EXHIBIT 10
SCOLR, INC.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "Agreement") is made as of the 30th
day of April, 2003 by and between SCOLR, INC., a Delaware corporation (the
"Company") and the investors listed on Exhibit A attached hereto (each a
"Purchaser" and together the "Purchasers"), and is being entered into in
connection with the transaction contemplated by the Term Sheet (the "Term
Sheet") attached hereto as Exhibit B.
The parties hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 SALE AND ISSUANCE OF NOTES AND WARRANTS.
(a) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing a Subordinated Note, in the form attached
hereto as Exhibit C, in the principal amount set forth opposite each such
Purchaser's name on Exhibit A. The Notes will be dated the date of the Closing.
The aggregate purchase price for each Purchaser's respective Subordinated Note
is equal to the principal amount of the Subordinated Note to be issued to such
Purchaser. Each Subordinated Note issued to the Purchasers pursuant to this
Agreement shall be hereinafter referred to as a "Note" and referred to
collectively as the "Notes".
(b) The Company agrees, for no additional consideration, to
issue to each Purchaser at the Closing a Warrant, in the form attached hereto as
Exhibit D, to purchase that number of shares of the Company's Common Stock set
forth opposite each such Purchaser's name on Exhibit A. The Warrants will be
dated the date of the Closing and have an exercise price as set forth in the
Term Sheet. Each Warrant issued to the Purchasers pursuant to this Agreement
shall be hereinafter referred to as a "Warrant" and referred to collectively as
the "Warrants".
(c) In consideration for certain placement agent services
provided by Taglich Brothers, Inc. (the "Agent"), the Company agrees to pay in
immediately available funds to the Agent or its designees at the Closing the
amount (the "Cash Amount") set forth opposite the Agent's name on Exhibit A (and
the Company will not be obligated to issue a Note to the Agent for such amount)
and agrees to issue to the Agent or its designees at the Closing a Warrant to
purchase that number of shares of the Company's Common Stock set forth opposite
the Agent's name on Exhibit A. The Agent shall be deemed to be a "Purchaser".
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Notes and the Warrants shall
take place at the offices of Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxx, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx, at 10:00 a.m., on April 30, 2003, or at such other time and
place as the Company and the
Purchasers mutually agree upon, orally or in writing (which time and place are
designated as the "Closing").
(b) At the Closing, the Company shall deliver to each Purchaser
a fully executed Note and Warrant (except that the Company will pay the Cash
Amount to the Agent and not issue a Note to the Agent) against payment of the
purchase price therefor (except that no purchase price is payable by the Agent)
by check payable to the Company or by wire transfer to the Company's bank
account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions, which exceptions shall be deemed to be representations
and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has the requisite corporate power to own its
properties and to carry on its businesses as now being conducted. 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 by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (i) the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, taken as a whole, or (ii) on the ability of the
Company to perform its obligations hereunder, or under the Notes or the
Warrants.
2.2 CAPITALIZATION. The authorized and/or issued capital of the
Company consists, or will consist, immediately prior to the Closing, of:
(a) 5,000,000 shares of authorized Preferred Stock, 30,000
shares of which have been designated Series A Junior Participating Preferred
Stock, none of which shares are issued and outstanding immediately prior to the
Closing.
(b) 50,000,000 authorized shares of Common Stock, 21,201,447
shares of which are issued and outstanding immediately prior to the Closing. All
of the outstanding shares of Common Stock have been duly authorized, fully paid
and are nonassessable.
(c) The Company has reserved 3,303,580 shares of its Common
Stock for issuance pursuant to the Company's 1995 Stock Option Plan. The Company
has outstanding options and warrants to purchase 3,515,175 shares of its Common
Stock.
(d) There are no other outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock.
2.3 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or
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general advertising (within the meaning of Regulation D under the Securities Act
of 1933 (the "Securities Act")) in connection with the offer or sale of any of
the Notes or Warrants.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Notes and the Warrants
(collectively, the "Transaction Documents"), the performance of all obligations
of the Company hereunder and thereunder and the authorization, issuance and
delivery of the Common Stock issuable upon exercise of the Warrants has been
taken or will be taken prior to the Closing, and the Transaction Documents, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.5 VALID ISSUANCE. The Notes and the Warrants will be issued in
compliance with all applicable federal and state securities laws. The Common
Stock issuable upon exercise of the Warrants has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Warrants,
shall be duly and validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings, if any, required pursuant to
applicable state securities laws, which filings will be made within the required
statutory period, and the filing pursuant to Regulation D of the Securities Act,
which will be effected within fifteen (15) days following the Closing, if
required.
2.7 LITIGATION. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or its directors or
officers, or the Company's Common Stock, wherein an unfavorable decision, ruling
or finding could individually or in the aggregate have a Material Adverse
Effect.
2.8 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights and processes necessary for its business without any conflict with, or
infringement of, the rights of others. Other than with respect to a claim by
Lehigh Valley Technologies, which the Company believes could be resolved without
a Material Adverse Effect, the Company has not received any communications
alleging that the Company has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, tradenames, copyrights,
trade secrets or other proprietary rights or processes of any other person or
entity.
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2.9 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any provisions
of its Certificate of Incorporation or Bylaws or of any material instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Transaction Documents and the consummation of the
transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any material license, distribution
agreement or other agreement.
2.10 CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and, other than as disclosed in the Company's filings with the Securities and
Exchange Commission ("SEC"), none of the officers, directors or employees of the
Company is presently a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director or any such employee has a
substantial interest or is an officer, director, trustee or partner.
2.11 ENVIRONMENTAL LAWS. The Company (i) is in compliance with any
and all applicable 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 contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its businesses
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval.
2.12 INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as is
prudent and customary in the businesses in which the Company is engaged. The
Company does not have any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
2.13 TITLE TO PROPERTY AND ASSETS. Except for security interests
granted to Access Capital and Xxxxx Xxxx relating to loans up to an aggregate
principal amount of $2,100,000, the Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course
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of business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.14 FINANCIAL STATEMENTS. Since January 1, 2002, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied 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 exclude 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Since December 31,
2002, there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition or
results of operations of the Company.
2.15 EMPLOYMENT MATTERS. The Company is in compliance with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or, to the Company's knowledge, threatened
against or involving the Company. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No material labor dispute with the
employees of the Company exists or, to the knowledge of the Company, is
imminent. Except for 401(k) plans, the Company has no employee benefit plans
subject to the Employee Retirement Income Security Act of 1974, as amended.
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2.16 TAX RETURNS AND PAYMENTS. The Company has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith, and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
2.17 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company,
nor is the Company aware of any labor organization activity involving its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company. To its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity laws and with other laws related to employment.
2.18 INTERNAL AUDITING CONTROLS. The Company maintains a system of
internal accounting controls sufficient, in the judgment of the Company's board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2.19 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. The Purchaser has full power and authority to
enter into this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of
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the Purchaser. This Agreement, when executed and delivered by the Purchaser,
will constitute valid and legally binding obligations of the Purchaser,
enforceable in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
any other laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any violation, be in
conflict with or constitute a default, with or without the passage of time and
giving of notice, under any provision of the organizational documents of such
Purchaser or any material contract or agreement to which such Purchaser is a
party.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Note and the Warrant to
be acquired by the Purchaser, and the shares issuable upon exercise of the
Warrant, will be acquired for investment for the Purchaser's own account, and
not with a view to the resale or distribution of any part thereof, and the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the Note
or the Warrant (and the shares issuable upon exercise of the Warrant). The
Purchaser has not been formed for the specific purpose of acquiring the Note or
the Warrant.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs with the
Company's management and has had an opportunity to review the Company's
operations. The Purchaser understands that such discussions, as well as any
written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
The Purchaser understands that a purchase of the Note and the Warrant involves a
high degree of risk, and there can be no assurance that the Company's business
objectives will be obtained.
3.4 EXPERIENCE. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that the Purchaser is capable of evaluating
the merits and risks of the Purchaser's investment in the Company and has the
capacity to protect the Purchaser's own interests.
3.5 RESTRICTED SECURITIES. The Purchaser understands that the Note
and the Warrant have not been, and will not be, registered under the Securities
Act, by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Note and the Warrant are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Purchaser must hold the Warrant
indefinitely unless it is registered with the Securities and Exchange Commission
and qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Warrant or Note for resale
except as provided in any of the Transaction Documents. The Purchaser further
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acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Warrant, and
on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.6 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for the Warrant or the Note, and that the Company has made no
assurances that a public market will ever exist for the Warrant or the Note.
3.7 ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" as defined in Regulation D under the Securities Act because at least
one of the following applies to the Purchaser: (i) the Purchaser is a natural
person whose individual net worth, or joint net worth with the Purchaser's
spouse, exceeds $1,000,000, (ii) the Purchaser is a natural person who had
individual income exceeding $200,000 in each of the two most recent years or
joint income with the Purchaser's spouse exceeding $300,000 in each of those
years and has a reasonable expectation of reaching the same income level in the
current year, (iii) the Purchaser is an organization, not formed for the
specific purpose of acquiring the Notes or the Warrants, with total assets
exceeding $5,000,000, or (iv) the Purchaser meets the criteria for "accredited
investor" for another reason, which reason has been explained in writing and
delivered by the Purchaser to the Company.
4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Note and the Warrant pursuant to this Agreement shall be obtained and
effective as of the Closing.
4.4 NOTE. The Company shall have executed and delivered to the
Purchaser the Note in the form attached hereto as Exhibit C (or, with respect to
the Agent, the Cash Amount).
4.5 WARRANT. The Company shall have executed and delivered to the
Purchaser the Warrant in the form attached hereto as Exhibit D.
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5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Note or the Warrant pursuant to this Agreement shall be obtained and
effective as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of one (1)
year following the Closing.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 TITLES 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.
6.6 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight
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courier or sent by telegram or fax, or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth on the signature page or Exhibit A hereto, or as subsequently modified by
written notice, and (a) if to the Company, with a copy to Xxxxxx Xxxxxxxx Xxxxx,
0000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxx, Xxxxxxxxxx 00000, Attn: Xxxx Xxxxxxxx,
Esq. or (b) if to the Purchasers, with a copy to the Agent, Attn: Xxxxxxx
Xxxxxxx, and a copy to Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attn: Xxxxxx X. Xxxxxxx, Esq.
6.7 FINDER'S FEE. Each party represents that, except as contemplated
herein, it neither is nor will be obligated for any finder's fee or commission
in connection with this transaction. Each Purchaser agrees to indemnify and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which each Purchaser or any of its
officers, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless each Purchaser from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
6.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least a majority of the principal amount of the Notes. Any amendment or
waiver effected in accordance with this Section 6.8 shall be binding upon the
Purchasers and each transferee of the Notes or the Warrants (or the Common Stock
issuable upon exercise thereof), each future holder of all such securities, and
the Company.
6.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.10 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
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6.11 ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
6.12 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Notes and Warrants.
[Signature Pages Follow]
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The parties have executed this Note Purchase Agreement as of the date first
written above.
COMPANY:
SCOLR, INC.
By:
-------------------------------------
Name:
Title:
Address: 0000 000xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxxxxx 00000
COUNTERPART SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT
The parties have executed this Note Purchase Agreement as of the date first
written above.
PURCHASERS:
IF AN ENTITY: Name of Entity:
By:
-----------------------------------------
Name:
-----------------------------------------
(print)
Title:
-----------------------------------------
Address:
Taxpayer Identification Number:
IF AN INDIVIDUAL:
---------------------------------------
Signature
Name:
-----------------------------------------
(print)
Address:
Social Security Number:
COUNTERPART SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Term Sheet
Exhibit C - Form of Subordinated Note
Exhibit D - Form of Warrant
EXHIBIT A
SCHEDULE OF PURCHASERS
(Omitted for Form 8-K filing)
EXHIBIT B
TERM SHEET
(Omitted for Form 8-K Filing)
EXHIBIT C
FORM OF SUBORDINATED NOTE
EXHIBIT C
SUBORDINATED NOTE
U.S.$_____________ _________________, 2003
FOR VALUE RECEIVED, the undersigned, SCOLR, Inc., a Delaware
corporation (the "Maker") with an address at 0000 000xx Xxxxxx X.X., Xxxxxxx,
Xxxxxxxxxx 00000, subject to the terms of this Promissory Note (this "Note"),
unconditionally promises to pay to the order of [ ] (the "Lender"), by check or
wire transfer at Lender's option, to the bank account specified by the Lender,
or at such other place as a holder hereof may from time to time direct in
writing, in lawful money of the United States of America and in immediately
available funds, the principal amount of [ ] DOLLARS (U.S.$[ ]) (the "Loan"), on
the earliest of (i) the seventieth (70th) day following the date hereof, (ii)
the closing of the sale or other disposition of all of the Maker or its business
or, for consideration of at least $1,250,000, any portion of the Maker's
business as it exists on the date hereof, whether by asset sale or other
transaction, and (iii) the completion by the Maker of any debt or equity
financing resulting in gross proceeds of at least $1,000,000 (the earliest date
as of which any of the foregoing (i), (ii) or (iii) occurs being referred to
herein as the "Maturity Date").
Any amounts that have become due and payable in accordance with this
Note (whether at stated maturity, by acceleration or otherwise) and remain
unpaid by the Maker shall accrue interest thereafter until payment in full of
such amounts (both before and after judgment) at a rate of interest equal to two
(2%) percent per month (or twenty-four (24%) percent per year) and such interest
shall be payable on the first day of each month. Interest payable hereunder
shall be payable on the basis of a 365-day year and the actual number of days
elapsed.
1. Prepayment.
Maker may prepay this Note in whole or in part. Upon prepayment of
this Note in part, the Lender shall surrender this Note and the Maker shall
issue a substitute note of like tenor in the amount of the then unpaid principal
amount. Upon prepayment of this Note in full, this Note shall be surrendered by
the Lender and cancelled.
2. Subordination. The indebtedness evidenced by this Note will be
subordinate to the extent and in the manner expressly provided in this Section 2
and such subordination shall be for the benefit of and be enforceable by the
holders of the Senior Debt (as defined herein). This Note shall in all respects
rank at least pari passu with all other present and future obligations of the
Maker and only Senior Debt shall rank senior to this Note. Nothing herein shall
(i) impair, as between the Maker and the Lender, the obligation of the Maker,
which is absolute and unconditional, to pay the principal of, and
interest if any, on this Note in accordance with its terms; or (ii) prevent the
Lender from exercising its available remedies upon a default, subject to the
rights of holders of Senior Debt to receive distributions otherwise payable to
the Lender. "Senior Debt" means all obligations and liabilities of the Maker
under or in connection with any and all bank, institutional or other financial
transaction indebtedness which by their written terms are senior to this Note in
the event of a default by the Maker.
3. Series of Notes. This Note is one of a series of subordinated notes
issued by the Maker (each a "Note" and collectively the "Notes") in one closing
or a series of related closings. This Note and all other Notes shall rank pari
passu.
4. Events of Default.
(a) The occurrence of any of the following events or conditions
shall constitute an event of default (an "Event of Default") with
respect to the Maker under this Note:
(i) Any amounts due under this Note, or any of the other
Notes, are not paid when due; or
(ii) The Maker defaults under any other existing
indebtedness, which causes the actual acceleration of
the principal of such indebtedness; or
(iii) The Maker (A) becomes insolvent or is unable generally
to pay its debts or fails or admits in writing its
inability generally to pay its debts as they become due;
(B) makes a general assignment, arrangement or
composition with or for the benefit of its creditors;
(C) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or
other similar law affecting creditors' rights, (D) has a
distress, execution, attachment, sequestration or other
legal process levied, enforced or sued on or against all
or substantially all its assets; (E) causes or is
subject to any event with respect to it which, under the
applicable laws of any jurisdiction, has an analogous
effect to any of the events specified in clauses (A)
through (D); or (F) takes any action in furtherance of,
or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(iv) The Maker materially breaches any other covenant,
agreement or condition set forth herein or in that
certain warrant ("Warrant"), for the purchase of the
Maker's
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capital stock, issued by the Maker to the Lender on or
about the date hereof, or in that certain Note Purchase
Agreement ("Purchase Agreement") entered into between
the Maker and the Lender on or about the date hereof,
and such breach remains uncured for a period of ten (10)
days after the Maker is given written notice of such
breach; or
(v) Any representation or warranty made by the Maker herein,
in the Warrant, or in the Purchase Agreement shall prove
to have been false, incorrect or misleading in any
material respect on the date as of which made; or
(vi) Any final non-appealable judgment is entered against the
Maker for an amount exceeding $50,000 or any of the
Maker's properties or assets is attached or levied or a
restraining notice is placed thereon; or
(vii) Any of this Note, the Warrant, or the Purchase Agreement
is invalidated or declared null and void by a court of
competent jurisdiction.
(b) Upon the occurrence and during the continuance of an Event of
Default, the Lender will have the option of declaring all amounts
payable to the Lender under this Note or otherwise to be immediately
due and payable, in which case the Maker shall immediately pay all
such amounts without presentment, demand, protest or notice of any
kind.
5. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS
CONFLICTS OF LAW RULES.
6. Assignment. The Maker may not assign any of its rights or delegate any
of its obligations under this Note (or any part thereof) without the prior
written consent of the Lender.
7. Waiver. The Maker hereby waives diligence, presentment, protest,
demand, and notice of every kind and, to the full extent permitted by law, the
right to plead any statute of limitations as a defense to any demand hereunder.
8. Expenses of Enforcement. The Maker shall pay all reasonable costs and
expenses incurred by the Lender in the successful enforcement of the provisions
of this Note, including reasonable fees for attorneys and other expenses of
collection.
3
SCOLR, INC.
By: _______________________
Name:
Title:
4
EXHIBIT D
FORM OF WARRANT
EXHIBIT D
THE WARRANT AND THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAW. THE WARRANT AND THE
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER SAID ACT AND ANY APPLICABLE SECURITIES LAWS OR AN EXEMPTION
THEREFROM UNDER SAID ACT OR LAWS. THE COMPANY MAY REQUEST, AS A CONDITION TO ANY
TRANSFER, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THE REGISTRATION RIGHTS PROVISIONS ATTACHED HERETO AS EXHIBIT A.
Warrant No. ________ ____________ Shares
FORM OF
WARRANT
To Purchase Common Stock of
SCOLR, INC.
This certifies that, for value received, _______________________ or its
registered assigns (the "Holder") is entitled to purchase from SCOLR, Inc., a
Delaware corporation (the "Company"), at any time and from time to time after
the date hereof until the Expiration Date, the number of shares of Common Stock
(as defined below) of the Company as set forth above, in whole or in part,
including fractional parts, at a purchase price of ________________________
($_______) per share (the "Purchase Price"). The number of Warrant Shares (as
defined below) and the Purchase Price therefor are subject to adjustment as
herein after set forth in Section 6. This is one of a series of warrants in
substantially the same form that were originally issued on the Issue Date.
Section 1. Certain Definitions. For all purposes of this Warrant, the
following terms shall have the meanings indicated:
"Additional Shares of Common Stock" means all shares of Common Stock
issued by the Company after the date hereof, other than Warrant Shares, whether
now authorized or not, other than Excluded Shares.
"Commission" means the Securities and Exchange Commission, or any
other Federal agency then administering the Securities Act.
1
"Common Stock" means and includes the Company's authorized common
stock, par value $0.001 per share, and also includes any Common Stock of any
class of the Company hereafter authorized that shall not be limited to a fixed
sum or percentage of par value in respect of the rights of the holder thereof to
participate in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company, and includes
any Common Stock of any class or classes resulting from any successive changes
or reclassifications or reclassification thereof.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" means the 10-day average closing bid prices
of a share of Common Stock as reported on NASDAQ for the period of 10
consecutive Trading Days ending on the date of determination; provided, however,
if the Common Stock is not listed or admitted to trading on NASDAQ, as reported
on the principal national security exchange or quotation system on which the
Common Stock is quoted or listed or admitted to trading; or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be, or if not listed or admitted for trading
on any national securities exchange or quoted in the over-the-counter market,
the Current Market Price shall be the Fair Value on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Excluded Shares" means:
(a) (i) shares of Common Stock issuable upon the exercise of options
and warrants (including this Warrant) and that are outstanding on the Issue Date
and (ii) such number of additional shares of Common Stock as may become issuable
upon the exercise of such options, warrants and convertible preferred stock by
reason of adjustments required pursuant to the anti-dilution provisions
applicable to such securities as in effect on the Issue Date;
(b) (i) shares of Common Stock issuable upon the exercise of options
and warrants granted or issued by the Company to its employees, officers,
directors, consultants and advisors, up to a maximum number of such shares
issuable at any point in time while this Warrant is exercisable that does not
exceed 20% of the then issued and outstanding shares of Common Stock; provided,
in each such case, that the exercise price for any such share shall not be less
than 85% of the Fair Value of the Common Stock on the date of grant or issuance
of the option or warrant (the "Minimum Price"), and (ii) such additional number
of shares of Common Stock as may become issuable pursuant to the terms of any
such options or warrants by reason of adjustments required pursuant to
anti-dilution provisions applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by reclassification or otherwise, or
2
any dividend on Common Stock payable in Common Stock and anti-dilution
adjustments that do not adjust the exercise price below the Minimum Price;
(c) shares of Common Stock issuable upon exercise of warrants issued
to equipment lessors, banks or other institutional credit financing sources of
the Company in connection with the provision of financing or the rendering of
other services to the Company up to a maximum number of shares of Common Stock
issuable at any point in time while this Warrant is exercisable that does not
exceed 5% of the then issued and outstanding shares of Common Stock; provided,
in each such case, that the exercise or purchase price for any such share shall
not be less than Minimum Price, and (ii) such additional number of shares of
Common Stock as may become issuable pursuant to the terms of any such warrants
by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities in order to reflect any subdivision or combination
of Common Stock, by reclassification or otherwise, or any dividend on Common
Stock payable in Common Stock and anti-dilution adjustments that do no adjust
the exercise price below the Minimum Price.
"Expiration Date" means 5:00 p.m. New York City time on the third
anniversary of the Issue Date.
"Fair Value" means, on any date specified herein (i) in the case of
cash, the dollar amount thereof, (ii) in the case of a security admitted for
trading on any national securities exchange or quoted in the over-the-counter
market, the Current Market Price, and (iii) in all other cases as determined in
good faith jointly by the Company and the Holder; provided, however, that if
such parties are unable to reach agreement within 30 days, the Fair Value shall
be determined in good faith by an independent investment banking firm selected
jointly by the Company and the Holder or, if that selection cannot be made
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules; and provided
further that the Company shall pay all of the fees and expenses of any third
parties incurred in connection with determining the Fair Value.
"Issue Date" means April ____, 2003.
"Options" means any rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Other Securities" means any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holder of this Warrant at any time shall be entitled to receive, or
shall have received, upon the exercise of this Warrant, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 7 or otherwise.
"Outstanding" or "outstanding" means, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or held
by or for the account of the Company or any subsidiary of the Company, and shall
include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
3
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Purchase Price" means the purchase price set forth in the initial
paragraph hereof, as adjusted from time to time pursuant to the provisions of
Section 6 hereof.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Trading Day" means a day on which the Nasdaq Stock Market is open
for the transaction of business.
"Warrant" means this warrant and any warrant issued in exchange,
division, substitution, transfer or replacement hereof.
"Warrant Shares" means the shares of Common Stock purchased or
purchasable by the Holder of this Warrant upon the exercise hereof pursuant to
Section 2 hereof.
Section 2. Exercise of Warrant.
(a) This Warrant may be exercised at any time, in whole or in part,
for all or any part of the number of shares of Common Stock purchasable
hereunder, prior to the Expiration Date. To exercise this Warrant, in whole or
in part, the Holder shall complete the notice of exercise attached hereto (the
"Notice of Exercise"), and deliver this Warrant and, except as otherwise
provided in this Section 2, cash in an amount equal to the aggregate Purchase
Price of the shares of Common Stock being purchased, together with the Notice of
Exercise, to the Company at its office referred to in Section 9. Upon receipt
thereof, the Company shall, as promptly as practicable and in any event within
ten (10) business days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock specified in
the Notice of Exercise, together with cash in lieu of any fraction of a share,
as hereinafter provided. The stock certificate or certificates so delivered
shall be, to the extent possible, in such denomination or denominations as the
Holder shall request in the Notice of Exercise and shall be registered in the
name of the Holder or such other name as shall be designated in the Notice of
Exercise, subject to compliance with applicable securities laws. This Warrant
shall be deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and the Holder or any other person or
entity so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the Notice of
Exercise, together with the cash, if any, and this Warrant, are received by the
Company as described above. If this Warrant shall have been exercised in part,
the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant. All shares of Common Stock issuable upon the
4
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of stock certificates pursuant to this
Section, unless such tax or charge is imposed by law upon the Holder, in which
case such taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.
(b) In lieu of payment of the Purchase Price in cash, the Holder may
make such payment, by way of cashless exercise, as follows:
(c) by delivery of shares of Common Stock with an aggregate Current
Market Price on the date of exercise equal to the Purchase Price, subject,
however, to the provisions of Section 16(b) of the Exchange Act; or
(d) through the written election of the Holder to have withheld by
the Company from the shares of Common Stock otherwise deliverable upon exercise,
Common Stock having an aggregate Current Market Price on the date of exercise
equal to the Purchase Price.
Section 3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of this Warrant. As to any
fraction of a share which the Holder of this Warrant would otherwise be entitled
to purchase upon exercise, the Company shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Fair Value per
share of Common Stock on the date of exercise.
Section 4. Ownership of this Warrant.
(a) The Company shall deem and treat the Holder as the holder and
owner of this Warrant (notwithstanding any notations of ownership or writing
hereon made by anyone other than the Company) for all purposes and shall not be
required to give effect to any notice to the contrary, until presentation of
this Warrant for registration of transfer as provided in this Section 4.
(b) Subject to Section 5, this Warrant is exchangeable, upon the
surrender hereof by the Holder to the Company at its office referred to in
Section 9, for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of shares of Common Stock purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of shares of Common Stock as shall be designated by the Holder at the
time of such surrender. Subject to compliance with applicable securities laws,
this Warrant and all rights hereunder are transferable in whole or in part upon
the books of the Company by the Holder hereof in person or by a duly authorized
attorney, and a new Warrant shall be executed and delivered by the Company of
the like tenor and date as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant duly endorsed, at said office or
agency of
5
the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in case
of loss, theft or destruction, of an agreement of unsecured indemnity and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and date, in lieu of this Warrant. This
Warrant shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall
prepare, issue and deliver at its own expense (other than transfer taxes) the
new Warrant or Warrants under this Section 4.
Section 5. Restrictions. This Warrant and the Warrant Shares may not be
sold, transferred, or otherwise disposed of without registration under the
Securities Act or pursuant to an exemption therefrom.
Section 6. Anti-Dilution Provisions; Adjustments.
6.1 Adjustment of Number of Shares -- Issuance of Additional Shares
of Common Stock. Upon each adjustment of the Purchase Price as a result of the
calculations made in Section 6.2, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth of a share) obtained by
dividing (i) the product of the aggregate number of shares covered by this
Warrant immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
6.2 Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 6.4 or Section 6.5 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 6.10), without consideration or for a consideration per share less
than the Current Market Price, immediately prior to such issue or sale, then,
and in each such case, subject to Section 6.8, the Purchase Price shall be
reduced, concurrently with such issue or sale, to a price (calculated to the
nearest .001 of a cent), determined by multiplying such Purchase Price by a
fraction
(a) the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue or sale and
(ii) the number of shares of Common Stock which the gross consideration received
by the Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at the Current Market Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 6.2, (x) immediately after any Additional Shares of
Common Stock are deemed to have been issued pursuant to Section 6.4 or Section
6.5, such Additional Shares of Common Stock shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
6
6.3 Dividends and Distributions. In case the Company at any time or
from time to time after the date hereof shall declare, order, pay or make a
dividend or other distribution on the Common Stock of (i) cash, (ii) any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever (including, without limitation, any
distribution of other or additional stock or Convertible Securities, Options or
other securities or property, by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) or (iii) any warrants or
other rights to subscribe for or purchase any evidences of its indebtedness, any
shares of its stock or any other securities or property of any nature
whatsoever, then
(a) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (1) the numerator of which
shall be the Current Market Price at the date of taking such record and (2) the
denominator of which shall be such Current Market Price minus the amount
allocable to one share of Common Stock of (x) any such cash so distributable and
(y) the Fair Value of any and all such evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights so distributable, and
(b) the Purchase Price shall be adjusted to equal (1) the Purchase
Price immediately prior to the adjustment multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (2) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value) into
shares of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 6.3 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 6.5.
6.4 Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue, sale, grant or assumption or, in case such a record date
shall have been fixed, as of the close of business on such record date (or, if
the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
Common Stock shall not be deemed to have been issued unless (i) the
consideration per share (determined pursuant to Section 6.6) of such shares
would be less than
7
their Fair Value on the date of and immediately prior to such issue, sale, grant
or assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be, and (ii) such
Additional Shares of Common Stock are not purchasable pursuant to Rights
referred to in Section 6.10, and provided, further, that
(a) whether or not the Additional Shares of Common Stock underlying
such Options or Convertible Securities are deemed to be issued, no further
adjustment of the Purchase Price shall be made upon the subsequent issue or sale
of Convertible Securities or shares of Common Stock upon the exercise of such
Options or the conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Company, or for any decrease or increase in the
number of Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the Purchase
Price computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement of
ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue or sale
of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such
8
Options were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received by the
Company for the Additional Shares of Common Stock deemed to have
then been issued was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 6.6) upon the
issue or sale of such Convertible Securities with respect to which
such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Purchase Price by an amount in excess of the
amount of the adjustment thereof originally made in respect of the issue, sale,
grant or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Purchase Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
6.5 Treatment of Stock Dividends, Stock Splits, etc. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, by a reverse stock split or otherwise,
then (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Purchase Price shall be
adjusted to equal (A) the Purchase Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
6.6 Computation of Consideration. For the purposes of this Section
6,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
9
(i) insofar as it consists of cash, be computed at the amount
of cash received by the Company, without deducting any expenses paid
or incurred by the Company or any commissions or compensations paid
or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the Fair Value thereof at the time
of such issue or sale, and
(iii) in the case where Additional Shares of Common Stock are
issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be the
portion of such consideration so received, computed as provided in
clauses (i) and (ii) above, allocable to such Additional Shares of
Common Stock, such allocation to be determined in the same manner
that the Fair Value of property not consisting of cash or securities
is to be determined as provided in the definition of "Fair Value"
herein;
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 6.4, relating to Options and Convertible Securities, shall
be deemed to have been issued for a consideration per share determined by
dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration
to protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange of
such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in
the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number to protect against dilution) issuable upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 6.5, relating to stock dividends, stock splits, etc., shall
be deemed to have been issued for no consideration.
6.7 Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company or
to subscription, purchase or other acquisition
10
pursuant to any Options issued or granted by the Company (or any such other
issuer or Person) for a consideration such as to dilute, on a basis consistent
with the standards established in the other provisions of this Section 6, the
purchase rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 6 with
respect to the Purchase Price and the number of shares purchasable upon Warrant
exercise shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrants, so as to protect the holders of the Warrants
against the effect of such dilution.
6.8 De Minimis Adjustments. If the amount of any adjustment of the
Purchase Price per share required pursuant to this Section 6 would be less than
$.01, such amount shall be carried forward and the adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a cent or
to the nearest one-hundredth of a share, as the case may be.
6.9 Abandoned Dividend or Distribution. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
6.10 Shareholder Rights Plan. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu
of making any adjustment pursuant to Section 6.2 or Section 6.3 hereof, make
proper provision so that each Holder who exercises a Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
6.11 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 6 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the Holder, the number of shares of
11
Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
6.12 Adjustment of Purchase Price Only. The Purchase Price, but not
the number of Warrant Shares, shall be subject to adjustment as provided in
Paragraph 1.3 of the Registration Rights set forth in Exhibit A hereto.
Section 7. Consolidation, Merger, Etc.
7.1 Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof shall (a)
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) permit any
other Person to consolidate with or merge into the Company and the Company shall
be the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Stock or Other Securities shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (c) transfer all or substantially all of its properties or assets
to any other Person in one or more related transactions, or (d) effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 6.2 or Section 6.3), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a shareholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Section 6.
7.2 Assumption of Obligations. Notwithstanding anything contained in
this Warrant, the Company shall not effect any of the transactions described in
clauses (a) through (d) of Section 7.1 unless, prior to the consummation
thereof, each Person (other than the Company) which may be required to deliver
any stock, securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant,
including Exhibit A hereto), (b) the obligation to deliver to the Holder such
shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 7, the Holder may be entitled to receive.
Section 8. Covenants of the Company. The Company covenants and agrees that
it shall reserve and set apart and have at all times, free from preemptive
rights, the number of authorized but unissued shares of Common Stock deliverable
upon the exercise in full of this
12
Warrant, and it shall have at all times any other rights or privileges provided
for therein sufficient to enable it at any time to fulfill all of its
obligations hereunder. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit the exercise in full of
this Warrant, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
shareholder approval and upon such approval, the Company shall reserve and keep
available such additional shares solely for the purpose of permitting the
exercise of this Warrant. The Company covenants and agrees that all shares of
Common Stock which shall be so issuable will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable, free and clear of any
liens, claims and restrictions (other than as provided herein).
Section 9. Notification by the Company.
9.1 Notice of Adjustments. Whenever the number of shares of Common
Stock or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
6, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the Fair Value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 6.2 or Section 6.7(a)), specifying the
number of shares of Common Stock for which this Warrant is exercisable and
describing the number and kind of any other shares of stock or other property
for which this Warrant is exercisable, if any, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change. The
Company shall promptly cause a signed copy of such certificate to be delivered
to the Holder in accordance with Section 10 The Company shall keep at its office
or agency designated pursuant to Section 10 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of a Warrant
designated by the Holder.
9.2 Notice of Certain Corporate Action. The Holder shall be entitled
to the same rights to receive notice of corporate action as any holder of Common
Stock.
Section 10. Notices. Any notice or other document required or permitted to
be given or delivered to the Holder shall be hand delivered or delivered by
nationally recognized overnight courier at, or sent by certified or registered
mail postage prepaid and return receipt requested to the Holder at the last
address shown on the books of the Company. Any notice or other document required
or permitted to be given or delivered to the Company shall be delivered at, or
sent by certified or registered mail to, the principal office of the Company, at
0000 000xx Xxxxxx X.X., Xxxxxxx, Xxxxxxxxxx 00000, Attn: Chief Executive
Officer, or such other address as shall have been furnished to the Holder by the
Company. All such communications
13
shall be deemed to have been given or made when so delivered by hand, or one
business day after being sent by overnight delivery or five business days after
being so mailed.
Section 11. No Rights as Shareholders; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company except as expressly set forth herein. No provision hereof, in the
absence of affirmative action by the Holder to exercise this Warrant or purchase
shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability upon the Holder for
the Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
Section 12. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the conflict of law provisions thereof.
Section 13. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
Section 14. Registration Rights. This Warrant is subject to the
Registration Rights provisions contained in Exhibit A hereto.
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officer as of the _____ day of April, 2003.
SCOLR INC.
By:
--------------------------------
Name:
Title:
15
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
_________________ of the Company's Warrant Shares provided for therein and
requests that certificates for such Warrant Shares be issued in the name
of*:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(please print name, address, and social security number or employer
identification number)
and, if said number of Warrant Shares shall not be all the shares of Common
Stock purchasable thereunder, that a new Warrant certificate for the balance
remaining of the shares of Common Stock purchasable under the within Warrant be
registered in the name of the undersigned Warrantholder or his assignee as below
indicated and delivered to the address stated below.
In order to induce the Company to give instructions to its transfer agent
to issue the shares of Common Stock being purchased upon exercise of the
Warrant, the undersigned hereby represents and warrants that undersigned is an
"accredited investor" as that term is defined in Regulation D under the
Securities Act of 1933, as amended.
Dated: ________________, 20___
Name of Warrant holder or Assignee:
-----------------------------------
(please print)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Signature: _______________________________________
Signature Guaranteed: NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER, UNLESS THE WITHIN WARRANT HAS BEEN
ASSIGNED.
--------
* If other than the Holder specified on the within Warrant delivered with
this Notice of Exercise, the transfer is subject to compliance with applicable
securities laws and the payment by the Holder of any applicable transfer or
similar taxes.
16
IF WARRANT SHARES ARE TO BE ISSUED IN ANY NAME OTHER
THAN THAT OF THE REGISTERED HOLDER OF THE WITHIN
WARRANT, THE REGISTERED HOLDER'S SIGNATURE SHALL BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR BY A
MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE.
17
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
(name and address of assignee must be printed or typewritten)
the within Warrant, hereby irrevocably constituting and appointing attorney to
transfer said Warrant on the books of the Company with full power of
substitution in the premises.
Dated:
-------------------------
Name of Warrantholder or Assignee:
---------------------------------
(please print)
Address:
---------------------------------
---------------------------------
---------------------------------
Signature:
---------------------------------
SIGNATURE OF REGISTERED HOLDER
Signature Guaranteed: NOTE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS IT APPEARS UPON THE FACE OF THE WITHIN
WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER. SUCH SIGNATURE SHALL
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR
BY A MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE.
18
EXHIBIT A TO EXHIBIT D
REGISTRATION RIGHTS
The following provisions are a part of the Warrant (the "Warrant") to
purchase shares of Common Stock of SCOLR, Inc. that was initially issued to
_____________________ in April 2003, and any warrant, in substantially the same
form as the Warrant, that is issued to any Person who or which becomes a Holder
as permitted by the Warrant-References to the "Warrant" include each such
subsequently issued Warrant. All capitalized terms below shall have the same
meanings as in the Warrant, unless otherwise defined. Paragraph references below
are to the paragraphs of this Exhibit A.
REGISTRATION RIGHTS.
1.1 Piggyback Registration. If the Company determines to register any of
its securities under the Securities Act for sale to the public, whether for its
own account or for the account of other security holders or both (except with
respect to registration statements on Form S-8 or its then equivalent, or in
connection with a Rule 145 transaction or Form S-4 or its equivalent, or another
form not available for registering the Registrable Shares for sale to the
public), it will give prompt written notice to each holder of outstanding
Registrable Shares, and each Holder who has the right to acquire Registrable
Shares upon exercise of the Warrant, of its intention so to do and of the
proposed method of distribution of such securities. As used herein, "Registrable
Shares" means (i) all Warrant Shares that have been issued or are issuable upon
exercise of this Warrant and all other warrants in substantially the same form
as this Warrant that were originally issued on the Issue Date, (ii) any shares
of Common Stock issued or issuable with respect to the shares of Common Stock
referred to in clause (i) above upon any stock split, stock dividend,
recapitalization or similar event and (iii) shares of common stock, if any, or
other securities that the Holder would be entitled to receive in exchange for
Common Stock in any merger, consolidation or reorganization of the Company in
which the Company shall not be the surviving corporation, in each case which are
not saleable without restriction pursuant to Rule 144(k) under the Securities
Act, but excluding shares transferred or otherwise disposed of in violation of
the Securities Act or applicable state securities laws. Upon the written request
of such holder, received by the Company within twenty days after the giving of
any such notice by the Company, to include in the registration all, but not less
than all, of the Registrable Shares, the Company will cause the Registrable
Shares as to which registration shall have been so requested to be included in
the securities to be covered by the registration statement proposed to be filed
by the Company (the "Registration Statement"), all to the extent and under the
conditions such registration is permitted under the Securities Act.
Notwithstanding the foregoing, if the managing underwriter or underwriters
participating in such offering advise the holder of Registrable Shares in
writing that the total amount of securities requested to be included in such
registration exceeds the amount which can be sold in (or during the time of)
such offering without delaying or jeopardizing the success of the offering
(including the price per share of the securities to be sold), then the amount of
securities to be offered for the account of the holder of Registrable Shares and
other holders of securities who have piggyback registration rights with respect
thereto shall be reduced (to zero if necessary) pro rata on the basis of the
number or amount of Common Stock (or the equivalent) requested to be registered
by each such holder
A-1
participating in such offering. The holders of Registrable Shares shall be
entitled to have such Registrable Shares included in one registration pursuant
to this Paragraph 1.1; provided, however, that in the event that not all of the
Registrable Shares requested to be registered for sale are included in a
registration by virtue of the preceding sentence, the holders of Registrable
Shares shall be entitled to have such Registrable Shares included in an
unlimited number of registrations until all such Registrable Shares have been
registered for sale.
1.2 Mandatory Registration. Unless previously filed pursuant to Paragraph
1.1 and with due regard to the effective date deadline of December 31, 2003,
referred to in Paragraph 1.3(a), the Company shall prepare and file with the
Commission a Registration Statement on Form S-3 (or, if such form is unavailable
for such a registration, on such other form as is available for such a
registration, subject to the consent of the Holder, which consent will not be
unreasonably withheld) covering the resale of all of the Registrable Shares. The
Registration Statement shall initially register for resale that number of shares
of Common Stock equal to the number of Registrable Shares issuable as of the
date immediately preceding the date the Registration Statement is initially
filed with the Commission as if such date of registration was a date on which
the Warrant was exercised, subject to adjustment as provided therein.
1.3 Registration Procedures. In fulfilling its obligations under
Paragraphs 1.1 and 1.2, the Company will, at its cost and expense, as
expeditiously as reasonably practicable:
(a) with respect to a registration pursuant to Paragraph 1.1,
prepare and file with the Commission a Registration Statement for the sale
of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate in accordance with
the intended method or methods of distribution thereof;
(b) use its best efforts to cause the Registration Statement to
become effective and remain effective for at least three years after the
Issue Date. However, if the Registration Statement filed pursuant to
Section 1.1 or 1.2 is not declared effective by December 31, 2003, the
Purchase Price, as adjusted pursuant to Section 6 of the Warrant, shall be
decreased by two percent (2%) and provided, further, however, for each
thirty day period after December 31, 2003 that such Registration Statement
is not declared effective, the Purchase Price, as adjusted pursuant to
Section 6 of the Warrant, shall be decreased by an additional two percent
(2%), but in no event shall the maximum reduction of the Purchase Price
pursuant to this sentence be more than thirty-six percent (36%). Until
June 4, 2005, the reduction in Purchase Price pursuant to the immediately
preceding sentence shall be the sole remedy for the Company's failure to
cause the Registration Statement to be declared effective. If such
Registration Statement is not declared effective by June 4, 2005, in
addition to such reduction in the Purchase Price, the Holder shall have
all other legal or equitable remedies that may then be available.
(c) prepare and file with the Commission such amendments (including
post-effective amendments) to such Registration Statement, and such
supplements to the related prospectus, as may be required by the
applicable rules, regulations
A-2
or instructions under the Securities Act during the applicable period in
accordance with the intended methods of disposition specified by the
holder of the Registrable Shares covered by such Registration Statement,
make generally available earnings statements satisfying the provisions of
Section 11(a) of the Securities Act (provided that the Company shall be
deemed to have complied with this clause if it has complied with Rule 158
under the Securities Act), and cause the related prospectus as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
provided, however, that before filing a Registration Statement or
prospectus, or any amendments or supplements thereto (other than reports
required to be filed by it under the Exchange Act), the Company shall
furnish to the Holder and its counsel for review and comment, copies of
all documents required to be filed;
(d) notify holders of Registrable Shares promptly and (if requested)
confirm such notice in writing, (i) when a Registration Statement or
prospectus or any prospectus supplement or post-effective amendment has
been filed, and, with respect to such Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to such
Registration Statement or the related prospectus or for additional
information regarding the holder of Registrable Shares, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness
of such Registration Statement or the sale of Registrable Shares
thereunder or the initiation of any proceedings for that purpose, (iv) of
the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of
the Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (v) of the happening of
any event that requires the making of any changes in such Registration
Statement, prospectus or documents incorporated or deemed to be
incorporated therein by reference so that they 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;
(e) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from
qualification of any Registrable Shares for sale in any jurisdiction in
the United States;
(f) furnish to each seller of Registrable Shares and to each
underwriter such number of copies of the Registration Statement and the
prospectus included therein (including each preliminary prospectus) as
such Persons reasonably may request in order to facilitate the public sale
or other disposition of the Registrable Shares covered by the Registration
Statement;
(g) use its reasonable best efforts to register or qualify the
Registrable Shares covered by the Registration Statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Shares or, in the case of an underwritten public offering, the
managing underwriter, reasonably shall request,
A-3
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent
to general service of process in any such jurisdiction;
(h) use its reasonable best efforts to list the Registrable Shares
covered by such Registration Statement on the principal stock market
or securities exchange on which similar securities issued by the
Company are then listed or quoted;
(i) promptly notify each seller of Registrable Shares and each
underwriter under the Registration Statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company
has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing.
The sellers of Registrable Shares agree upon receipt of such notice
forthwith to cease making offers and sales of Registrable Shares
pursuant to such Registration Statement or deliveries of the
prospectus contained therein for any purpose until the Company has
prepared and furnished such amendment or supplement to the
prospectus as may be necessary so that, as thereafter delivered to
purchasers of such Registrable Shares, such prospectus shall not
include an untrue statement of a material fact or omit 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;
(j) promptly notify each seller of Registrable Shares under the
Registration Statement of (i) the effectiveness of the Registration
Statement, (ii) the filing of any post-effective amendments to the
Registration Statement, or (iii) the filing of a supplement to the
Registration Statement;
(k) make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Registrable
Shares, any underwriter participating in any distribution pursuant
to the Registration Statement, and any attorney, accountant or other
agent retained by such seller or underwriter, all material financial
and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection
with the Registration Statement.
In connection with the foregoing, the sellers of Registrable Shares shall
(a) provide such information and execute such documents as may reasonably be
required in connection with such registration including a confirmation to be
bound by all the provisions of these registration rights, (b) agree to sell
Registrable Shares on the basis provided in any underwriting arrangements and
(c) complete and execute all questionnaires, powers of attorney,
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indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
1.4 Expenses. All expenses incurred by the Company in complying with
Paragraphs 1.1, 1.2 and 1.3 including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company and all other Persons retained by
the Company in connection with such Registration Statement, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, transfer taxes and fees of transfer agents and
registrars, fees and disbursements (in total not exceeding $10,000) of one
counsel, other than the Company's counsel, representing the Holders of all of
the Registrable Shares and selected by such Holders, and fees and disbursements
of underwriters customarily paid by the issuers or sellers of securities, but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Shares are called "Selling Expenses". The Company will pay all
Registration Expenses in connection with the Registration Statement. All Selling
Expenses in connection with the Registration Statement shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
1.5 Indemnification and Contribution.
(a) In connection with the registration and sale of the Registrable Shares
pursuant to the Registration Statement, to the fullest extent permitted by law,
the Company will indemnify and hold harmless each seller of such Registrable
Shares thereunder together with such seller's officers, directors, partners,
employees and agents, each underwriter of such Registrable Shares thereunder and
each other Person, if any, who controls such seller or underwriter within the
meaning of the Securities Act and the officers, directors, partners, employees
and agents of each such controlling Person, against any and all losses, claims,
damages, judgments, costs (including, without limitation, costs of
investigation, preparation and reasonable attorneys' fees) and liabilities, as
incurred, joint or several, to which such seller and such seller's officers,
directors, partners, employees and agents, underwriter or controlling Person and
the officers, directors, partners, employees and agents of such controlling
Persons 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 (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or (ii) 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, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable Shares
pursuant to the Registration Statement (but not such seller's failure to comply
with the prospectus delivery requirements or other rules and regulations under
the Exchange Act relating to such seller's conduct in offering and selling
Registrable Shares). The Company will promptly reimburse each such indemnified
Person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided, however,
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that the Company will not be liable in any such case if and 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 so
made in conformity with information furnished in writing by any such seller, any
such underwriter or any such controlling Person in writing specifically for use
in the Registration Statement or such prospectus. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party.
(b) In connection with the registration and sale of Registrable Shares
pursuant to the Registration Statement, each seller of such Registrable Shares
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each Person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company against all losses, claims, damages or
liabilities, joint or several, to which the Company or 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 (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or (ii) 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, and will promptly reimburse the Company
and each such officer, director and controlling Person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that such seller will be liable hereunder in any such case if and only 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 reliance upon and in conformity with information pertaining to
such seller, as such, furnished in writing to the Company by such seller
specifically for use in the Registration Statement or such prospectus, and
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under the Registration Statement bears to the total public
offering price of all securities sold thereunder, but not in any event to exceed
the net proceeds (net of all underwriting discounts and commissions) actually
received by such seller from the sale of Registrable Shares covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Paragraph 1.5 and shall only
relieve it from any liability which it may have to such indemnified party under
this Paragraph 1.5 if and to the extent the indemnifying party can demonstrate
that it has been prejudiced by such omission. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this
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Paragraph 1.5 for any legal expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected, provided, however, that,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. The indemnifying party shall
not consent to entry of any judgment or enter into any settlement unless (i) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party and (ii) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory to
the indemnified party, from all liability in respect of such claim or litigation
for which such indemnified party would be entitled to indemnification hereunder.
(d) If the indemnification provided for in this Paragraph 1.5 is
unavailable to an indemnified party in respect of any losses, claims, damages or
liabilities (other than in accordance with its terms), then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages and liabilities, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such losses, claims, damages
and liabilities as well as any other relevant equitable considerations. The
relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any losses,
claims, damages or liabilities shall be deemed to include any legal or other
fees or expenses incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Paragraph 1.5(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to hererin. Notwithstanding the provisions
of this Paragraph 1.5(d), if the indemnifying party is a holder of Registrable
Shares, such holder shall not be required to contribute any amount which is in
excess of the amount by which the total proceeds (net of all underwriting
discounts and commissions) received by such holder from the sale of the
Registrable Shares sold by such holder in the applicable offering exceeds the
amount of any damages that such indemnifying party has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. 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.
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