Stock, subject to the
terms of this Agreement.
Section 1.41 "Secondary Put Shares Date" shall mean the Trading Day during
the Commitment Period that a Put Notice to sell Secondary Put Shares to the
Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.42 "Secondary Put Notice" shall mean a written notice to the
Investor setting forth the number of Secondary Put Shares that the Company
intends to sell to the Investor, and the Compliance Certification from the
Company as attached hereto as Exhibit E.
Section 1.43 "Secondary Put Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to a Put that has occurred or
may occur in accordance with the terms and conditions of the Secondary Put as
set forth in this Agreement.
Section 1.44 "Secondary Put Share Floor Price" shall mean a Bid Price of
One ($1.00) per share of Common Stock.
Section 1.45 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
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Section 1.46 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.47 "SEC Documents" shall mean the Form 10-KSB, Form 10-QSB's, and
Form 8-K's, (including all amendments thereto) filed by the Company for a period
of at twelve (12) months immediately preceding the date hereof until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.48 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.49 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.50 "Valuation Event" shall mean an event in which the Company at
any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other distribution of
its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital Shares"),
otherwise than as provided in the foregoing Subsections (a) and (b) above, at a
price per share less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law
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or any distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the circumstances
provided for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Subsections (a) through
(f) hereof, inclusive, which in the opinion of the Company's Board of Directors,
determined in good faith, would have a material adverse effect upon the rights
of the Investor at the time of a Put or exercise of the Warrant.
Section 1.51 "Valuation Period" shall mean with respect to the Purchase
Price on any Put Date, the five consecutive Trading Day period commencing on the
day that is two Trading Days immediately preceding the Put Date, the Put Date,
and the two Trading Days immediately following the Put Date; provided, however,
that if a Valuation Event occurs during a Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the sixth Trading Day after the occurrence of such
Valuation Event.
Section 1.52 "Warrants" shall mean the Common Stock Purchase Warrant
annexed hereto as Exhibit F.
Section 1.53 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Warrants and Put Shares
Section 2.1 Investments in Put Shares.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VI hereof), at anytime during
either Commitment Period, the Company may make a Put by the delivery of a Notice
of Intention via facsimile (which must be received by the Investor prior to
12:00 p.m. New York time on a Trading Day) to the Investor stating the Company's
intention to make a Put, and the Investment Amount of such Put. Within two
Trading Days after the Investor has received a Notice of Intention the Company
must serve a Put Notice (for either Initial Put Shares or Secondary Put Shares)
in the form attached hereto as either Exhibit B or E which must contain the same
Investment Amount as was stated in the Notice of Intention. In the event the
Company fails to deliver a Put Notice to the Investor within the aforementioned
two Trading Day period, the Company, subject to the right of refusal of the
Investor (which shall be done in writing to the Company via facsimile), will be
obligated to deliver to the Investor 40% of that number of Put Shares included
in the Notice of Intention. In such case, the third Trading Day immediately
following receipt by the Investor of such Notice of Intention shall be
considered a Put Date for the purposes of determining the Purchase Price of such
Put Shares, and the Investment Amount shall be 40% of that originally stated in
the Notice of Intention. In the event the Company properly serves a Notice of
Intention, and properly serves a Put Notice but then fails to comply with the
Put provisions contained herein, the Company, subject to the right of refusal of
the Investor (which shall be done in writing to the Company via
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facsimile), will be obligated to deliver to the Investor 40% of that number of
Put Shares included in the Put Notice as if the Company had fully complied with
such Put Notice. The number of Put Shares that the Investor shall receive
pursuant to such Put Notice shall be determined by dividing the Investment
Amount specified in the Put Notice by the applicable Purchase Price. The
Investment Amount for each Put as designated by the Company in the applicable
Put Notice shall not be less than $100,000 nor more than the Initial Maximum Put
Amount or the Secondary Maximum Put Amount (as applicable). In the event the
Company properly serves upon the Investors a Notice of Intention and a Put
Notice as is set forth herein, and is in compliance with all of the terms and
conditions set forth herein, and the Investor is unable to pay to the Company
the Investment Amount set forth on such Notice of Intention and Put Notice, then
the Investor agrees to return to the Company that portion of the Warrants then
held by the Investor equal to the number of Warrants (the "Forfeited Warrants")
that the Investor would have received pursuant to Section 2.5 below. In this
event the Investor agrees to return such portion of the Warrant within five
Business Days after the Put Date, and the Company agrees to return any remaining
portion of the Warrants to the Investor within five Business Days after receipt
of such Warrant(s). In the event the Investor is unable to fund, and hold less
Warrants then the Forfeited Warrants, then the Investor agrees to pay to the
Company five percent of the Investment Amount that the Investor was unable to
fund. In the event the Company fails to comply with either a Notice of
Intention, Put Notice, or otherwise fails to comply with the Put procedures set
forth herein, on two separate occasions, the Company shall not have the right to
serve a Notice of Intention and/or Put Notice upon the Investor any time
thereafter. In the event the Investor fails to fund as set forth above, on more
than two separate occasions the Company shall not have the right to serve a
Notice of Intention and/or Put Notice upon the Investor any time thereafter.
(b) Maximum Aggregate Purchase of Common Stock. Unless the Company obtains
shareholder approval pursuant to the applicable corporate governance rules of
the Nasdaq Stock Market (or a written waiver therefrom), the Investor may not be
compelled to make a purchase which results in the issuance to the Investor in
the aggregate of more than 19.99% of the outstanding shares of Common Stock as a
result of the transactions contemplated by this Agreement.
Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, provided the
Company has delivered a Notice of Intention, and all of the conditions set forth
in Article VI are satisfied, the Company may deliver a Put Notice to the
Investor, subject to the conditions set forth in Article VI below.
(b) Date of Delivery of Put Notice. A Notice of Intention, and a Put Notice
shall be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 12:00 noon Eastern
Time, or (ii) the immediately succeeding
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Trading Day if it is received by facsimile or otherwise after 12:00 noon
Eastern Time on a Trading Day or at any time on a day which is not a Trading
Day. No Notice of Intention or Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 Put Closings. On each Closing Date for a Put (i) the Company
shall deliver to the Escrow Agent one or more certificates, at the Investor's
option, representing the Put Shares to be purchased by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor or, such other name
at the Investor's option, and (ii) the Investor shall deliver to escrow the
Investment Amount specified in the Put Notice by wire transfer of immediately
available funds to the Escrow Agent on or before the Closing Date for each Put.
In addition, on or prior to the Closing Date for each Put, each of the Company
and the Investor shall deliver to the Escrow Agent all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
original Common Stock certificates to the Investor shall occur out of escrow in
accordance with the conditions set forth above and those contained in the Escrow
Agreement.
Section 2.4 Termination of Investment Obligation. The obligation of the
Investor to purchase Put Shares shall terminate permanently (including with
respect to a Closing Date that has not yet occurred) in the event that there
shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of five consecutive Trading Days during
the Commitment Period, for any reason other than deferrals or suspensions in
accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act, or (ii)
the Company shall at any time fail to comply with the requirements of Article V
below.
Section 2.5 Warrants. On each Closing Date for a Put, the Company will
issue to the Investor Warrants to purchase that number of Warrant Shares equal
to the result of the following equation: (Investment Amount of the applicable
Put multiplied by 0.10) divided by the Bid Price on the Put Date. The Warrants
shall be delivered by the Company to the Escrow Agent, and delivered to the
Investor pursuant to the terms of this Agreement and the Escrow Agreement. The
Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.
ARTICLE III
Representations and Warranties of Investor
The Investor represents and warrants to the Company that:
Section 3.1 Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the country of its
incorporation or organization and have all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by the Investor, the performance by
the Investor of its obligations hereunder and the consummation by the Investor
of the transactions contemplated hereby have been duly authorized and requires
no other proceedings on the part of the Investor. The undersigned has all right,
power and authority to
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execute and deliver this Agreement on behalf of the Investor. This Agreement has
been duly executed and delivered by the Investor and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Investor, enforceable against the
Investor in accordance with its terms.
Section 3.2 Evaluation of Risks. The Investor has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. It recognizes that its investment in the Company involves a high
degree of risk.
Section 3.3 Independent Counsel. The Investor acknowledges that it has been
advised to consult with their own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the securities issuable hereunder.
Section 3.4 Investment Intent. The Investor is entering into this Agreement
solely for its own account and the Investor has no present arrangement (whether
or not legally binding) at any time to sell the Put Shares to or through any
person or entity. The Investor understands and agrees that it may bear the
economic risk of its investment in the securities issuable hereunder for an
indefinite period of time.
Section 3.5 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit D).
Section 3.6 No Advertisements. The Investor is not entering into this
Agreement as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3.7 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and accredited
investors (as defined in Rule 501 of Regulation D), and the Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.8 Not an Affiliate. The Investor is neither an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.9 Shorting Limitation. The Investor agrees that it will only
maintain a short position in the Common Stock up to that amount of shares of
Common Stock contained in the then most recent Notice of Intention.
ARTICLE IV
Representations and Warranties of the Company
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The Company hereby represents and warrants to, and covenants with, the
Investor that the following are true and correct as of the date hereof and as of
the Subscription Date:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Nevada
and has all requisite corporate authority to own its properties and to carry on
its business as now being conducted except as described in the SEC Documents.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not reasonably be expected to
have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Put Shares, Warrants, and
Warrant Shares, (ii) the execution, issuance and delivery of this Agreement, and
all Exhibits annexed hereto, by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors, and (iii) this Agreement, and all Exhibits annexed hereto,
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. Upon their issuance and delivery pursuant to this
Agreement, the securities will be validly issued, fully paid and nonassessable
and will be free of any liens or encumbrances other than those created hereunder
or by the actions of the Investor; provided, however, that the securities are
subject to restrictions on transfer under state and/or federal securities laws.
The issuance and sale of the securities hereunder will not give rise to any
preemptive right or right of first refusal or right of participation on behalf
of any person.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, $0.03 par value per share, of
which 39,355,843 shares are issued and outstanding, and 1,250,000 shares of
Preferred Stock, $0.03 par value per share, of which 1,500 are issued and
outstanding. Other than as disclosed in the SEC documents, the Company has no
outstanding debt or equity instruments which are convertible into shares of
Common Stock. All of the outstanding shares of Common Stock and Preferred Stock
of the Company have been duly and validly authorized and issued and are fully
paid and nonassessable. No shares of Common Stock are entitled to preemptive or
similar rights. Except as specifically disclosed in the SEC Documents, there are
no outstanding options, warrants, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or, except as a result of the purchase
and sale of the Put Shares and Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or securities or rights
convertible or exchangeable into shares of Common Stock. To the
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knowledge of the Company, except as set forth on Schedule A annexed hereto, no
Person or group of Persons beneficially owns (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of five percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted on the Nasdaq Small Cap Stock Market. The Company is in full
compliance with the listing requirements of the Nasdaq Small Cap Stock Market,
and has not received any notification threatening the status of such listing.
Section 4.5 SEC Documents. The Company has not provided to the Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. The SEC Documents comply in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and rules and regulations of the SEC promulgated thereunder and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, the Put Shares, Warrants, and Warrant Shares, sold to the Investor
will be duly and validly issued, fully paid, and nonassessable. Neither the
issuance of, the Put Shares, Warrants, or Warrant Shares to the Investors
pursuant to, nor the Company's performance of its obligations under, this
Agreement, and all Exhibits annexed hereto will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Put Shares, Warrants or Warrant Shares, issuable hereunder, or any of
the assets of the Company, or (ii) entitle the holders of Outstanding Capital
Shares to preemptive or other rights to subscribe to or acquire the Capital
Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, the Warrants, or
the Warrant Shares, or (ii) made any offers or sales of any security or
solicited any
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offers to buy any security under any circumstances that would require
registration of the Put Shares, Warrants, or the Warrant Shares under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof, and the Company's
by-laws, as amended and in effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put
Shares, Warrants, and Warrant Shares, do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected, nor is the Company otherwise in violation of, conflict with
or in default under any of the foregoing as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations that
either singly or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Put Shares, or Warrants, in accordance with the
terms hereof; provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.10 No Material Adverse Change. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, that are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
set forth in the Company's financial
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statements or as incurred in the ordinary course of the Company's businesses
since December 31, 1997, and which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December 31,
1997, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.14 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act. The Company has registered
its Common Stock pursuant to Section 12 of the 1934 Act and the Common Stock is
listed and trades on the Nasdaq Small Cap Stock Market. The Company has complied
in all material respects and to the extent applicable with all reporting
obligations, under either Section 13(a) or 15(d) of the 1934 Act for a period of
at least twelve (12) months immediately preceding the offer and sale of the Put
Shares and Warrants (or for such shorter period that the Company has been
required to file such material).
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that the issuance of the Put Shares and Warrant Shares may result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Warrant Shares in accordance with the Warrants
is unconditional and absolute regardless of the effect of any such dilution.
Section 4.16 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.17 Environmental Laws. The Company is (i) in compliance with any
and all foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or
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contaminants and which the Company know is applicable to them ("Environmental
Laws"), (ii) has received all permits, licenses or other approvals required
under applicable Environmental Laws to conduct its business, and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval.
Section 4.18 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
Section 4.19 Board Approval. The board of directors of the Company has
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.20 Integration. The Company shall not and shall use its best
efforts to ensure that no affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security of the Company that
would be integrated with the offer or sale of the Put Shares and Warrants in a
manner that would require the registration under the Securities Act of the
issue, offer or sale of any security of the Company to any investors. The Put
Shares and Warrants are being offered and sold pursuant to the terms hereunder,
are not being offered and sold as part of a previously commenced private
placement of securities.
Section 4.21 Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses, trade secrets and other intellectual
property rights which are necessary for use in connection with its business
(collectively, the "Intellectual Property Rights") or which the failure to so
have would have a Material Adverse Effect. To the best knowledge of the Company,
none of the Intellectual Property Rights infringe on any rights of any other
Person, and the Company either owns or has duly licensed or otherwise acquired
all necessary rights with respect to the Intellectual Property Rights. The
Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.22 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for working capital purposes and capital
expenditures.
Section 4.23 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
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Section 4.24 Registration of Put Shares and Warrant. The Company represents
that it has filed a registration statement on Form S-3 (hereinafter referred to
as the "Initial Put Shares Registration Statement") with the SEC which includes
3,000,000 shares of Common Stock as being the subject of shelf registration. The
Company agrees that it will file an amendment to the Initial Put Shares
Registration Statement specifically allotted for the Initial Put Shares and
Warrant Shares issuable therewith on or prior to the Subscription Date. The
Company further represents that it has not received any notice from the SEC, nor
any comments from the SEC, nor is it aware of anything pending, which may
threaten the effectiveness of the Initial Put Shares Registration Statement. The
Company will maintain Initial Put Shares Registration Statement and the
amendment thereto filed under this Section current under the 1933 Act until the
earlier of (i) the date that all of the Initial Put Shares (and Warrant Shares
associated therewith) have been sold by the Investor pursuant to the Initial Put
Shares Registration Statement, (ii) the date the holders thereof receive an
opinion of counsel that the Initial Put Shares (and Warrant Shares) which have
been issued may be sold under the provisions of Rule 144, without volume
limitation, or (iii) four and one half years after the Subscription Date. All
fees, disbursements and out-of-pocket expenses and costs incurred by the Company
in connection with the preparation, filing and maintaining the effectiveness of
Initial Put Shares Registration Statement and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Company shall qualify any of the
securities for sale in such states as the Investor reasonably designates and
shall furnish indemnification to the Investor as set forth herein. The Company
at its expense will supply the Investor with copies of the registration
statement and the prospectus or offering circular included therein and other
related documents in such quantities as may be reasonably requested by the
Investor. The Company agrees that is will respond to any and all comments,
questions, or inquiries, by the SEC concerning Initial Put Shares Registration
Statement or any amendment thereto within five Business Days of receiving same,
and will declare the Initial Shares Registration Statement or any amendment
thereto effective within three Business Days after being informed by the SEC
that it may do so.
ARTICLE V
Covenants of the Company
Section 5.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 5.2 Reservation of Common Stock. As of the date hereof, the Company
has authorized and reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
Common Stock upon exercise of the Warrants, and the Put Shares; such amount of
shares of Common Stock to be reserved shall be calculated based upon the minimum
Purchase Price and exercise price therefor under the terms of this Agreement,
and the Warrants respectively. The number of shares of Common Stock so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder and the
number of shares so
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reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be so obligated to
issue by reason of adjustments to the Warrants.
Section 5.3 Listing of Common Stock. The Company hereby agrees to maintain
the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares and the Warrant Shares. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Put Shares and the
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company will
comply with the listing and trading requirements of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
In the event the Company receives notification from Nasdaq or any other
controlling entity stating that the Company is not in compliance with the
listing qualifications of such Principal Market, the Company will take all
action necessary to bring the Company within compliance with all applicable
listing standards of the Principal Market.
Section 5.4 Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 5.5 No Legend. The certificates evidencing the Put Shares and
Warrant Shares to be sold by the Company to the Investor shall not contain any
restrictive legend.
Section 5.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 5.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 5.8 Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company will immediately notify the Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus relating to an offering of Registrable Securities; (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the registration
statement or related
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prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not 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 not misleading, and that in the case
of the related prospectus, it will not 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 the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Put Notice during the continuation of any
of the foregoing events.
Section 5.9 Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 5.10 Issuance of Put Shares and Warrant Shares. The issuance of the
Put Shares and the Warrant Shares pursuant to exercise of the Warrant shall be
made in accordance with the provisions and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
Issuance of the Warrant Shares pursuant to exercise of the Warrant shall be made
in accordance with the provisions and requirements under the Securities Act and
any applicable state securities law.
Section 5.11 Legal Opinion. The Company's independent counsel shall deliver
to the Investor upon execution of this Agreement, and upon the expiration of
each fiscal quarter thereafter until the expiration of the Commitment Period, an
opinion in the form of Exhibit G annexed hereto (as conformed for the issuance
of the Warrants, as applicable). The Company will obtain for the Investor, at
the Company's expense, any and all opinions of counsel which may be reasonably
required in order to exercise the Warrants.
Section 5.12 20% Rule Limitation. If required by the Principal Market, or
otherwise on the market or exchange on which the Company's Common Stock is then
listed, the Company shall call a meeting of its shareholders, to be held no
later than 60 calendar days after the Subscription Date, seeking shareholder
approval of the below market issuances of shares of Common Stock (and securities
convertible into and exercisable for Common Stock) to the Investor in excess of
20% of the number of shares of Common Stock outstanding as of
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Subscription Date. In the event that the aforementioned proposal is not so
approved with such 60 calendar day period, the Company shall seek a waiver from
the Principal Market for such below market issuances. In the event the Company
does not receive such waiver within the earlier of ten calendar days after the
aforementioned shareholders meeting, or 70 calendar days after the Subscription
Date, the Company shall delist the Common Stock from the Principal Market.
Section 5.13 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, warranty or other agreement contained in
this Agreement or any Exhibit annexed hereto, as well as any events or
occurrences arising after the date hereof, which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as the
case may be, contained in this Agreement or any Exhibit annexed hereto, to be
incorrect or breached as of such Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in this Agreement or any
Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the
Company shall promptly notify the Investor of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement or any Exhibit
annexed hereto, violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to the Investor a copy of any written statement in support of or
relating to such claim or notice.
Section 5.14 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business consistent with past practice or in
connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights, or allow the Intellectual Property Rights to
become subject to any Liens, or fail to renew such Intellectual Property Rights
(if renewable and would otherwise expire).
ARTICLE VI
Conditions to Delivery of Puts and Conditions to Closing
Section 6.1 Conditions Precedent to an Initial Put Share Closing.
(a) The obligation hereunder of the Company to issue and sell the Initial
Put Shares to the Investor incident to each Initial Put Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(i) The representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and as of
the date of each such Closing as though made at each such time.
(ii) The Investor shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Investor at or
prior to such Closing.
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(b) The right of the Company to deliver a Notice of Intention (in
connection with an Initial Shares Put Notice) and an Initial Put Notice and the
obligations of the Investor hereunder to acquire and pay for the Initial Put
Shares incident to a Closing for the Initial Put Shares is subject to the
satisfaction, on (i) the date of delivery of such Notice of Intention, (ii) the
date of delivery of such Initial Put Notice, and (iii) the applicable Closing
Date (each a "Condition Satisfaction Date"), of each of the following
conditions:
(i) Registration of the Common Stock with the SEC. The Company shall have
filed an amendment to the Initial Put Shares Registration Statement
(including any amendment thereto) specifically allotted for the Initial Put
Shares and Warrant Shares issuable therewith and on each Condition
Satisfaction Date the Initial Shares Registration Statement shall contain
at least that amount of Initial Put Shares contained in the Initial Put
Notice, and the number of Warrant Shares issuable therewith. The Initial
Put Shares Registration Statement (including any amendment thereto) shall
have previously become effective and shall remain effective on each
Condition Satisfaction Date for Initial Put Shares, and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued
or intends to issue a stop order with respect to the Initial Put Shares
Registration Statement (including any amendment thereto), or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Initial Put
Shares Registration Statement (including any amendment thereto), either
temporarily or permanently, or intends or has threatened to do so, and (ii)
no other suspension of the use or withdrawal of the effectiveness of the
Initial Put Shares Registration Statement (including any amendment thereto)
or related prospectus shall exist. The Initial Put Shares Registration
Statement (including any amendment thereto) must remain effective during
the five Trading Days immediately preceding the date in which a Notice of
Intent is received by the Investor, and each Initial Shares Put Date.
(ii) Authority. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Initial
Put Shares, or shall have the availability of exemptions therefrom. The
sale and issuance of the Initial Put Shares shall be legally permitted by
all laws and regulations to which the Company is subject.
(iii) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made
at each such time (except for representations and warranties specifically
made as of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have
temporarily caused any representations or warranties herein to be incorrect
and which have been corrected with no continuing impairment to the Company
or the Investor.
(iv) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement and the Warrant to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
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(v) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
that prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
that may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(vi) Adverse Changes. Since the Subscription Date, no event that had or is
reasonably likely to have a Material Adverse Effect has occurred.
(vii) No Suspension of Trading In or Delisting of Common Stock. The trading
of the Common Stock (including, without limitation, the Put Shares) is not
suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to
the applicable Initial Put Shares Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market. The Company
shall not have received any notice threatening the listing of the Common
Stock on the Principal Market.
(viii) 4.99% Percent Limitation. On each Closing Date for Initial Put
Shares, the number of Initial Put Shares then to be purchased by the
Investor will not exceed the number of such shares which, when aggregated
with all other shares of Common Stock then owned by the Investor
beneficially or deemed beneficially owned by the Investor, would result in
the Investor owning more than 4.99% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule
13d-3 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section, in the event that the amount of Common Stock
outstanding as determined in accordance with Rule 13d-3 of the Exchange Act
and the regulations promulgated thereunder is greater on a Closing Date
than on the date upon which the Initial Put Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on such
Closing Date shall govern for purposes of determining whether the Investor,
when aggregating all purchases of Common Stock made pursuant to this
Agreement and, if any, Warrant Shares, would own more than 4.99% of the
Common Stock following such Closing. Then, in such event, the Company would
reduce that number of Initial Put Shares so issuable so that it would not
exceed the aforementioned 4.99% limitation. The Investor shall notify the
Company as soon as possible, but in any event within three Business Days of
receiving an Initial Put Notice, if the Investor believes Investor's
purchase of the Initial Put Shares specified in the Initial Put Notice
would result in the Investor exceeding the 4.99% limitation described
above.
(ix) Minimum Bid Price. The Bid Price equals or exceeds the Initial Put
Floor Price during the applicable Valuation Period (as adjusted for stock
splits, stock dividends, reverse stock splits, and similar events).
(x) Minimum Average Trading Volume. The average trading volume for the
Common Stock over the previous 30 consecutive Trading Days immediately
preceding
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the Trading Day the Investor receives a Notice of Intention exceeds 130,000
shares per Trading Day.
(xi) No Knowledge. The Company has no knowledge of any event more likely
than not to have the effect of causing Initial Put Shares Registration
Statement to be suspended or otherwise ineffective (which event is more
likely than not to occur within the fifteen Trading Days following the
Trading Day on which such Notice of Intention is deemed delivered).
(xii) Trading Cushion. At least five Trading Days shall have elapsed since
the preceding Initial Shares Put Date.
(xiii) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement to hold the Common Stock and Warrants
issuable upon each Closing Date for Initial Shares Put Notice and the
Purchase Prices due hereunder, which shall remain in full force and effect
as of the Condition Satisfaction Date.
(xiv) Other. On each Condition Satisfaction Date, the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions
set forth in this Section, including, without limitation, a certificate (in
the form of Exhibit B) executed in either case by an executive officer of
the Company and to the effect that all the conditions to such Closing shall
have been satisfied as at the date of each such certificate.
Section 6.2 Conditions Precedent to a Secondary Put Share Closing.
(a) The obligation hereunder of the Company to issue and sell the Secondary
Put Shares to the Investor incident to each Secondary Put Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(i) The representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and as of
the date of each such Closing as though made at each such time.
(ii) The Investor shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Investor at or
prior to such Closing.
(b) The right of the Company to deliver a Notice of Intention (in
connection with an Secondary Shares Put Notice) and a Secondary Put Notice and
the obligation of the Investor hereunder to acquire and pay for the Secondary
Put Shares incident to a Closing for the Secondary Put Shares is subject to the
satisfaction, on (i) the date of delivery of such Notice of Intention, (ii) the
date of delivery of such Secondary Put Notice, and (iii) on each Condition
Satisfaction Date for the Secondary Put Shares, of each of the following
conditions:
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(i) Registration of the Common Stock with the SEC. The Registration
Statement shall contain at least that amount of Secondary Put Shares
contained in the Secondary Put Notice and that number of Warrant Shares
issuable therewith. The Registration Statement shall have previously become
effective and shall remain effective on each Condition Satisfaction Date
for Secondary Put Shares, and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a
stop order with respect to the Registration Statement, or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened
to do so, and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related prospectus shall
exist. The Registration Statement must remain effective during the five
Trading Days immediately preceding the date in which a Notice of Intent is
received by the Investor, and each Secondary Shares Put Date.
(ii) Authority. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Secondary Put Shares, or shall have the availability of exemptions
therefrom. The sale and issuance of the Secondary Put Shares shall be
legally permitted by all laws and regulations to which the Company is
subject.
(iii) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made
at each such time (except for representations and warranties specifically
made as of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have
temporarily caused any representations or warranties herein to be incorrect
and which have been corrected with no continuing impairment to the Company
or the Investor.
(iv) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement, the Registration Rights Agreement
and the Warrant to be performed, satisfied or complied with by the Company
at or prior to each Condition Satisfaction Date.
(v) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
that prohibits or directly and adversely
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affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
(vi) Adverse Changes. Since the Subscription Date, no event that had or is
reasonably likely to have a Material Adverse Effect has occurred.
(vii) No Suspension of Trading In or Delisting of Common Stock. The trading
of the Common Stock (including, without limitation, the Put Shares) is not
suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to
the applicable Secondary Put Shares Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market. The Company
shall not have received any notice threatening the listing of the Common
Stock on the Principal Market.
(viii) 4.99% Percent Limitation. On each Closing Date for Secondary Put
Shares, the number of Secondary Put Shares then to be purchased by the
Investor will not exceed the number of such shares which, when aggregated
with all other shares of Common Stock then owned by the Investor
beneficially or deemed beneficially owned by the Investor, would result in
the Investor owning more than 4.99% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule
13d-3 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section, in the event that the amount of Common Stock
outstanding as determined in accordance with Rule 13d-3 of the Exchange Act
and the regulations promulgated thereunder is greater on a Closing Date
than on the date upon which the Secondary Put Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on such
Closing Date shall govern for purposes of determining whether the Investor,
when aggregating all purchases of Common Stock made pursuant to this
Agreement and, if any, Warrant Shares, would own more than 4.99% of the
Common Stock following such Closing. Then, in such event, the Company would
reduce that number of Secondary Put Shares so issuable so that it would not
exceed the aforementioned 4.99% limitation. The Investor shall notify the
Company as soon as possible, but in any event within three Business Days of
receiving a Secondary Put Notice, if the Investor believes Investor's
purchase of the Secondary Put Shares specified in the Secondary Put Notice
would result in the Investor exceeding the 4.99% limitation described
above.
(ix) Minimum Bid Price. The Bid Price equals or exceeds the Secondary Put
Floor Price during the applicable Valuation Period (as adjusted for stock
splits, stock dividends, reverse stock splits, and similar events).
24
<PAGE>
(x) Minimum Average Trading Volume. The average trading volume for the
Common Stock over the previous 30 consecutive Trading Days immediately
preceding the Trading Day the Investor receives a Notice of Intention for
the Secondary Put Shares exceeds 130,000 shares per Trading Day.
(xi) No Knowledge. The Company has no knowledge of any event more likely
than not to have the effect of causing Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days following the Trading Day on which
such Notice of Intention is deemed delivered).
(xii) Trading Cushion. At least 30 calendar days shall have elapsed since
the preceding Secondary Shares Put Date.
(xiii) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement to hold the Common Stock and Warrants
issuable upon each Closing Date for a Secondary Shares Put Notice and the
Purchase Prices due hereunder, which shall remain in full force and effect
as of the Condition Satisfaction Date.
(xiv) Other. On each Condition Satisfaction Date, the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions
set forth in this Section, including, without limitation, a certificate (in
the form annexed hereto as Exhibit E) executed in either case by an
executive officer of the Company and to the effect that all the conditions
to such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the
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<PAGE>
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
Choice of Law/Jurisdiction
Section 8.1 Choice of Law; Venue; 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 of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York sitting in Manhattan 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
26
<PAGE>
proceeding in such jurisdictions. Each party hereby agrees that if another party
to this Agreement obtains a judgment against it in such a proceeding, the party
which obtained such judgment may enforce same by summary judgment in the courts
of any country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
ARTICLE IX
Assignment; Termination
Section 9.1 Assignment. The provisions of this Agreement shall inure to the
benefit of, and be enforceable by, any transferee of any of the Common Stock
purchased or acquired by the Investor hereunder with respect to the Common Stock
held by such person, and upon the prior written consent of the Company, which
consent shall not unreasonably be withheld, the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III.
Section 9.2 Termination. This Agreement shall terminate upon (i) the date,
after the expiration of the Commitment Period for the Secondary Put Shares, in
which the Investor no longer own any of the Put Shares and/or Warrants and/or
Warrant Shares; or (ii) the loss of the right of the Company to serve a Put
Notice pursuant to Section 2.1 (a) and/or Section 2.4 herein; provided, however,
that in the event of (ii) above, and the Investor owns any of the Put Shares
and/or Warrants and/or Warrant Shares, the provisions of Articles I, III, IV, V,
VI, VII, VIII, IX, X, and XI shall survive the termination of this Agreement.
ARTICLE X
Notices
Section 10.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day
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<PAGE>
following the date of mailing by reputable courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Pharmos Corporation
33 Wood Avenue South, Suite 466
Iselin, NJ 08830
Attention: Chief Financial Officer
Facsimile: (732) 603-3526
Telephone: (732) 603-3532
If to the Investor:
Dominion Capital Fund, Ltd.
c/o Citco Fund Services
Bahamas Financial Center, 3rd Floor
Shirley & Charlotte Streets
CB 13136
Nassau, Bahamas
Telephone: (242) 356-5928
Facsimile: (242) 356-0223
Either party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
ARTICLE XI
Miscellaneous
Section 11.1 Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 11.2 Entire Agreement. This Agreement, the Exhibits or Attachments
hereto, which include, but are not limited to the Warrants, the Escrow
Agreement, and the Registration Rights Agreement set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof.
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The terms and conditions of all Exhibits and Attachments to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein.
Section 11.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 11.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 11.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 11.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Warrants, Warrant Shares, or Put
Shares, and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or (iii) in the case of any such
mutilation, on surrender and cancellation of such certificate, the Company at
its expense will execute and deliver, in lieu thereof, a new certificate of like
tenor.
Section 11.7 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, except that the Company shall pay: (i) upon
the earlier to occur of (A) December 31, 1998, or (B) upon the first closing for
Initial Put Shares (such amount to be paid prior to all other fees, and to be
paid out of escrow at the Closing of such Put), $15,000 to The Goldstein Law
Group PC; (ii) on the first Closing Date for Put Shares to Jesup & Lamont
Securities Corporation, (A) 1.5% of the Commitment Amount, (B) 3.5% of the
aggregate Investment Amount for such Put, and (C) $20,000; and (iii) on each
subsequent Closing Date for Put Shares 1.75% of the aggregate Investment Amount
of such Put to Jesup & Lamont Securities Corporation, and 1.75% of the aggregate
Investment Amount of such Put to Caldwell Capital Corp.
Section 11.8 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written
29
<PAGE>
information, without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herewith.
Section 11.9 Approvals. Neither the Company, nor the Investor, is aware of
any authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the securities.
Section 11.10 Indemnification. Each of the Company and the Investor agree
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.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
Agreed to and Accepted as of the
10th day of December, 1998
PHARMOS CORPORATION
By /s/ Robert W. Cook
------------------
DOMINION CAPITAL FUND, LTD.
By /s/ Inter Caribbean Service (Bahamas)
-------------------------------------
Inter Caribbean Service (Bahamas) Ltd.
<PAGE>
SCHEDULE A
Agis Industries (1983) Ltd. owns more than 5% of the outstanding Common Stock
pursuant to a Form 13G filed with the SEC.
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 10th day of December, 1998 by and among
PHARMOS CORPORATION, with its principal office at 33 Wood Avenue South, Suite
466, Iselin, New Jersey 08830, (hereinafter the "Company"), Dominion Capital
Fund, Ltd., c/o Citco Fund Services, Bahamas Financial Center, 3rd Floor,
Shirley & Charlotte Streets, CB 13136, Nassau, Bahamas (hereinafter referred to
as the "Investor"), and Ehrenreich Eilenberg Krause & Zivian, LLP, 11 East 44th
Street, New York, New York 10017 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Investor will be purchasing, Common Stock (in the form of Put
Shares) and Warrants (together with the Put Shares hereinafter referred to as
the "Securities") from the Company at a purchase price as set forth in a Private
Equity Line Of Credit Agreement (the "Equity Line Agreement") dated as of
December 10, 1998, which will be issued as per the terms contained herein and in
the Equity Line Agreement executed by the Company and the Investor; all
capitalized terms not defined herein shall have the definition as set forth in
the Equity Line Agreement; and
WHEREAS, it is intended that the purchase of Securities be consummated in
accordance with the requirements set forth by Regulation D promulgated under the
Securities Act of 1933, as amended; and
WHEREAS, the parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of
the Securities; and
WHEREAS, the Company has requested that the Escrow Agent (i) hold the
applicable Purchase Price in escrow until the Escrow Agent has received the Put
Shares and Warrants issuable upon each Closing Date for a Put. The Escrow Agent
will then immediately wire transfer or otherwise deliver payable to the Company
and at the Company's discretion immediately available funds payable to the
Company's account and arrange for delivery of the Put Shares and Warrants to the
Investor as per the terms and conditions in the Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE PUT SHARES
1.1 Upon Escrow Agent's receipt of confirmation in writing that the Company
has properly served a Notice of Intention and Put Notice in accordance with the
Agreement, and once it has received the Purchase Price for the Put Shares which
are the subject of such Put Notice into its attorney trustee account, it shall
notify the Company, or the Company's designated attorney or agent, of the amount
of funds it has received into its account.
1.2 The Company, upon Escrow Agent's of the Purchase Price, shall deliver
to the Escrow Agent the Put Shares being purchased pursuant to such Put Notice
and the Warrants to be issued pursuant to the terms of the Equity Line
Agreement. The Escrow Agent shall then communicate with the Company to confirm
the validity of their issuance.
1.3 Once the Escrow Agent confirms the validity of the issuance of the Put
Shares and Warrants, he shall immediately wire that amount of funds to the
Company as necessary to purchase the Put Shares and Warrants per the written
instructions of the Company. The Company will furnish the Escrow Agent with a
"Net Letter" directing the payment of fees as per the terms of the Equity Line
Agreement out of the escrowed proceeds. Such fees are to be remitted in
accordance with wire instructions that will be sent to the Escrow Agent from the
parties set forth in the Equity Line Agreement, with the net balance payable to
the Company. Once the funds have been received per the Company's instructions,
the Escrow Agent shall then arrange to have the Securities delivered as per
instructions from the Investor.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed any extension of the time
for performance of any other obligation or act.
2
<PAGE>
2.2 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as follows:
(a) Pharmos Corporation
33 Wood Avenue South, Suite 466
Iselin, New Jersey 08830
Attention: Chief Financial Officer
Telephone: (732) 603-3526
Facsimile: (732) 603-3532
(b) Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street
New York, NY 10017
Attention: Jeff Abbey, Esq.
Telephone: (212) 986-2468
Facsimile: (212) 986-2399
(c) Dominion Capital Fund, Ltd.
c/o Citco Fund Services
Bahamas Financial Center, 3rd Floor
Shirley & Charlotte Streets
CB 13136
Nassau, Bahamas
Telephone: (242) 356-5928
Facsimile: (242) 356-0223
or to such other person at such other place as shall designated in writing;
2.3 This Agreement shall be binding upon and shall inure to the benefit of
the permitted successors and assigns of the parties hereto.
2.4 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may not
be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.
2.5 Whenever required by the context of this Agreement, the singular shall
include the plural and masculine shall include the feminine. This Agreement
shall not be construed as if it had been prepared by one of the parties, but
rather as if both parties had prepared the same. Unless otherwise indicated, all
references to Articles are to this Agreement.
3
<PAGE>
2.6 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 of
the parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York sitting in Manhattan
in connection with any dispute arising under this Agreement and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
2.7 This Agreement may be altered or amended only with the written consent
of all of the parties hereto. Should the Company, or the Investor, attempt to
change this Agreement in a manner which, in the Escrow Agent's discretion, shall
be undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Investor in writing. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, its only duty, until receipt
of notice from the Company and the Investor or its agent that a successor escrow
agent shall have been appointed, shall be to hold and preserve the funds. Upon
receipt by the Escrow Agent of said notice from the Company and the Investor of
the appointment of a successor escrow agent, the name of a successor escrow
account and a direction to transfer the funds, the Escrow Agent shall promptly
thereafter transfer all of the funds held in escrow to said successor escrow
agent. Immediately after said transfer, the Escrow Agent shall furnish the
Company and the Investor with proof of such transfer. The Escrow Agent is
authorized to disregard any notices, requests, instructions or demands received
by it from the Company, or the Investor after notice of resignation or removal
shall have been given, unless the same shall be the aforementioned notice from
the Company and the Investor to transfer the funds to a successor escrow agent
or to return same to the respective parties.
2.8 The Escrow Agent shall be reimbursed by the Company and the Investor
for any reasonable expenses incurred in the event there is a conflict between
the parties and the Escrow Agent shall deem it necessary to retain counsel.
2.9 The Escrow Agent shall not be liable for any action taken or omitted by
it in good faith in accordance with the advice of the Escrow Agent's counsel;
and in no event shall the Escrow Agent be liable or responsible except for the
Escrow Agent's own gross negligence or willful misconduct.
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2.10 The Company and the Investor warrant to and agree with the Escrow
Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest or in describing
(whether specifically or generally) the Securities or any part
thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the
Securities or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Securities or
any part thereof.
2.11 The Escrow Agent in its capacity as such has no liability hereunder to
either party other than to hold the funds and the Securities and to deliver them
under the terms hereof. Each party hereto agrees to indemnify and hold harmless
the Escrow Agent in its capacity as such from and with respect to any suits,
claims, actions or liabilities arising in any way out of this transaction
including the obligation to defend any legal action brought which in any way
arises out of or is related to this Escrow.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first written above.
PHARMOS CORPORATION
By__________________________
DOMINION CAPITAL FUND, LTD.
By__________________________
EHRENREICH EILENBERG KRAUSE & ZIVIAN, LLP
Escrow Agent
By__________________________
Jeff Abbey
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EXHIBIT B
INITIAL SHARES PUT NOTICE AND COMPLIANCE CERTIFICATE
Pharmos Corporation
The undersigned, ______, hereby certifies, with respect to shares of common
stock of Pharmos Corporation (the "Company") issuable in connection with this
Initial Shares Put Notice and Compliance Certificate dated _____________ (the
"Notice"), delivered pursuant to the Equity Private Line Of Credit Agreement
(the "Agreement"), as follows:
1. The undersigned is the duly elected ______ of the Company.
2. The representations and warranties of the Company set forth in the Agreement
dated as of ________, are true and correct in all material respects as though
made on and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Investment Amount is $____________.
The undersigned has executed this Certificate this ____ day of ________, ___.
Pharmos Corporation
By_____________________________
<PAGE>
EXHIBIT C
NOTICE OF INTENTION TO MAKE A PUT
Pharmos Corporation
Please be advised that Pharmos Corporation intends to serve a Put Notice
for Initial/Secondary (Circle One) Put Shares in an investment amount of
$______, within two business days after the date hereof, and the Company has
satisfied all of the conditions necessary pursuant to the Equity Private Line Of
Credit Agreement in order to serve this notice.
Pharmos Corporation
Dated:____________ By_____________________________
<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 10th day of December, 1998,
between Dominion Capital Fund, Ltd., c/o Citco Fund Services, Bahamas Financial
Center, 3rd Floor, Shirley & Charlotte Streets, CB 13136, Nassau, Bahamas, or
its permitted assigns (referred to as the "Holder"), and PHARMOS CORPORATION, a
corporation incorporated under the laws of the State of Nevada, and having its
principle place of business at 33 Wood Avenue South, Suite 466, Iselin, New
Jersey 08830 (the "Company").
WHEREAS, the Holder is purchasing from the Company, pursuant to the Private
Equity Line of Credit Agreement dated the date hereof (the "Equity Line
Agreement"), shares of Common Stock and Warrants (hereinafter collectively
referred to as the "Securities" of the Company); All capitalized terms not
hereinafter defined shall have that meaning assigned to them in the Equity Line
Agreement; and
WHEREAS, the Company desires to grant to the Holder the registration rights
set forth herein with respect to the securities set forth in the Equity Line
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means the Secondary Put Shares and the Warrant Shares; provided,
however, that with respect to any particular Registrable Security, such security
shall cease to be a Registrable Security when, as of the date of determination,
(i) it has been effectively registered under the Securities Act of 1933, as
amended (the "1933 Act") and disposed of pursuant thereto, (ii) registration
under the 1933 Act is no longer required for the immediate public distribution
of such security as a result of the provisions of Rule 144 promulgated under the
1933 Act, or (iii) it has ceased to be outstanding. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a Registrable Security. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section.
Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Registrable Securities as
provided herein, the Registrable Securities and the Securities are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holder
understands that no disposition or transfer of the Registrable Securities or the
Securities may be made by the Holder in the absence of (i) an opinion of counsel
to the Holder that such transfer may be made without registration under the 1933
Act or (ii) such registration.
<PAGE>
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC") a registration statement (on
Form S-3, or other appropriate registration statement) under the 1933 Act
(the "Registration Statement"), at the sole expense of the Company (except
as provided in Section 3(c) hereof), in respect of all holders of
Registrable Securities, so as to permit a public offering and sale of the
Registrable Securities under the Act.
(b) The Company will maintain the Registration Statement, or
post-effective amendment filed under this Section 3 hereof current under
the 1933 Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the applicable Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel
that the Registrable Securities may be sold under the provisions of Rule
144 or (iii) four years after the Effective Date for the Registration
Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and blue sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the
cost, pro rata, of underwriting discounts and commissions, if any,
applicable to the Registrable Securities being registered and the fees and
expenses of its counsel. The Company shall qualify any of the securities
for sale in such states as the Holder reasonably designates and shall
furnish indemnification in the manner provided in Section 6 hereof. The
Company, at its expense, will supply the Holder with copies of the
Registration Statement and the prospectus or offering circular included
therein and other related documents in such quantities as may be reasonably
requested by the Holder.
(d) The Company shall not be required by this Section 3 to include the
Holder's Registrable Securities in any Registration Statement which is to
be filed if, in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced
in securities law matters acceptable to counsel for the Holder and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144
under the 1933 Act.
(e) No provision contained herein shall preclude the Company from
selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
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(f) The Company agrees that it shall request acceleration of effective
of the Registration Statement from the SEC and will declare the
Registration Statement effective within three Business Days after being
informed by the SEC that it may do so. The Company also agrees that it
shall respond to any questions and/or comments from the SEC which relate to
the Registration Statement within ten Business Days of receipt of such
question or comment.
Section 4. Cooperation with Company. The Holder will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Registrable Securities under the Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC such amendments and supplements to
the registration statements and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the
sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act);
(b) furnish to the Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as the Holder may
reasonably request in order to facilitate the public sale or other
disposition of the securities owned by the Holder;
(c) register and qualify the securities covered by the Registration
Statement under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable the
Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by the Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or
to file therein any general consent to service of process;
(d) list such securities on the Nasdaq Small Cap Stock Market or other
national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the
rules of such exchange or Nasdaq;
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(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and
customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify the Holder of Registrable Securities covered by the
Registration Statement any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Act, of
the happening of any event of which it has knowledge as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
Section 6. Information by Holder. The Holder of Registrable Securities
included in any registration statement shall furnished to the Company such
information regarding the Holder and the distribution proposed by the Holder as
the Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Section.
Section 7. Assignment. The rights granted the Holder under this Agreement
shall not be assigned without the written consent of the Company, which consent
shall not be unreasonably withheld. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 8. Termination of Registration Rights. The rights granted pursuant
to this Agreement shall terminate as to the Holder (and permitted transferee
under Section 7 above) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this Agreement have been
registered;
(b) all of such Holder's securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 (without volume
limitation) promulgated by the SEC pursuant to the Securities Act;
Section 9. Indemnification.
(a) In the event of the filing of any Registration Statement with
respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any,
who controls the Holder within the meaning of the Securities Act
("Distributing Holders") against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Distributing Holders
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or
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liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any such Registration Statement or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment
or supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Holders,
specifically for use in the preparation thereof. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or
any such officer, director or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses claims, damages or
liabilities (or actions in respect thereof, arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in a Registration Statement, requested by such Distributing
Holder, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof and, provided further, that
the indemnity agreement contained in this Section 9(b) shall not inure to
the benefit of the Company with respect to any person asserting such loss,
claim, damage or liability who purchased the Registrable Securities which
are the subject thereof if the Company failed to send or give (in violation
of the Securities Act or the rules and regulations promulgated thereunder)
a copy of the prospectus contained in such Registration Statement to such
person at or prior to the written confirmation to such person of the sale
of such Registrable Securities, where the Company was obligated to do so
under the Securities Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability
which the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve the indemnifying party from any liability which it may have to any
indemnified party
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otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section. In case any such action
is brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the indemnifying
party if the indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party; provided that if
the indemnified party is the Distributing Holder, the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by
the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and
the indemnifying party and the Distributing Holder shall have been advised
by such counsel that there may be one or more legal defenses available to
the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case
the indemnifying party shall not have the right to assume the defense of
such action on behalf of the Distributing Holder, it being understood,
however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Distributing Holder, which firm shall be designated in
writing by the Distributing Holder). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification pursuant to Section 9 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
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Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 11. Notices. Any notice pursuant to this Agreement by the Company
or by the Holder shall be in writing and shall be deemed to have been duly given
if delivered by (i) hand, (ii) by facsimile and followed by mail delivery or
(iii) if mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the Company:
Pharmos Corporation
33 Wood Avenue South, Suite 466
Iselin, New Jersey 08830
Attention: Chief Financial Officer
Facsimile: (732) 603-3532
Telephone: (732) 603-3526
(b) If to the Holder:
DOMINION CAPITAL FUND, LTD.
c/o Citco Fund Services
Bahamas Financial Center, 3rd Floor
Shirley & Charlotte Streets
CB 13136
Nassau, Bahamas
Telephone: (242) 356-5928
Facsimile: (242) 356-0223
Notices shall be deemed given at the time they are delivered personally or
five calendar days after they are mailed in the manner set forth above. If
notice is delivered by facsimile to the Company and followed by mail, delivery
shall be deemed given two calendar days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Choice of Law; Venue; 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 of the parties consents to the
exclusive jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York sitting in Manhattan in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
Section 15. Severability. If any provision of this Agreement shall for any
reason be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on the day and year first above written.
Attest: PHARMOS CORPORATION
By:_________________________ By:____________________________
Name: Name:
Title: Title:
DOMINION CAPITAL FUND, LTD.
By_____________________________
<PAGE>
EXHIBIT F
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 "ACT"). THIS 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
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. __
To Purchase ______ Shares of Common Stock of
PHARMOS COMMUNICATIONS
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 the date hereof and on or prior to ____________ (the
"Termination Date") but not thereafter, to subscribe for and purchase from
PHARMOS CORPORATION, a Nevada corporation (the "Company"), ________ ( ) shares
of Common Stock (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be _____ (which
shall be equal to 125% of the closing bid price of the Common Stock on the
Principal Market, on the Trading Day immediately preceding the Put Closing Date,
as defined in the Private Equity Line of Credit Agreement). The Exercise Price
and the number of shares for which the Warrant is exercisable shall be subject
to adjustment as provided herein. This Warrant is being issued in connection
with the Private Equity Line of Credit Agreement dated December 10, 1998 (the
"Agreement") entered into between the Company, the Investor. 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.
<PAGE>
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).
3. Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made at any time or times, in whole, before the close of business
on the Termination Date, or such earlier date on which this Warrant may
terminate as provided in 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.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five business days after the date on which this Warrant shall have
been exercised as aforesaid. Payment of the Exercise Price of the shares may be
by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of shares being purchased. Notwithstanding the foregoing, the
Investor agrees that it shall not be permitted to exercise any portion of this
Warrant that will result in the Investor, when aggregated with all other shares
of Common Stock then owned by such Investor beneficially or deemed beneficially
owned by such Investor, would result in any Investor owning more than 4.99% of
all of such Common Stock as, as determined in accordance with Rule 13d-3 of the
Exchange Act and the regulations promulgated thereunder. In no way shall this
limitation be construed to limit the Investor's right to exercise the Warrant
into more than such 4.99% over time.
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.
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.
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7. No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase the holder hereof shall be entitled to exercise
this Warrant, the shares so purchased shall be and be deemed to be issued to
such holder as the record 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. 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, and in case the Company shall at any time
effect a Sale or Merger Transaction in which the consideration to be received by
the Company or its shareholders consists in part of consideration other than
cash, the holder of this Warrant shall have the right thereafter to purchase, by
exercise of this Warrant and payment of the aggregate Exercise Price in effect
immediately prior to such action, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such transaction had this Warrant been exercised
immediately prior thereto.
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<PAGE>
12. 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 any of the following: in case the Company shall (i) declare or pay
a dividend in shares of Common Stock or make a distribution in shares of Common
Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock, the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at its warrant, at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. 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
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.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the NASDAQ Small Cap
Stock Market or any domestic securities exchange upon which the Common Stock may
be listed.
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<PAGE>
16. Miscellaneous.
(a) Issue Date; Choice of Law; Venue; Jurisdiction. This Warrant 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 of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting
in the Southern District of the State of New York sitting in Manhattan 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 Warrant obtains a judgment against it in such a proceeding,
the party which obtained such judgment may enforce same by summary judgment
in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Warrant 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. Each party waives its
right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered (or if
no exemption from registration exists), will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing
the Warrant Shares issued to the Holder upon exercise (if not registered or
if no exemption from registration exists) will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION".
(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.
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<PAGE>
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company
shall be delivered or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books
of the Company or to the Company at the address set forth in the Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated:
PHARMOS CORPORATION
By ______________________________
Name:
Title:
<PAGE>
NOTICE OF EXERCISE
To: PHARMOS CORPORATION
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
PHARMOS CORPORATION pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
- ------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________________________.
________________________________________________________________________________
Dated: ____________________,
Holder's Signature: ___________________________________
Holder's Address: ___________________________________
___________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT G
Form of Opinion of Counsel
(i) The Company is incorporated and validly existing in the jurisdiction of
its incorporation. The Company and/or its subsidiaries are duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
where the Company and/or its subsidiaries owns or leases properties, maintains
employees or conducts business, except for jurisdictions in which the failure to
so qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conducts its
business.
(ii) There is no action, proceeding or investigation pending, or to such
counsel's knowledge, threatened against the Company, which might result, either
individually or in the aggregate, in any material adverse change in the business
or financial condition of the Company.
(iii) To counsel's knowledge, the Company is not a party to or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.
(iv) To counsel's knowledge, there is no action, suit, proceeding or
investigation by the Company currently pending.
(v) The Common Stock and Warrants which shall be issued at each Put
Closing, will be duly authorized and validly issued under the laws of the
Company's State of Incorporation.
(vi) This Agreement, the issuance of the Warrants, Common Stock issuable
upon exercise of the Warrants, and the Put 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
(vii) The issuance of the Warrants, Common Stock issuable upon exercise of
the Warrants, and the Put Shares will not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed.
(viii) Assuming the accuracy of the representations and warranties of the
Company and the Investors set forth in this Agreement, the offer, issuance and
sale of the Warrants, Common Stock issuable upon exercise of the Warrants, and
the Put Shares, to be issued upon exercise to the Investors pursuant to this
Agreement are exempt from the registration requirements of the Securities Act.
<PAGE>
(ix) The authorized capital stock of the Company consists of _____ shares
of Common Stock, $0.03 par value per share, of which _____ are outstanding,
_______ shares of non-voting Preferred Stock, _____ par value, of which _____
shares of non-voting Preferred Stock, ___ par value, have been designated Series
__ Convertible Preferred Stock, _____ of which are outstanding. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
(x) The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended, and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof.
(xi) The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Warrants, Common Stock issuable
upon exercise of the Warrants, and the Put Shares as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company and to our knowledge, no approval of
any governmental or other body is required for the execution and delivery of
each of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state and foreign securities laws, as to which no opinion is expressed.
(xii) To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or violation
of any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of Incorporation
or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company is a party or by which it or any of its property
is bound, (iii) any applicable statute or regulation, (iv) or any judgment,
decree or other of any court or governmental body having jurisdiction over the
Company or any of its property.
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AMENDMENT AGREEMENT
Amendment Agreement made as of December 18, 1998, by and among Pharmos
Corporation, a Nevada corporation (the "Company"), and Dominion Capital Fund,
Ltd. (referred to as the "Investor").
Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to them in the Private Equity Line of Credit Agreement dated
as of December 10, 1998 by and among the Company, and the Investor (the "Equity
Line Agreement").
Witnesseth:
Whereas, the Company, and the Investor wish to amend the Equity Line
Agreement.
Now, therefore, in consideration of the mutual covenants, conditions and
promises contained herein, the parties agrees as follows:
1. Section 11.7 of the Equity Line Agreement is hereby deleted and replaced by
the following:
"Section 11.7 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, except that the Company shall pay: (i) upon
the earlier to occur of (A) December 31, 1998, or (B) upon the first closing for
Initial Put Shares (such amount to be paid prior to all other fees, and to be
paid out of escrow at the Closing of such Put), $15,000 to The Goldstein Law
Group PC; (ii) on the first Closing Date for Put Shares to (A) Jesup & Lamont
Securities Corporation, (I) 0.75% of the Commitment Amount, (II) 1.75% of the
aggregate Investment Amount for such Put, and (III) $10,000, and (B) to Caldwell
Capital Corp., (I) 0.75% of the Commitment Amount, (II) 1.75% of the aggregate
Investment Amount for such Put, and (III) $10,000; and (iii) on each subsequent
Closing Date for Put Shares 1.75% of the aggregate Investment Amount of such Put
to Jesup & Lamont Securities Corporation, and 1.75% of the aggregate Investment
Amount of such Put to Caldwell Capital Corp."
2. Except for the provisions of this Amendment Agreement, all of the terms,
conditions, and covenants of the Equity Line Agreement (including all Exhibits
annexed thereto) shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
PHARMOS CORPORATION
By /s/ Robert W. Cook
---------------------------------
Robert W. Cook
Vice President - Finance and
Chief Financial Officer
DOMINION CAPITAL FUND, LTD.
By /s/ Inter Caribbean Services (Bahamas)
--------------------------------------
Inter Caribbean Services (Bahamas) Ltd.
Director
