Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
September 26, 2003, among Pharmos Corporation, a Nevada corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each a
"Purchaser" and collectively the "Purchasers"); and
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $21,000,000 of the Debentures and
certain Warrants, as more fully described in this Agreement;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under
Rule 144. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or
other governmental action to close.
"Closing" means the closing of the purchase and sale of the
Debentures and Warrant pursuant to Section 2.1(a).
"Closing Date" means the date of the Closing.
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on the Trading Market and if prices for the Common
Stock are then reported in the "pink sheets" published by the National
Quotation Bureau Incorporated (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by
an appraiser selected in good faith by the Purchasers of a majority in
interest of the Debentures then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.03 par
value per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Counsel" means Xxxxxxxxxx Xxxxxxxxx & Xxxxxx LLP.
"Debentures" means, the 4% Convertible Debentures due 18 months from
their date of issuance, issued by the Company to the Purchasers hereunder,
in the form of Exhibit A.
"Disclosure Schedules" means the Disclosure Schedules attached as
Annex I hereto.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" means the Escrow Agreement in substantially the
form of Exhibit E hereto executed and delivered contemporaneously with
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FW" means Xxxxxxx Xxxxxxxxx LLP, with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000, counsel to Xxxxxx and
Xxxxxxx, Inc., the placement agent to the transaction.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Nevada Counsel" means XxXxxxxx Carano Wilson LLP.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Underlying Shares.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit B hereto.
"Rule 144," means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rules may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants and the Underlying
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in the
Debentures.
"Subscription Amount" means, as to each Purchaser, the amount to be
paid for Debentures and Warrants purchased hereunder as specified below
such Purchaser's name on the signature page of this Agreement and next to
the heading "Subscription Amount", in United States Dollars and in
immediately available funds.
"Subsidiary" shall have the meaning ascribed to such term in Section
3.1(a).
"Trading Day" means (i) a day on which the Common Stock is traded on
a Trading Market, or (ii) if the Common Stock is not listed on a Trading
Market, a day on which the Common Stock is traded on the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common
Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii)
and (iii) hereof, then Trading Day shall mean a Business Day.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the New York Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, the Escrow Agreement and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants and issued
and issuable in lieu of the cash payment of interest on the Debentures.
"Warrants" means the Common Stock Purchase Warrants, in the form of
Exhibit C, issuable to the Purchasers at the Closing, with a term of
exercise of 3 years and an exercise price equal to the Closing Price on
the Trading Day immediately prior to the Closing Date, subject to
adjustment therein.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, the Company agrees to sell, and the Purchasers
agree to purchase in the aggregate, severally and not jointly, up to $21,000,000
principal amount of the Debentures and Warrants. Upon satisfaction of the
conditions set forth in Section 2.2, the Closing shall occur at the offices of
FW, or such other location as the parties shall mutually agree.
2.2 Conditions to Closing. Upon satisfaction or waiver by the party sought
to be benefited thereby of the conditions set forth in this Section 2.2, the
Closing shall occur.
(a) At or prior to the Closing, the Company shall deliver or cause
to be delivered to the Escrow Agent for the benefit of each Purchaser:
(i) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(ii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to such
Purchaser's pro-rata share of 5,000,000 (based on such Purchaser's
Subscription Amount in proportion to the aggregate Subscription
Amounts);
(iii) the legal opinion of Company Counsel, in the form of
Exhibit D-1 attached hereto, addressed to the Purchasers;
(iv) the legal opinion of Nevada Counsel, in the form of
Exhibit D-2 attached hereto, addressed to the Purchasers;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) the Escrow Agreement; and
(vi) this Agreement, duly executed by the Company.
(b) At or prior to the Closing, each Purchaser shall deliver or
cause to be delivered to the Escrow Agent the following:
(i) such Purchaser's Subscription Amount;
(ii) this Agreement, duly executed by such Purchaser;
(iii) the Escrow Agreement; and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
(c) All representations and warranties of the other party contained
herein shall remain true and correct as of the Closing Date and all
covenants of the other party shall have been performed if due prior to
such date.
(d) As of the Closing Date, there shall have been no Material
Adverse Effect with respect to the Company since the date hereof.
(e) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time
prior to Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New
York State authorities, nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the SEC Reports or under the corresponding section of the Disclosure Schedules
delivered concurrently herewith, the Company hereby makes the following
representations and warranties as of the date hereof and as of the Closing Date
to each Purchaser:
(a) Subsidiaries. All of the subsidiaries of the Company are set
forth in the SEC Reports. The Company owns, directly or indirectly, all of
the capital stock of each Subsidiary free and clear of any lien, charge,
security interest, encumbrance, right of first refusal or other
restriction (collectively, "Liens"), and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights. If
the Company has no subsidiaries, then references in the Transaction
Documents to the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither
the Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business or financial
condition of the Company and the Subsidiaries, taken as a whole, or (iii)
adversely impair the Company's ability to perform in any material respect
on a timely basis its obligations under any Transaction Document (any of
(i), (ii) or (iii), a "Material Adverse Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors'
rights generally and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict
with or violate any provision of the Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other organizational
or charter documents, or (ii) conflict with, or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as would not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (a) the filing with the Commission of
the Registration Statement, the application(s) to each Trading Market for
the listing of the Underlying Shares for trading thereon in the time and
manner required thereby,
and applicable Blue Sky filings, (b) such as have already been obtained or
such exemptive filings as are required to be made under applicable
securities laws, (c) such other filings as may be required following the
Closing Date under the Securities Act, the Exchange Act and corporate law.
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to the Debentures and the Warrants, including shares
issuable in lieu of interest assuming all interest is paid in shares until
maturity of the Debentures and the conversion rate thereof is the lowest
possible conversion rate available.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such filing
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or
reset price under such securities.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC Reports" and, together with the Disclosure Schedules to
this Agreement, the "Disclosure Materials") on a timely basis or has
received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the
SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, and (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
(j) Litigation. Except as disclosed in the SEC Reports, there is no
action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or
any current or former director or officer of the Company. The Commission
has not issued any stop order or other order suspending the effectiveness
of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Except as disclosed in the SEC Reports, neither the
Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of
any governmental
authority, including without limitation all foreign, federal, state and
local laws applicable to its business, except in the case of clauses (i),
(ii) and (iii) as would not have or reasonably be expected to result in a
Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits would not have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. To the knowledge of the Company and each
Subsidiary, the Company and the Subsidiaries have, or have rights to use,
all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights
that are necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so
have could have or reasonably be expected to result in a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the Company
nor any Subsidiary has 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 without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), 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 entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (a) for payment of salary or consulting fees for
services rendered, (b) reimbursement for expenses incurred on behalf of
the Company and (c) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Internal Accounting Controls. The Company and each of its
subsidiaries maintains a system of internal accounting controls sufficient
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 GAAP 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. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosures controls and procedures to ensure that material information
relating to the Company, including its subsidiaries, is made known to the
certifying officers by others within those entities, particularly during
the period in which the Company's Form 10-K or 10-Q, as the case may be,
is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of a date within
90 days prior to the filing date of the Form 10-Q for the quarter ended
June 30, 2002 (such date, the "Evaluation Date"). The Company presented in
its most recently filed Form 10-k or Form 10-Q the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of Regulation
S-K under the Exchange Act) or, to the Company's knowledge, in other
factors that could significantly affect the Company's internal controls.
(s) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(t) Investment Company. The Company is not, and is not an Affiliate
of, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(u) Registration Rights. No Person other than the Purchasers or the
placement agent of the Securities has any right to cause the Company to
include in the Registration Statement contemplated by the Registration
Rights Agreement any other securities of the Company.
(v) Listing and Maintenance Requirements. The Company has not, in
the 12 months preceding the date hereof, received written notice from any
Trading Market on which the Common Stock is or has been listed or quoted
to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has
no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance requirements.
(w) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar
anti-takeover provision under the Company's Certificate of Incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
the Company's issuance of the Securities and the Purchasers' ownership of
the Securities.
(x) Disclosure. The Company confirms that, neither the Company nor
any other Person acting on its behalf has provided any of the Purchasers
or their agents or counsel with any information that constitutes or might
constitute material, non-public information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
(y) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or which could violate any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation
system on which any of the securities of the Company are listed or
designated.
(z) Solvency. Based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the
current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it
will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing
Date. The SEC Reports set forth as of the dates thereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or
for which the Company or any Subsidiary has commitments. For the purposes
of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations, whether or not
the same are or should be reflected in the Company's balance sheet or the
notes thereto, except guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business, and (c) the
present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
(aa) Seniority. As of the Closing Date, no indebtedness of the
Company is senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise,
other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital
lease obligations (which is senior only as to the property covered
thereby).
(bb) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of such
Purchaser. Each Transaction Document to which it is party has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies.
(b) Investment Intent. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered under
the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities in violation of applicable securities laws
(this representation and warranty not limiting such Purchaser's right to
sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Registration Required. Such Purchaser hereby covenants with the
Company not to make any sale of the Underlying Shares without complying
with the provisions hereof and of the Registration Rights Agreement, and
without effectively causing the prospectus delivery requirement under the
Securities Act to be satisfied (unless such Purchaser is selling such
Underlying Shares in a transaction not subject to the prospectus delivery
requirement), and such Purchaser acknowledges that the certificates
evidencing the Underlying Shares will be imprinted with a legend that
prohibits their transfer except in accordance therewith.
(g) No Tax or Legal Advice. Such Purchaser understands that nothing
in this Agreement, any other Transaction Document or any other materials
presented to such Purchaser in connection with the purchase and sale of
the Securities constitutes legal, tax or investment advice. Such Purchaser
has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its
purchase of Securities.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company, to an Affiliate of a Purchaser or in connection with a pledge
as contemplated in Section 4.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(b), of a legend on any of the Securities in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of
legal counsel of the pledgee, secured party or pledgor shall be required
in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer
of the Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act (provided,
however, that a Purchaser's prospectus delivery requirements under the
Securities Act and as set forth in Section 3.2(f) will remain applicable),
or (ii) following any sale of such Underlying Shares pursuant to Rule 144,
or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion
of a Debenture is converted or a Warrant is exercised at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirement of the Securities Act (including judicial interpretations
thereof), then such Underlying Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(c), it will, no
later than five Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent
of a certificate representing Underlying Shares, as the case may be,
issued with a restrictive legend (such fifth Trading Day, "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section or in Section 3.2(f).
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as liquidated damages and not
as a penalty, for each $1,000 of Underlying Shares (based on the Closing
Price of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) subject to Section 4.1(c), $5 per Trading Day
(increasing to $10 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the 2nd Trading
Day after the Legend Removal Date, until such certificate is delivered.
Nothing herein shall limit such Purchaser's right to pursue actual damages
for the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any such holder of Securities, the Company shall deliver to such holder a
written certification of a duly authorized officer as to whether it has complied
with the preceding sentence. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to such laws, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Business Day following the date of this Agreement, issue a
press release or file a Current Report on Form 8-K, in each case reasonably
acceptable to the placement agent of the Securities disclosing the transactions
contemplated hereby and make such other filings and notices in the manner and
time required by the Commission. The Company and the placement agent of the
Securities shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of the placement agent of
the Securities, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.
4.6 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and acquisition purposes and not (a) for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
(b) to redeem any Company equity or equity-equivalent securities or (c) to
settle any outstanding litigation.
4.8 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability on the part of, or pertaining to such Purchaser and not to the
purchase of Securities pursuant to this Agreement, the Company will reimburse
such Purchaser, to the extent such reimbursement is not provided for in Section
4.9, for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations (and limitations thereon) of the Company under this paragraph shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any Affiliates of the Purchasers
who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement except to the extent any covenant or warranty owing to the
Company is breached.
4.9 Indemnification of Purchasers. The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation
that any such Purchaser Party may suffer or incur as a result of or relating to:
(a) any misrepresentation, breach or inaccuracy, or any allegation by a third
party that, if true, would constitute a material breach or inaccuracy, of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents; or (b) any cause of
action, suit or claim brought or made against such Purchaser Party and arising
solely out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction Documents and
without causation by any other activity, obligation, condition or liability
pertaining to such Purchaser. The Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.
4.10 Indemnification of the Company. Each Purchaser, severally and not
jointly with the other Purchasers, will indemnify and hold the Company and their
directors, officers, shareholders, partners, employees and agents (each, a
"Company Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Company Party may suffer or incur as a
result of or relating to any material breach or inaccuracy of any of the
representations, warranties, covenants or agreements made by such Purchaser in
this Agreement or in the other Transaction Documents. Each such Purchaser will
reimburse the Company for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred.
4.11 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Underlying Shares pursuant to
the Debentures and the Warrants, including shares issuable in lieu of interest
assuming all interest is paid in shares until maturity of the Debentures and the
conversion rate thereof is the lowest possible conversion rate available.
4.12 Listing of Common Stock. The Company hereby agrees to use
commercially reasonably efforts to maintain the listing of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list all of the Underlying Shares on the Trading Market,
including shares issuable in lieu of interest assuming all interest is paid in
shares until maturity of the Debentures and the conversion rate thereof is the
lowest possible conversion rate available. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will include in such application the Underlying Shares, including shares
issuable in lieu of interest assuming all interest is paid in shares until
maturity of the Debentures and the conversion rate thereof is the lowest
possible conversion rate available, and will take such other action as is
necessary or desirable in the opinion of the Investors to cause such shares to
be listed on such other Trading Market as promptly as possible. The Company will
take all action reasonably necessary to continue the listing and trading of its
Common Stock on a Trading Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
4.13 Subsequent Equity Sales. From the date hereof until after the
Effective Date, neither the Company nor any Subsidiary shall issue additional
shares of Common Stock or Common Stock Equivalents without the prior written
consent of the Purchasers then holding a majority of the Securities issued
hereunder. Notwithstanding anything to the contrary herein, this Section 4.13
shall not apply to the following (a) the granting of options to employees,
consultants, officers and directors of the Company pursuant to any stock
option plan duly adopted by a majority of the non-employee members of the Board
of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, or (b) the exercise of any
security issued by the Company in connection with the offer and sale of this
Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options or warrants issued and
outstanding on the date hereof, provided such securities have not been amended
since the date hereof, or (d) acquisitions or strategic investments, the primary
purpose of which is not to raise capital, or (e) the issuance of warrants to the
placement agent of the Securities purchased pursuant to this Agreement.
4.14 MFN and Variable Rate Transactions. From the date hereof until 12
months following the Effective Date, the Company shall be prohibited from
effecting or enter into an agreement to effect any Subsequent Financing
involving a "Variable Rate Transaction" or an "MFN Transaction" (each as defined
below). The term "Variable Rate Transaction" shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock. The term "MFN
Transaction" shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related transactions
which grants to an investor the right to receive additional shares based upon
future transactions of the Company on terms more favorable than those granted to
the such investor in such offering.
4.15 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.16 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.17 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Debenture holders as a class and shall
not in any
way be construed as the Purchasers acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.
4.18 Waiver. Each Purchaser that was a party to the Securities Purchase
Agreement dated as of May 30, 2003 among the Company and the purchasers
identified on the signature pages thereto hereby waives any rights it may have
under Section 4.12 thereunder with respect to the Company's issuance of the
Debentures and the Warrants hereunder. This waiver is limited to such issuance
only, and does not affect any Purchaser's ongoing rights to participate in any
future offerings of the Company in accordance with the provisions thereof.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. The Company agrees to pay up to $30,000, in the
aggregate, to the Purchasers and Xxxxxx & Xxxxxxx, Inc. for their legal and due
diligence fees and expenses incurred in connection with the investigation and
negotiation of the transaction and the preparation and negotiation of the
Transaction Documents. Accordingly, in lieu of the foregoing payments, the
Company, on the Closing Date, hereby directs that the aggregate amount that The
Tailwind Fund Limited is to pay for the Debentures and Warrants at the Closing
be reduced by $10,000. Payments to Xxxxxx & Xxxxxxx, Inc. will be made at the
Closing via the Escrow Agreement. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as set forth on the
signature pages attached hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company, on the one hand, and by those Purchasers (or their transferees) then
holding at least 75% of the Securities not yet sold under the Registration
Statement or under Rule 144, on the other hand. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers (or their transferees). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers", including
without limitation, the representations and warranties as to such transferee's
status as an "accredited investor" under the Securities Act.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9 and Section 4.10.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
New York for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto (including its affiliates, agents, officers, directors and
employees) hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
5.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and delivery of the Underlying
Shares.
5.10 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile signature page were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, in the case of a
rescission of a conversion of a Debenture or exercise of a Warrant, the
Purchaser shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.
5.13 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.
5.14 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.17 Independent Nature of Purchasers' Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any Transaction Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through Xxxxxxx Xxxxxxxxx LLP. Xxxxxxx Xxxxxxxxx
LLP does not represent the Purchasers in this transaction but only Xxxxxx &
Xxxxxxx, Inc., the placement agent that introduced the Company to the
Purchasers. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.
5.18 Liquidated Damages. The Company's obligations to pay any liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such liquidated damages or other
amounts are due and payable shall have been canceled.
(Signature Page Follows)
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
PHARMOS CORPORATION Address for Notice:
00 Xxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxx Xxxxxx 00000
Attn:
Tel: (000) 000-0000
By: /S/ XXXXXX X. XXXX Fax: (000) 000-0000
------------------
Name: Xxxxxx X. Xxxx
Title: Executive Vice President, CFO
With copy to (which shall not constitute notice):
Xxxxxxxxxx Xxxxxxxxx & Xxxxxx LLP
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
[PURCHASERS' SIGNATURE PAGES FOLLOW]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
SMITHFIELD FIDUCIARY LLC
By: /S/ XXXX X. CHILL
-----------------
Name: Xxxx X. Chill
Title: Authorized Signatory
Subscription Amount: $2,000,000
Warrant Shares: 476,190
Address for Notice:
c/o Highbridge Capital Management, LLC
0 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Fax: 000-000-0000
Tel: 000-000-0000
Attention: Xxx X. Xxxxxx / Xxxx X. Chill
[ADDITIONAL PURCHASERS' SIGNATURE PAGES FOLLOW]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
OMICRON MASTER TRUST Address for Notice:
By: Omicron Capital L.P., as subadvisor c/o Omicron Capital L.P.
By: Omicron Capital Inc., its general partner 000 Xxxxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attn: Xxxxx Xxxx
By: /S/ XXXXXXX XXXXXX
Name: Xxxxxxx Xxxxxx
Title: President
Subcription Amount: $3,250,000
Warrant Shares: 773,810
[ADDITIONAL PURCHASERS' SIGNATURE PAGES FOLLOW]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
THE RIVERVIEW GROUP, LLC
By: /S/ XXXXXX XXXXXXXXX
--------------------
Name: Xxxxxx Xxxxxxxxx
Title: Managing Partner
Address for Notice:
c/o Millennium Partners, L.P.
000 0xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Subscription Amount: $10,000,000
Warrant Shares: 2,380,952
[ADDITIONAL PURCHASERS' SIGNATURE PAGES FOLLOW]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
The Tail Wind Fund Limited
By: Tail Wind Advisory & Management Ltd., as
Investment Manager
By: /S/ XXXXX XXXXX
---------------
Xxxxx Xxxxx, Chief Executive Officer
Address for Notice:
Attn: Xxxxx Xxxxx
Chief Executive Officer
c/o: Tail Wind Advisory & Management Ltd.
0xx Xxxxx, Xx. 0 Xxxxxx Xxxxxx
Xxxxxx, XX0X 0XX, XX
Fax: x00 00 0000 0000
Subscription Amount: $3,000,000
Warrant Shares: 714,286
[ADDITIONAL PURCHASERS' SIGNATURE PAGES FOLLOW]
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
CRANSHIRE CAPITAL L.P.
By: /s/ XXXXXXXX XXXXX
------------------
Name: Xxxxxxxx Xxxxx
Title: President, Downsview Capital, The General Partner
Address for Notice:
Attn: Xxxxxxxx Xxxxx
000 Xxxxxx Xxxx
Xxxxx 0000
Xxxxxxxxxx, XX 00000
Fax: 000-000-0000
Subscription Amount: $500,000
Warrant Shares: 119,048
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
SF CAPITAL PARTNERS LTD.
By: /s/ XXXXX X. XXXXXXXX
---------------------
Name: Xxxxx X. Xxxxxxxx
Title: Authorized Signatory
Address for Notice:
0000 Xxxxx Xxxx Xxxxx
Xx. Xxxxxxx, Xxxxxxxxx
Fax: 000-000-0000
Subscription Amount: $2,250,000
Warrant Shares: 535,714
DISCLOSURE SCHEDULES
TO SECURITIES PURCHASE AGREEMENT
There are no Disclosure Schedules to the Securities Purchase Agreement
