NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
MACROCHEM CORPORATION
WARRANT
Warrant No. 1 Dated: October 23, 2000
MacroChem Corporation, a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, _______________________________, or its
registered assigns ("HOLDER"), is entitled, subject to the terms set forth
below, to purchase from the Company the total number of shares of common stock,
$.01 par value per share (the "COMMON STOCK"), of the Company (each such share,
a "Warrant Share" and all such shares, the "WARRANT SHARES") calculated pursuant
to Section 3 of this Warrant (subject to adjustment for certain events as set
forth herein) at an exercise price equal to $.01 per share (as adjusted from
time to time as provided in Section 8, the "EXERCISE PRICE"), at the times set
forth herein through and including the 240th day following the Effective Date
(as defined in Exhibit A) (the "Expiration Date"), and subject to the following
terms and conditions (certain terms used herein are defined in EXHIBIT A
attached hereto).
1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. REGISTRATION OF TRANSFERS. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at the address specified in Section 13.
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "NEW
WARRANT"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
3. DURATION, VESTING AND EXERCISE.
(a) The vesting of the Warrant Shares which the Holder is
permitted to acquire pursuant to this Warrant shall occur on the dates set forth
below. On each such date, this Warrant shall vest on a cumulative basis with
respect to a number of Warrant Shares calculated pursuant to Section 3(b) below.
Only the Warrant Shares that have vested may be acquired upon exercise of this
Warrant.
(i) The first vesting date (the "FIRST VESTING DATE")
shall be the twenty-first Business Day after the Effective Date, PROVIDED, that,
at the Holder's option, by written notice delivered to the Company prior to the
start of the vesting period, the First Vesting Date may be delayed for up to 240
days following the Effective Date;
(ii) The second vesting date (the "SECOND VESTING DATE")
shall be the 20th Trading Day following the First Vesting Date, PROVIDED, that
at the Holder's option, by written notice delivered to the Company prior to the
start of the vesting period, the Second Vesting Date may be delayed for up to
120 days after the First Vesting Date but in no event to a date more than 240
days following the Effective Date;
(iii) The third vesting date (the "THIRD VESTING DATE")
shall be the 20th Trading Day following the Second Vesting Date, PROVIDED, that
at the Holder's option, by written notice delivered to the Company prior to the
start of the vesting period, the Third Vesting Date may be delayed for up to 120
days after the Second Vesting Date but in no event to a date more than 240 days
following the Effective Date; and
(iv) The fourth vesting date (the "FOURTH VESTING DATE")
shall be the 20th Trading Day following the Third Vesting Date, PROVIDED, that
at the Holder's option, by written notice delivered to the Company prior to the
start of the vesting period, the Fourth Vesting Date may be delayed for up to
120 days after the Third Vesting Date but in no event to a date more than 240
days following the Effective Date.
Each of the First Vesting Date, Second Vesting Date, Third
Vesting Date and Fourth Vesting Date shall be referred to herein as a "Vesting
Date."
Notwithstanding the foregoing, if on or after the Effective
Date the Per Share Market Value is less than $2.00 for more than fifteen
consecutive Trading Days, upon written notice by the Company to the Holder, any
Vesting Date or Vesting Dates otherwise delayed by the Holder shall be deemed to
occur on the next Trading Day after delivery of such notice.
(b) On each Vesting Date, this Warrant shall vest and become
exercisable with respect to the number of Warrant Shares calculated in
accordance with the following formula:
(APPLICABLE SHARE NUMBER) X [(PURCHASE PRICE/0.90) - (ADJUSTMENT PRICE)]
------------------------------------------------------------------------
Adjustment Price
If the number calculated in accordance with the foregoing
formula is zero or a negative number, no Warrant Shares shall vest hereunder for
such Vesting Date and the Holder shall not be obligated to transfer any shares
of Common Stock to the Company. In addition, the number of Warrant Shares
exercisable hereunder which shall have previously vested will not decrease.
(c) Notwithstanding anything herein to the contrary including
Sections 3(d) and 3(e), if, after the Effective Date, the average of the Per
Share Market Values (as defined in EXHIBIT A) for 20 consecutive Trading Days is
greater than 125% of the Purchase Price (as defined in EXHIBIT A) (which number
shall be subject to equitable adjustment for stock splits, recombinations and
similar events), this Warrant shall not vest with respect to any additional
Warrant Shares at any time thereafter but will remain in effect as to any
Warrant Shares which have vested prior thereto.
(d) Notwithstanding anything herein to the contrary, if on any
Vesting Date the Adjustment Price shall be less than 70% of the Purchase Price
(the "FLOOR PRICE"), then on such Vesting Date: (i) this Warrant shall vest with
respect to the Warrant Shares pursuant to Section 3(a) and (b) hereof, provided,
that the Adjustment Price pursuant to the formula set forth in Section 3(b)
shall, exclusively for purposes of this Section 3(d)(i), equal the Floor Price
(such number of Warrant shares, the "Initial Shares") and (ii) with respect to
the Warrant Shares whose vesting would result in a vesting of Warrant Shares in
excess of the Initial shares, the Company will have the option to elect by
written notice (the "Notice") delivered to the Holder no later than twenty
Trading Days prior to the applicable Vesting Date to either (x) pay to the
Holder, in cash (the "CASH PAYMENT"), within three (3) Trading Days after the
Vesting Date at issue (the "DELIVERY DATE"), an amount equal to the product
obtained by multiplying (A) the Adjustment Price and (B) the difference between
the number of Warrant Shares which would have otherwise vested on such Vesting
Date pursuant to Section 3(a) and (b) hereof and the Initial Shares (such number
of Warrant shares, the "Subsequent Shares") or (y) allow this Warrant to vest
with respect to the Subsequent Shares.
(e) Notwithstanding the foregoing provisions of this Section
3, at any time during the period between the Closing Date and the Expiration
Date, within ten Trading Days following the occurrence of any of the following
events (each, an "EVENT"), the Holder shall have the option to elect, by
providing the Company with a notice (an "EVENT VESTING NOTICE"), to have this
Warrant vest with respect to those Warrant Shares that have not yet already
vested (the "VESTED WARRANT SHARES"), PROVIDED, that the Event Vesting Notice
may also require the Company to redeem all or a portion of the Vested Warrant
Shares at the Mandatory Redemption Price (as defined in EXHIBIT A);
(i) Upon the occurrence of any of (i) an acquisition after
the date hereof by an individual or legal entity or "group" (as described in
Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")) of in excess of 1/3 of the voting securities of
the Company, (ii) the merger of the Company with or into another entity,
consolidation or sale of all or substantially all of the assets of the Company
in one or a series of related transactions, unless following such transaction or
series of transactions, the holders of the Company's securities prior to the
first such transaction continue to hold at least 2/3 of the securities of the
surviving entity or acquirer of such assets or (iii) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii);
(ii) Immediately prior to an assignment by the Company for
the benefit of creditors or commencement of a voluntary case under Title 11 of
the United States Code, or an entering into of an order for relief in an
involuntary case under Title 11 of the United States Code, or adoption by the
Company of a plan of liquidation or dissolution;
(iii) Five (5) Business Days prior to the proposed
consummation with respect to the Company of a "Rule 13e-3 transaction" as
defined in Rule 13e-3 under the Exchange Act (or, if necessary, such earlier
date as the Company shall determine in good faith to be required in order for
the Holder to be able to participate in such transaction), it being agreed that
the Holder will receive actual notice of the 13e-3 Statement filed with the
Commission;
(iv) For any three (3) consecutive Trading Days commencing
on or after the date of issuance of this Warrant, there shall be no closing bid
price on the Common Stock on the Nasdaq (as defined in EXHIBIT A) or a
Subsequent Market (as defined in EXHIBIT A);
(v) The Common Stock fails to be listed or quoted for
trading on the Nasdaq or a Subsequent Market or for a period of three (3)
consecutive Trading Days;
(vi) After the Effective Date, a holder of Registrable
Securities (as defined in the Registration Rights Agreement) is not permitted to
sell Registrable Securities under the Underlying Shares Registration Statement
(as defined in EXHIBIT A) for any reason for five (5) or more consecutive days
other than as a result of black-out periods specifically permitted by the
Registration Rights Agreement;
(vii) The Underlying Shares Registration Statement shall
not be declared effective by the Commission on or prior to the 180th day
following the Closing Date; or
(viii) The Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Business Day after a Date of
Exercise pursuant to and in accordance with Section 4(a);
(ix) The Company shall fail or default in the timely
performance of any material obligation under the Transaction Documents and such
failure or default shall continue uncured for a period of five (5) Business Days
after the date on which notice of such failure or default is first given to the
Company (it being understood that no prior notice need be provided in the case
of defaults which cannot reasonably be cured within a 5-day period).
In the event the Holder delivers an Event Vesting Notice, this
Warrant shall vest with respect to the number of Warrant Shares calculated in
accordance with the formula set forth in Section 3(b), PROVIDED, that for
purposes of such calculation, (A) the Adjustment Price shall be deemed to mean
the average of the Per Share Market Values (which need not occur on consecutive
Trading Days) for any 10 Trading Days during the 40 consecutive Trading Days
preceding the date of the Event, as selected by the Holder and (B) the
Applicable Share Number shall be deemed to mean 100% of the number of shares of
Common Stock purchased by the Holder pursuant to the Purchase Agreement. If the
Holder shall have elected to require the Company to redeem the Vested Warrant
Shares pursuant to the terms hereof, the Company shall pay the Mandatory
Redemption Price no later than the fifth day following the date of the delivery
of the Event Vesting Notice. Interest shall accrue on the Mandatory Redemption
Price from the seventh day after such amount is due (being the date of an Event
of Default) through the date of prepayment in full thereof at the rate of 18%
per annum (or such lesser maximum amount that is permitted to be paid by
applicable law), to accrue daily from the date such payment is due hereunder
through and including the date of payment.
(d) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable by the registered Holder on any Business Day before 6:30 P.M., New
York City time, at any time and from time to time on or after the date hereof to
and including the Expiration Date. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value.
(e) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable, either in its entirety or, from time to time, for a portion of the
number of Warrant Shares. If less than all of the Warrant Shares which may be
purchased under this Warrant are exercised at any time, the Company shall issue
or cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant.
4. DELIVERY OF WARRANT SHARES.
(a) Upon surrender of this Warrant, with the Form of Election
to Purchase attached hereto duly completed and signed, to the Company at its
address for notice set forth in Section 12 and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to
purchase hereunder, in the manner provided hereunder, all as specified by the
Holder in the Form of Election to Purchase, the Company shall promptly (but in
no event later than 3 Business Days after the Date of Exercise (as defined
herein)) issue or cause to be issued and cause to be delivered to or upon the
written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends except in the event that a registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective or the Warrant Shares are not
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "SECURITIES ACT").
Any person so designated by the Holder to receive Warrant Shares shall be deemed
to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions.
A "Date of Exercise" means the date on which the Holders shall
have delivered to the Company (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(b) If the Company fails to deliver to the Holder certificate
or certificates representing the Warrant Shares pursuant to Section 4(a) by the
third (3rd) Trading Day after the Date of Exercise, the Company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $5,000 for
each day after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(c) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder certificate or certificates
representing the Warrant Shares pursuant to Section 4(a) by the third (3rd)
Trading Day after the Date of Exercise, and if after such third (3rd) Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a "BUY-In"),
then the Company shall pay (1) in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver pursuant to Section 4(b) to deliver to the Holder in connection with the
exercise at issue by (B) the Per Share Market Value at the time of the
obligation giving rise to such purchase obligation and (2) deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations under Section 4(b).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of
Common Stock with a market price on the date of exercise totaled $10,000, under
clause (A) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(d) The Company's obligations to issue and deliver Warrant
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. If the Company breaches its obligations under this Warrant,
then, in addition to any other liabilities the Company may have hereunder and
under applicable law, the Company shall pay or reimburse the Holder on demand
for all costs of collection and enforcement (including reasonable attorneys fees
and expenses).
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 8). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
8. CERTAIN ADJUSTMENTS. The Purchase Price, the Exercise Price and the
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section. Upon each such
adjustment of the Exercise Price pursuant to this Section, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property equal to the amount of Warrant Shares such Holder would
have been entitled to had such Holder exercised this Warrant immediately prior
to such reclassification or share exchange. The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 8(b) upon any exercise following any such reclassification or share
exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(i), (ii) and (iv)), then in each such case the Exercise Price shall
be determined by multiplying the Exercise Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) In case of any (1) merger or consolidation of the Company
with or into another Person other than a merger or consolidation in which the
Company is the surviving entity, or (2) sale by the Company of more than
one-half of the assets of the Company (on a book value basis) in one or a series
of related transactions, the Holder shall have the right, from and after the
date of such merger, sale or consolidation, as the case may be, to and including
the Expiration Date, exercise this Warrant for the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock immediately following such merger, consolidation or sale, and the
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the Common Stock for which this
Warrant could have been exercised immediately prior to such merger,
consolidation or sales would have been entitled, unless, the acquiring company
or newly created company shall have paid the Holder the value of the Warrant
determined on a Black-Scholes basis. (For example, if (1) the Company merges
with and into another Person ("Newco") and as a result thereof each share of
Common Stock shall entitle the holder thereof to receive two shares of the
common stock of Newco and $2.00 in cash, and (2) the Exercise Price is at the
effective time of such merger $6.00 per share, then at all times thereafter and
prior to the Expiration Date this Warrant shall upon the payment of $6.00 times
the number of Warrant Shares represent the right to receive (A) that number of
shares of the Common Stock of Newco as is equal to two times the Warrant Shares,
and (B) that amount of cash as is equal to $2.00 times the number of Warrant
Shares.) The terms of any such merger, sale or consolidation shall include such
terms so as to continue to give the Holder the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.
(f) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) RECORD DATE. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(h) If (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, other than
pursuant to the Company's existing stock repurchase program or any extension
thereof; (iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (iv) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or (v) the Company shall
authorize the voluntary dissolution, liquidation or winding up of the affairs of
the Company, then the Company shall cause to be mailed to each Holder at their
last addresses as they shall appear upon the Warrant Register, at least 20
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up; PROVIDED, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
9. PAYMENT OF EXERCISE PRICE. The Holder shall pay the
Exercise Price in one of the following manners:
(a) CASH EXERCISE. The Holder may deliver immediately
available funds; or
(b) CASHLESS EXERCISE. The Holder may surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise as reported
by Bloomberg Information Systems, Inc. (or
any successor to its function of reporting
stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. CERTAIN EXERCISE RESTRICTIONS.
(a) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 4.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of an exercise hereunder, unless
the exercise at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(b) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of an exercise hereunder, unless
the exercise at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(c) If the Company Stock is then listed for trading on the
Nasdaq or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not, upon exercise
of this Warrant, issue in excess of the product of (i) 4,528,181 Warrant Shares
(which equals 19.999% of the number of shares of Common Stock outstanding on the
Closing Date) and (ii) the quotient obtained by dividing (x) the number of
shares of Common Stock issued and sold to the original Holder on the Closing
Date by (y) the number of shares of Common Stock issued and sold by the Company
on the Closing Date (such number of shares, the "Issuable Maximum"). If any
Holder shall no longer hold Warrants then such Holder's remaining portion of the
Issuable Maximum shall be allocated pro-rata among the remaining Holders. If on
any Date of Exercise (A) the Company Stock is listed for trading on the Nasdaq
or the Nasdaq SmallCap Market, (B) the Exercise Price then in effect is such
that the aggregate number of shares of Common Stock that would then be issuable
upon exercise in full of this Warrant, together with any shares of Common Stock
previously issued upon exercise of this Warrant, would equal or exceed the
Issuable Maximum, and (C) the Company shall not have previously obtained the
vote of shareholders, if any, as may be required by the applicable rules and
regulations of the Nasdaq Stock Market to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum pursuant to the terms hereof (the
"Shareholder Approval"), then the Company shall issue to the Holder a number of
shares of Common Stock equal to the Issuable Maximum and, with respect to the
shares whose issuance would result in an issuance of shares of Common Stock in
excess of the Issuable Maximum, (the "Excess Warrant Shares"), the Holder shall
have the option to require the Company to either (1) use its best efforts to
obtain the Shareholder Approval applicable to such issuance as soon as possible,
but in any event no later than 60 days after such request (such 60th day, the
"Target Date") or (2) pay to the Holder, within one (1) Trading Day from the
request therefor, an amount in cash equal to the product of (x) the Excess
Warrant Shares multiplied by (y) the closing sales price of the Common Stock on
(a) the Target Date or (b) the Date of Exercise giving rise to the obligation to
seek Shareholder Approval, whichever is greater (the "Cash Payment"). In the
event the Holder has elected to require the Company to seek the Shareholder
Approval pursuant to clause (1) of the immediately preceding sentence and the
Company does not obtain the Shareholder Approval on or prior to the Target Date,
then, on the Target Date, the Company shall pay the Cash Payment to the Holder.
If the Company fails to pay the Cash Payment in full pursuant to this Section
within seven (7) days after the date payable, the Company will pay interest on
such amount at a rate of 18% per annum, or such lesser maximum amount that is
permitted to be paid by applicable law, to the Holder, accruing daily from the
date payable until such amount, plus all such interest thereon, is paid in full.
The Company and the Holder understand and agree that shares of Common Stock
issued upon exercise of this Warrant and then held by the Holder or an affiliate
thereof may not cast votes or be deemed outstanding for purposes of any vote to
obtain the Shareholder Approval.
11. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
12. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 P.M. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 P.M. (New York City time) on any date and earlier than
11:59 P.M. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
110 Hartwell Avenue Lexington, MA 02421, facsimile: (781) 862-4338, attention
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.
13. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
14. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and assigns. This Warrant
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
(c) The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
MACROCHEM CORPORATION
By:/s/Kenneth L. Rice, Jr.
Name: Kenneth L. Rice, Jr.
Title: Chief Financial Officer
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To MacroChem Corporation
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock ("Common Stock"), $.01 par value per share, of MacroChem
Corporation and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
________________________________
_______________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
Dated:____________,_____ Name of Holder:
(Print)______________________________________
(By:)________________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of MacroChem Corporation
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of MacroChem Corporation with full power of
substitution in the premises.
Dated:
_____________,________
___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
____________________________________
Address of Transferee
____________________________________
____________________________________
In the presence of:
_____________________________
<PAGE>
EXHIBIT A
(i) "Adjustment Price" means the average of the Per Share Market Values
for the 20 consecutive Trading Days preceding a Vesting Date (which may include
Trading Days prior to the Effective Date) as selected by the Holder.
(ii) "Applicable Share Number" means 25% of the number of shares of
Common Stock purchased by the Holder pursuant to the Purchase Agreement.
(iii) "Business Day" shall have the meaning set forth in the Purchase
Agreement.
(iv) "Closing Date" shall have the meaning set forth in the Purchase
Agreement.
(v) "Commission" means the Securities and Exchange Commission.
(vi) "Effective Date" the date on which the Underlying Shares
Registration Statement is first declared effective by the Commission.
(vii) "Mandatory Redemption Price" for each Warrant Share to be
redeemed shall equal the sum of (i) 120% multiplied by the greater of the
average of the Per Share Market Values for the five (5) Trading Days preceding
the (A) date of the delivery of the Event Vesting Notice, and (B) date the
Mandatory Redemption Price is paid in full, and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of such Warrant Share.
(viii) "Nasdaq" means the Nasdaq National Market.
(ix) "Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq or on
any Subsequent Market on which the Common Stock is then listed or quoted, as
reported by Bloomberg Information Services, Inc. (or any successor entity
succeeding to its function of reporting prices), or if there is no such price on
such date, then the closing bid price on the Nasdaq or on such Subsequent Market
on the date nearest preceding such date, as reported by Bloomberg Information
Services, Inc. (or any successor entity succeeding to its function of reporting
prices), or (b) if the Common Stock is not then listed or quoted on the Nasdaq
or a Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the applicable Warrant Shares.
(x) "Purchase Agreement" means the Securities Purchase Agreement, dated
the date hereof to which the Company and the original Holder are parties and
pursuant to which this Warrant was issued.
(xi) "Purchase Price" means 105% of the average closing bid price of
the Common Stock for the five trading days prior to Closing (which number shall
be subject to equitable adjustment for stock splits, recombinations and similar
events).
(xii) "Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof to which the Company and the original Holder
are parties.
(xiii) "Subsequent Market" shall mean any of the New York Stock
Exchange, American Stock Exchange, or Nasdaq SmallCap Market.
(xiv) "Trading Day" means (a) a day on which the Common Stock is traded
on the Nasdaq or on the Subsequent Market on which the Common Stock is then
listed or quoted, as the case may be, or (b) if the Common Stock is not listed
on the Nasdaq or a Subsequent Market, a day on which the Common Stock is traded
in the over-the-counter market, as reported by the OTC Bulletin Board , or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean a Business Day.
(xv) "Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
(xvi) "Underlying Shares Registration Statement" shall have the meaning
ascribed to it in the Purchase Agreement.
