EXHIBIT 4.6
COMMON STOCK INVESTMENT AGREEMENT
COMMON STOCK INVESTMENT AGREEMENT ("Agreement") dated as of September 1,
2000 among PHARMOS CORPORATION, a Nevada corporation (the "Company"), and each
person or entity listed as an investor on Schedule I attached to this Agreement
(each individually an "Investor" and collectively the "Investors").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and the
Investors wish to purchase from the Company, (i) an aggregate number of shares
of the Company's Common Stock, $.03 par value ("Common Stock") calculated by
dividing $3,000,000 by the Share Purchase Price (as hereinafter defined) (all of
such shares of Common Stock being the "Initial Shares"), (ii) five (5) year
warrants, in the form attached hereto as Annex A, to purchase 103,597 shares of
Common Stock at an initial exercise price of $6.08 per share (the "Initial
Warrants"), and (iii) warrants, in the form attached hereto as Annex B, to
purchase a number of shares of Common Stock calculated pursuant to a formula set
forth therein (the "Adjustment Warrants"; together with the Initial Warrants and
the Call Warrants (as defined below), the "Warrants"), all on the terms and
conditions described below;
WHEREAS, pursuant to a Call Warrant in the form attached hereto as Annex C
(the "Call Warrants"), Millennium Partners, LP has the right but not the
obligation to purchase certain additional shares of Common Stock (the "Optional
Shares") and certain additional warrants (the "Optional Adjustment Warrants";
together with the Optional Shares, the "Units", with the shares of Common Stock
into which the Optional Adjustment Warrants may be exercised being the "Optional
Adjustment Shares") on the terms and conditions set forth herein; and
WHEREAS, the Initial Shares, the shares of Common Stock underlying the
Initial Warrants (the "Warrant Shares"), the shares of Common Stock underlying
the Adjustment Warrants (the "Adjustment Shares"); the Optional Shares and the
Optional Adjustment Shares collectively being the "Registrable Shares") will
carry registration rights, pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Investors
substantially in the form annexed hereto (the "Registration Rights Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
Purchase and Sale of Shares and Warrants
Section 1.1 Issuance of Initial Shares and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to the Investors, and the
Investors shall purchase from the Company, the number of Initial Shares and
Warrants indicated next to the Investors' names on Schedule I attached hereto.
(a) Purchase Price. The aggregate purchase price for the Initial
Shares and Warrants to be acquired by each Investor (the "Aggregate Purchase
Price") shall be the Aggregate Purchase Price set forth next to each such
Investor's name on Schedule I. The purchase price per share of Common Stock (the
"Share Purchase Price") shall equal the average of the closing bid price of a
share of Common Stock on the Principal Market on the seven (7) Trading Days
leading up to and ending on, and the seven (7) Trading Days immediately
following, Closing Date. For purposes of this Agreement, the term "Principal
Market" shall mean the Nasdaq Small Cap Market or if the Common Stock is not
quoted thereon, on such exchange or market (which for purposes of this Agreement
shall mean the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market System) upon which the Common Stock is principally traded
or quoted, and "Trading Day" shall mean (x) if the Common Stock is listed on the
New York Stock Exchange or the American Stock Exchange, a day on which there is
trading on such stock exchange, or (y) if the Common Stock is not listed on
either of such stock exchanges but sale prices of the Common Stock are reported
on an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(b) The Closing.
(i) The closing of the purchase and sale of the Initial Shares
and Warrants (the "Closing") shall take place at the offices of
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C. ("KKWC"), on the date hereof
(the "Closing Date").
(ii) On the Closing Date, the Company shall deliver to the
Investors the Warrants purchased hereunder, each registered in the
name of each such Investor or its nominee. On the Closing Date the
Investors shall deliver (on a pro-rata basis) by wire transfer, to an
account designated in writing by the Company, an aggregate of
$3,000,000. On the tenth (10th) Trading Day following the Closing
Date, the Company will deliver to the Investors at the offices of KKWC
all the Initial Shares, with the
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number and denomination of certificates requested by the Investors. In
lieu of delivering physical certificates representing the Initial
Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the Investor, the Company shall use
its best efforts (consistent with the legending requirements imposed
by the Transaction Documents) to cause its transfer agent to
electronically transmit the Initial Shares to the Investor by
crediting the account of the Investor's prime broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic
transmittals described herein. In addition, each party shall deliver
all documents, instruments and writings required to be delivered by
such party pursuant to this Agreement at or prior to the Closing.
Additionally, at the Closing the Company shall pay (or Millennium
Partners, LP ("MLP") shall pay for the account of the Company, with
such payment being credited towards MLP's payment of MLP's portion of
the Aggregate Purchase Price) to KKWC its legal fees and disbursements
as set forth in Section 3.4.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investors as of
the date hereof, on the Closing Date, on the date the date of any Optional
Closing (as defined in the Call Warrant), and on the date of any Fill-up Closing
(as defined in the Adjustment Warrant and the Optional Adjustment Warrant):
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Nevada and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any direct or indirect subsidiaries (defined as any entity of which the
Company owns, directly or indirectly, 50% or more of the equity or voting power)
other than the subsidiaries listed on Schedule 2.1(a) attached hereto. Except
where specifically indicated to the contrary, all references in this Agreement
to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries
of the Company. Except where specifically indicated to the contrary, all
references in this Article II to the Company shall be deemed to refer to the
Company and its consolidated subsidiaries. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in
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every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations, properties
or financial condition of the entity with respect to which such term is used and
which is (either alone or together with all other adverse effects) material to
such entity and other entities controlling or controlled by such entity taken as
a whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Registration Rights Agreement or any other agreement or
document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement (the "Transaction Documents") and
to issue the Initial Shares, the Adjustment Shares, the Optional Shares, the
Optional Adjustment Shares, the Warrant Shares and the Warrants (collectively,
the "Securities") in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including the issuance of the Registrable Shares, have been duly authorized by
all necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) the Transaction Documents have been duly
executed and delivered by the Company and (iv) the Transaction Documents
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company
consists of 80,000,000 shares of Common Stock and 1,250,000 shares of preferred
stock; as of August 29, 2000 there were 52,718,072 shares of Common Stock and no
shares of preferred stock issued and outstanding; and, except as set forth on
Schedule 2.1(c), no shares of Common Stock and no shares of preferred stock were
reserved for issuance to persons other than the Investors. All of the
outstanding shares of the Company's Common Stock and preferred stock have been
validly issued and are fully paid and non-assessable. No shares of capital stock
are entitled to preemptive rights and, except as set forth on Schedule 2.1(c),
there are no outstanding options and outstanding warrants for shares of Common
Stock (excluding the Warrants). Except as set forth on Schedule 2.1(c)(i), there
are no other scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights exchangeable for or
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible or exchangeable into
shares, of capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is
a true and correct copy of the Company's Certificate of Incorporation (the
"Charter"), as in effect on the date hereof,
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and attached hereto as Exhibit 2.1(c)(ii) is a true and correct copy of the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Registrable Shares. The Registrable Shares are duly
authorized and reserved for issuance and, when issued in accordance with this
Agreement or upon exercise in accordance with the Warrants, the Registrable
Securities, will be validly issued, fully paid and non-assessable, free and
clear of any and all liens, claims and encumbrances, and (subject to the
registration of such shares in accordance with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act" of the "Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") entitled to be
traded on the Nasdaq Small Cap Market (or the American Stock Exchange, the New
York Stock Exchange, or the Nasdaq National Market System collectively with the
Nasdaq Small Cap Market, the "Approved Markets"), and the holders of such
Registrable Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock. The outstanding shares of Common Stock are currently
listed on the Nasdaq Small Cap Market.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and the issuance of the Securities
do not and will not (i) result in a violation of the Company's Charter or
By-Laws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its subsidiaries is a party (collectively, "Company Agreements"), or
(iii) result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected, except (other than in the case of clause (i) above) where such
violation would not reasonably be expected to have a Material Adverse Effect.
The business of the Company and its direct and indirect subsidiaries is being
conducted in material compliance with (i) its Charter and By-Laws, (ii) all
Company Agreements and (iii) all applicable laws, ordinances or regulations of
any governmental entity, except (other than in the case of clause (i) above)
where such violation would not reasonably be expected to have a Material Adverse
Effect. Except for filings, consents and approvals required under applicable
state and federal securities laws or the rules and regulations of the applicable
Approved Markets and covered by the Registration Rights Agreement, the Company
is not required under federal, state, local or foreign law, rule or regulation
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents, or to
issue and sell the Securities, except for the registration provisions provided
in the Registration Rights Agreement.
(f) SEC Documents; No Non-Public Information; Financial Statements.
The Common Stock of the Company is registered pursuant to Section 12(g) of the
Exchange Act and
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the Company and its subsidiaries have filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including all such proxy information, solicitation statements and
registration statements, and any amendments thereto required to have been filed
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company has not directly or
indirectly provided, and will not directly or indirectly provide, to the
Investors any material non-public information or any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. 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 and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The SEC Documents contain all material information concerning the
Company and its subsidiaries, and no event or circumstance has occurred prior to
the date hereof or will have occurred on the Closing Date which would require
the Company to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading but which has not, or will have
not, been so disclosed.
(g) Financial Statements. The financial statements of the Company and
its subsidiaries included in the SEC Documents comply as to form and substance
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes, may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The audited financial statements of each of the
Company and its subsidiaries for the fiscal year ending December 31, 1999 have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company and its
subsidiaries, as the case may be, as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
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(h) Principal Exchange/Market. The principal market on which the
Common Stock is currently traded is the Nasdaq Small Cap Market.
(i) No Material Adverse Change. Since June 30, 2000, no Material
Adverse Effect has occurred or exists, and no event or circumstance has occurred
that with notice or the passage of time or both is reasonably likely to result
in a Material Adverse Effect with respect to the Company or its subsidiaries.
(j) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the Pre-Agreement SEC Documents
(as defined below), other than those liabilities incurred in the ordinary course
of the Company's or its subsidiaries' respective businesses since June 30, 2000,
which liabilities, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its direct or indirect subsidiaries.
(k) No Undisclosed Events or Circumstances. To the best knowledge of
the Company, no material event or circumstance has occurred or exists with
respect to the Company or its direct or indirect subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(l) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act in connection with the offer or
sale of the Securities.
(m) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge 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 require
registration of the Securities.
The issuance of the Securities to the Investors will not be integrated
with any other issuance of the Company's securities (past, current or future)
which requires stockholder approval under the rules of the NASDAQ Small Cap
Market.
(n) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and rules promulgated thereunder, and Form S-3 is permitted to be used
for the transactions contemplated hereby under the Act and rules promulgated
thereunder.
(o) Intellectual Property. The Company and/or its wholly-owned
subsidiaries owns or has licenses to use certain patents, copyrights and
trademarks ("intellectual property")
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associated with its business. The Company and its subsidiaries have all
intellectual property rights which are needed to conduct the business of the
Company and its subsidiaries as it is now being conducted or as proposed to be
conducted as disclosed in the SEC Documents. The Company and its subsidiaries
have no reason to believe that the material intellectual property rights which
it owns are invalid or unenforceable or that the use of such intellectual
property by the Company or its subsidiaries infringes upon or conflicts with any
right of any third party, and neither the Company nor any of its subsidiaries
has received notice of any such infringement or conflict, which individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect. The Company and its subsidiaries have no knowledge of any infringement
of its intellectual property by any third party.
(p) Poison Pill Provisions. Neither Company nor its wholly-owned
subsidiaries have a stockholder rights plan. None of the acquisition of the
Securities nor the deemed beneficial ownership of shares of Common Stock prior
to, or the acquisition of such shares pursuant to the exercise of the Warrants
will in any event under any circumstance trigger the poison pill provisions of
any other or subsequently adopted plan or agreement, or a substantially similar
occurrence under any successor or similar plan.
(q) No Litigation. Except as set forth in the reports or documents
filed at least 5 Trading Days prior to the Closing Date by the Company pursuant
to Section 13(a) or 15(d) of the Exchange Act (the "Pre-Agreement SEC
Documents"), no litigation or claim (including those for unpaid taxes) against
the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could reasonably be expected to have a Material Adverse Effect on the
Company or could reasonably be expected to materially and adversely affect the
transactions contemplated hereby. There is no legal proceeding described in the
Pre-Agreement SEC Documents that could reasonably be expected to have a Material
Adverse Effect on the Company.
(r) Brokers. The Company has taken no action which would give rise to
any claim by any person, other than Ladenburg ▇▇▇▇▇▇▇▇ & Co., Inc. and SmallCaps
Online LLC (collectively, the "Brokers"), for brokerage commissions, finder's
fees or similar payments by the Company or any Investor relating to this
Agreement or the transactions contemplated hereby. The Company shall be
responsible for any payments to the Brokers.
(s) Other Investors. Other than the Securities and except as set forth
on Schedule 2.1(s)(i), there are no outstanding securities issued by the Company
that are entitled to registration rights under the Act. Other than the
Securities and except as set forth on Schedule 2.1(s)(ii), there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock
of the Company, or that have anti-dilution or similar rights that would be
affected by the issuance of the Initial Shares, the Adjustment Shares, the
Warrants, the Optional Adjustment Shares, the Warrant Shares or the Optional
Shares.
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(t) Certain Transactions. Except as disclosed in the Pre-Agreement SEC
Documents, none of the officers, directors, or key employees of the Company is
presently a party to any transaction with the Company or any of its subsidiaries
(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 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.
(u) Permits; Compliance. The Company and each of its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), except where
failure to possess such Company Permits would not have a Material Adverse Effect
on the Company and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits except for such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. To the best of its
knowledge, neither the Company nor any of its subsidiaries is in material
conflict with, or in material default or material violation of, any of the
Company Permits. Since December 31, 1999, neither the Company nor any of its
subsidiaries has received any notification with respect to possible material
conflicts, material defaults or material violations of applicable laws.
(v) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its direct and indirect
subsidiaries are engaged. Neither the Company nor any such 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.
(w) Internal Accounting Controls. The Company and each of its
subsidiaries maintain 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 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.
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(x) Environmental Matters. Except as otherwise disclosed in the
Pre-Agreement SEC Documents, the Company and each of its subsidiaries is in
compliance in all respects with all applicable state and federal environmental
laws except where any such non-compliance would not reasonably be expected to
have a Material Adverse Effect on the Company and no event or condition has
occurred that may interfere with the compliance by the Company or any of its
subsidiaries with any environmental law or that may give rise to any liability
under any environmental law that, individually or in the aggregate, would have a
Material Adverse Effect.
(y) Solvency
(i) Based on the financial condition of the Company as of the
Closing Date, 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) Based on the financial condition of the Company as of the
Closing Date, the Company's assets do not constitute unreasonably
small capital to carry out its business for the year 2000 as now
conducted and as proposed to be conducted including the Company's year
2000 capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof.
(iii) 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). Based on the financial condition of the Company as of the
Closing Date, 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.
(iv) Neither the Company nor any of its subsidiaries is subject
to any bankruptcy, insolvency or similar proceeding.
(z) Taxes. All federal, state, city and other tax returns, reports and
declarations required to be filed or extended by or on behalf of the Company and
each of its subsidiaries have been filed or extended and all such filed returns
are complete and accurate and disclose all taxes (whether based upon income,
operations, purchases, sales, payroll, licenses,
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compensation, business, capital, properties or assets or otherwise) required to
be paid in the periods covered thereby. All taxes required to be withheld by or
on behalf of the Company or any such subsidiary in connection with amounts paid
or owing to any employees, independent contractor, creditor or other party have
been withheld, and such withheld taxes have either been duly and timely paid to
the proper governmental authorities or set aside in accounts for such purposes.
(aa) Title to Properties; Encumbrances. Schedule 2.1(aa) contains a
complete and accurate list of all material real property, leaseholds, or other
interests therein owned by the Company and its subsidiaries. Each of the Company
and its subsidiaries owns (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible ("Company Property")) that it purports to own.
Other than the leased property, all material Company Property is free and clear
of all encumbrances and are not, in the case of real property (which, for this
purpose, shall not include the Company's interest as tenant in leaseholds),
subject to any rights of way, building use restrictions, exceptions, variances,
reservations or limitations of any nature, except, with respect to all such
properties and assets, (a) mortgages, liens or security interests shown on
Schedule 2.1(aa) as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) liens for current taxes not yet due, and (c)
with respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company or any of its subsidiaries, and (ii) zoning laws and other land use
restrictions (including, but not limited to, easements of records) that do not
impair the present or anticipated use of the property subject thereto. All
buildings, plans, and structures owned by the Company or any of its subsidiaries
lie wholly within the boundaries of the real property owned by the Company or
such subsidiaries, and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other person.
(bb) No Reliance on Investors. The Company acknowledges and agrees
that each Investor is acting solely in the capacity of an arm's length purchaser
with respect to the Transaction and the transactions contemplated hereby and
thereby. The Company further acknowledges that no Investor is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the performance hereunder and
thereunder and the transactions contemplated hereby and thereby. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents and the performance hereunder and thereunder has been
based solely on the independent evaluation by the Company and its
representatives.
(cc) Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment
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to any foreign or domestic government or party official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(dd) Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable anti-takeover provision contained in the Company's Certificate of
Incorporation or By-Laws or Nevada law which is or could become applicable to
the Investors as a result of the transactions contemplated by the Transaction
Documents, including, without limitation, the Company's issuance of the Common
Stock and the Investors' ownership of Common Stock.
(ee) Acknowledgement of Dilution. The number of shares of Common Stock
constituting Initial Shares, Adjustment Shares, Warrant Shares, Optional Shares
or Optional Adjustment Shares may increase substantially in certain
circumstances. The Company acknowledges that its obligation to issue shares of
Common Stock in accordance with the Transaction Documents is absolute and
unconditional, regardless of the dilution that such issuance may have on other
shareholders of the Company.
(ff) MFN and Variable Rate Transactions. The Company has not entered
into any MFN Transaction or Variable Rate Transaction (other than transactions
entered into with the Investors), pursuant to which: (1) securities or potential
obligations to issue securities are still outstanding or (2) the issuance or
exercise, as the case may be, of the Securities trigger, or may in the future
trigger, an adjustment.
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 (the "MFN Offering") which grants to an investor
(the "MFN Investor") the right to receive additional shares (including without
limitation as a result of a lower conversion, exchange or exercise price but
excluding customary antidilution protections) based upon subsequent transactions
of the Company on terms more favorable than those granted to such MFN Investor
in such MFN Offering. As used herein, 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 (x) 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 Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed 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 (but
excluding standard stock split anti-dilution provisions), or (ii) any
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securities of the Company pursuant to an "equity line" structure which provides
for the sale, from time to time, of securities of the Company which are
registered for resale under the Act.
Section 2.2 Representations and Warranties of the Investors. Each Investor
hereby makes the following representations and warranties to the Company as of
the date hereof as to itself, on the Closing Date:
(a) Organization and Qualification. Such Investor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse Effect on
such Investor.
(b) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform the Transaction Documents and to
purchase the Securities being sold to it hereunder, (ii) the execution and
delivery of the Transaction Documents by such Investor and the consummation by
it of the transactions contemplated thereby have been duly authorized by all
necessary corporate or partnership action, and (iii) the Transaction Documents
constitute valid and binding obligations of such Investor enforceable against
such Investor in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(c) No Conflicts. The execution, delivery and performance of the
Transaction Documents and the consummation by such Investor of the transactions
contemplated thereby do not and will not (i) result in a violation of such
Investor's organizational documents, (ii) conflict with any agreement, indenture
or instrument to which such Investor is a party, or (iii) result in a material
violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to such Investor. Such Investor is
not required to obtain any consent or authorization of any governmental agency
in order for it to perform its obligations under the Transaction Documents.
(d) Investment Representations.
(i) Access to Other Information. Such Investor acknowledges that
the Company has made available to such Investor the opportunity to
examine such additional documents from the Company and to ask
questions of, and receive full answers from, the Company concerning,
among other things, the Company, its financial condition, its
management, its prior
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activities and any other information which such Investor considers
relevant or appropriate in connection with entering into this
Agreement.
(ii) Risks of Investment. Such Investor acknowledges that the
Securities have not been registered under the Act. Such Investor is
familiar with the provisions of Rule 144 and understands that in the
event all of the applicable requirements of Rule 144 are not
satisfied, registration under the Act or some other exemption from the
registration requirements of the Act will be required in order to
dispose of the Registrable Shares, and that such Investor may be
required to hold the Registrable Shares for a significant period of
time prior to reselling them, subject to the Company successfully
registering the Registrable Shares pursuant to the Registration Rights
Agreement. Such Investor is capable of assessing the risks of an
investment in the Registrable Shares and is fully aware of the
economic risks thereof.
(iii) Investment Representation. Such Investor is purchasing the
Initial Shares and Warrants, and may purchase the Adjustment Shares,
Optional Shares and Optional Adjustment Shares in each case, for its
own account and not with a view to distribution in violation of any
securities laws. Such Investor has no present intention to sell the
Warrants, Initial Shares or Warrant Shares in violation of federal or
state securities laws and such Investor has no present arrangement
(whether or not legally binding) to sell the Warrants, Initial Shares
or Warrant Shares to or through any person or entity; provided,
however, that by making the representations herein, such Investor does
not agree to hold the Warrants, Initial Shares or Warrant Shares for
any minimum or other specific term and reserves the right to dispose
of the Warrants, Initial Shares or Warrant Shares at any time in
accordance with federal and state securities laws applicable to such
disposition.
(iv) Restricted Securities. It acknowledges and understands that
the terms of issuance have not been reviewed by the SEC or by any
state securities authorities and that the Securities have been issued
in reliance on the certain exemptions for non-public offerings under
the Act, which exemptions depend upon, among other things, the
representations made and information furnished by such Investor,
including the bona fide nature of such Investor's investment intent as
expressed above.
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(v) Ability to Bear Economic Risk. It is an "accredited" investor
as defined in Rule 501 of Regulation D, as amended, under the Act, and
that it (i) is able to bear the economic risk of its investment in the
Securities, (ii) is able to hold the Securities for an indefinite
period of time, (iii) can afford a complete loss of its investment in
the Securities and (iv) has adequate means of providing for its
current needs.
(vi) No Public Solicitation. At no time was such Investor
presented with or solicited by any general mailing, leaflet, public
promotional meeting, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or
general solicitation in connection with the issuance.
(vii) Reliance by the Company. Such Investor understands that the
Securities are being or will be, as the case may be, offered and sold
and will be issued, in reliance on a transactional exemptions from the
registration requirements of federal and state securities laws and
that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of such Investor set forth herein in order to determine
the applicability of such exemptions and the suitability of such
Investor to acquire the Securities.
(e) Brokers. Such Investor has taken no written action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to the Transaction Documents or the
transactions contemplated thereby. All fees and amounts payable to the Brokers
shall be solely the responsibility of the Company.
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ARTICLE III
Covenants
Section 3.1 Registration and Listing; Effective Registration. For so long
as the Securities are outstanding, the Company will cause the Common Stock
issuable upon the exercise of the Warrants, to continue at all times to be
registered under Section 12(b) or Section 12(g) of the Exchange Act, will comply
in all respects with its reporting and filing obligations under the Exchange
Act, and will not take any action or file any document (whether or not permitted
by the Exchange Act or the rules thereunder) to terminate or suspend such
reporting and filing obligations. Until such time as no Securities are
outstanding, the Company shall continue the listing or trading of the Common
Stock on the Nasdaq Small Cap Market or one of the other Approved Markets and
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Approved Market on which the Common
Stock is listed. The Company shall cause the Common Stock to be listed on the
Nasdaq Small Cap Market no later than the registration of the Common Stock under
the Act, and at all times shall continue such listing(s) on one of the Approved
Markets. As used herein and in the other Transaction Documents, the term
"Effective Registration" shall mean: (i) the Company is in compliance with the
Transaction Documents; (ii) the resale of Registrable Securities (as defined in
the Registration Rights Agreement) is covered by an effective registration
statement and such registration statement is not subject to any suspension or
stop orders; (iii) the resale of such securities may be effected pursuant to a
current and deliverable prospectus that is not subject to any blackout or
similar circumstance; (iv) the securities are listed on an Approved Market and
are not subject to any trading suspension; (v) no Interfering Event (as
described in the Registration Rights Agreement) then exists; and (vi) none of
the Company or any direct or indirect subsidiary of the Company is subject to
any bankruptcy, insolvency or similar proceeding.
Section 3.2 Warrants on Exercise. Upon any partial exercise by an Investor
(or then holder of the Warrants) of the Warrants, the Company shall issue and
deliver to such Investor (or holder) within three (3) days of the date on which
such Warrants are exercised, a new Warrant or Warrants representing the number
of adjusted Warrant Shares, Adjustment Shares and/or Optional Adjustment Shares,
as the case may be, in accordance with the terms of such Warrants.
Section 3.3 Replacement Certificates. The certificate(s) representing the
Securities held by any Investor (or then holder) may be exchanged by the
Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of
Securities as requested by the Investor (or such holder) upon surrendering the
same. The Company will deliver such substitute certificates within three trading
days. No service charge will be made for such registration or transfer or
exchange.
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Section 3.4 Expenses. The Company shall pay to KKWC in immediately
available funds, at the Closing the sum of $15,000 ($20,000 less $5,000
previously paid) for the payment of expenses (including legal fees) incurred by
the Investors in connection with the transactions contemplated by this
Agreement. In lieu thereof, MLP may allocate $15,000 of its payment of its
Aggregate Purchase Price to the payment of such counsel, and such payment to
KKWC shall be credited towards the payment of the Aggregate Purchase Price due
from MLP.
Section 3.5 Securities Compliance. The Company shall notify the SEC, in
accordance with their requirements, of the transactions contemplated by
Transaction Documents, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities.
Section 3.6 Dividends or Distributions; Purchases of Equity Securities.
Except as set forth in Schedule 3.6 hereof, and as provided in this Section 3.6
to the contrary, for so long as any Warrants remain outstanding, the Company
agrees that it shall not (a) declare or pay any dividends or make any
distributions to any holder or holders of Common Stock (other than dividends
payable in Common Stock) in their capacity as shareholders, or (b) purchase or
otherwise acquire for value, directly or indirectly, any shares of Common Stock
or other equity security of the Company; provided that the Company may purchase
or acquire shares of Common Stock that are hereafter issued to employees
pursuant to employment, stock repurchase or other similar agreements.
Section 3.7 Notices. The Company agrees to provide all holders of Warrants
with copies of all notices and information, including without limitation notices
and proxy statements in connection with any meetings, that are provided to the
holders of shares of Common Stock, contemporaneously with the delivery of such
notices or information to such Common Stock holders.
Section 3.8 Use of Proceeds. The Company agrees that the proceeds received
by the Company from the sale of the Initial Shares and Warrants hereunder shall
be used for the late stage development of Dexanabinol and for working capital
purposes.
Section 3.9 Additional Financing. If, during the period of time commencing
on the date hereof and ending on the third month following the effectiveness of
the registration statement filed pursuant to the Registration Rights Agreement,
the Company shall seek to enter into any financing transaction whatsoever, other
than a financing transaction for gross proceeds of at least $40 million, with at
least 20 investors unaffiliated with the Company, the Company shall not enter
into such transaction without the prior written consent of the Investors.
Section 3.10 Reservation of Optional Shares and Stock Issuable Upon
Exercise of the Warrants. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the issuance of Optional Shares and the exercise of the
Warrants, such number of its shares of Common Stock as shall
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from time to time be sufficient to effect the issuance of Optional Shares and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
issuance of Optional Shares and the full exercise of the Warrants, 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 engaging in best efforts to obtain the requisite shareholder
approval. Without in any way limiting the foregoing, the Company agrees to
reserve and at all times keep available solely for purposes of issuance of the
Optional Shares and the exercise of the Warrants such number of authorized but
unissued shares of Common Stock that is at least equal to 160% of the aggregate
shares issuable upon purchase of the Units, and 100% of the aggregate shares
issuable on exercise of the Warrant, which number shall be appropriately
adjusted for any stock split, reverse split, stock dividend or reclassification
of the Common Stock. If the Company falls below the reserves specified in the
immediately preceding sentence and does not cure such non-compliance within 30
days of its start, then the Investors will be entitled to the compensatory
payments specified in Section 2(b)(i)(A) of the Registration Rights Agreement.
If at any time the number of authorized but unissued shares of Common Stock is
not sufficient to effect the issuance of the Optional Shares or the full
exercise of the Warrants, the Investors shall be entitled to, inter alia, the
premium price redemption rights provided in the Registration Rights Agreement.
Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article 3 of this Agreement.
Section 3.12 Limitations on Debt, Liens and Transfers.
(a) So long as any Warrants remain outstanding, the Company agrees
that neither the Company nor any of its subsidiaries shall (i) create, incur,
assume, guarantee, secure or in any manner become liable in respect of any debt
financing (other than purchase money financing, not to exceed $1,000,000 in the
aggregate), which is senior to the Warrants; or (ii) create, incur or permit to
exist any security interest, lien or other encumbrance on or with respect to any
of the assets of the Company or its subsidiaries other than (i) in connection
with the purchase money financings referred to above and (ii) (A) liens, arising
by operation of law, securing tax obligations, worker's compensation and lease
obligations; (B) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of the Company's business to
the extent: (I) such liens secure indebtedness which is not overdue or (II) such
liens secure indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to the Company, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books; (C) zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with the
use of such real property or ordinary conduct of the business of the Company as
presently conducted thereon or materially impair the value of the
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real property which may be subject thereto. No subsidiary of the Company shall
have any liability for any obligations under any debt financing.
(b) The Company shall not contribute or transfer, in one or more
transactions, a material portion of its assets to any of its subsidiaries, other
than a subsidiary that has delivered its guarantee to the Investors in form and
substance satisfactory to the Investors.
Section 3.13 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities, as required under Regulation D and to provide a
copy thereof to each Investor promptly after such filing. The Company shall, on
or before each Closing Date, take such action as the Company shall have
reasonably determined is necessary to qualify the applicable Securities for sale
to the Investors at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Investor on the Closing Date.
Section 3.14 Nasdaq Rule. The Investors shall, in the aggregate, be
entitled to exercise for Adjustment Shares resulting in a total of up to
10,538,342 shares of Common Stock (19.99% of the Common Stock issued and
outstanding on the date hereof, which number shall be subject to readjustment
for any stock split, stock dividend or reclassification of the Common Stock)
(the "20% Cap"). Each Investor shall be entitled to receive Adjustment Shares
such that, together with its Initial Shares, it will own such total number of
shares of Common Stock equal to such Investor's pro rata share of the 20% Cap.
Once an Investor has received its total pro rata share of Adjustment Shares, it
may request that the Company redeem its remaining Securities at the applicable
Premium Redemption Price. If an Investor has received its Adjustment Shares but
has not depleted the total number of pro rata shares allocated to it, its
remaining pro rata shares shall be reallocated amongst the Investors still to
receive Adjustment Shares on a pro rata basis. The restrictions and redemption
obligations set forth in this Section 3.14 shall cease to apply if (a) the
Company obtains written shareholder approval to issue Common Shares in excess of
the 20% Cap pursuant to Nasdaq Rule 4460 or (b) the Company provides the
Investors with irrevocable written notice, based upon the advice of its counsel,
that any such issuance of Common Shares is not subject to the 20% Cap pursuant
to Nasdaq Rule 4460. If the number of Initial Shares and Adjustment Shares
exceeds 75% of the 20% Cap, the Company will use its best efforts promptly to
obtain either the shareholder approval or the irrevocable notice described in
the preceding sentence and to provide the Investors with a copy of same. Without
limiting the foregoing, the Company shall solicit the aforementioned shareholder
approval at the next shareholders meeting (for whatever purpose it may be
called) which, in any event, shall not be later than 75 days of such event in
which the Company will solicit the aforementioned shareholder approval, will
solicit proxies in favor of issuing Common Shares in excess of the 20% Cap and
will use its best efforts to have all affiliates of the Company which own or
control shares of Common Stock to vote their shares in favor of such resolution.
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Section 3.15 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.16 Press Release. Immediately following the Closing, the Company
shall issue a press release in the form set forth in Schedule 3.16 hereto.
Investors shall have the opportunity to review such press release prior to its
issuance. No press release shall name the Investors except as shall be required
by law. If the Company fails to issue a press release within 1 business day of
the Closing, the Investors may issue a press release covering the Closing and
complying with any legal requirement applicable to the Investors.
Section 3.17 Form 8-K. Within 15 calendar days of the Closing, the Company
shall file a Form 8-K with the SEC which discloses the transactions contemplated
by the Transaction Documents. Investors shall have the opportunity to review
such Form 8-K prior to its filing.
Section 3.18 Reporting Lack of Effective Registration. The Company shall
promptly notify each Investor in writing if there shall ever be a lack of
Effective Registration, as well as when Effective Registration is
re-established.
Section 3.19 Limitation on Sales. Notwithstanding any other provision of
this Agreement, the Company shall not, for as long as any Warrants remain
outstanding, sell any Common Stock (or securities convertible into or
exchangeable for, Common Stock) during any 30 calendar day period in an amount
that would exceed (on a fully converted or exercised basis) in excess of 10% of
real average trading volume (determined as 50% of the trading volume reported by
Bloomberg, LP) for the immediately preceding 30 calendar day period; provided,
that the foregoing limitation shall not apply to sales by the Company, after the
three month anniversary of the Closing Date, to purchasers who are not
"underwriters" (within the meaning of the Securities Act) pursuant to a shelf
registration pursuant to Rule 415 under the Act, and which transactions are not
Variable Rate Transactions. This provision shall be of no further force or
effect, if following and during Effective Registration, the price per share of
Common Stock shall have closed above $5.00 for 20 consecutive Trading Days.
ARTICLE IV
Conditions to Closings
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell.
The obligation hereunder of the Company to issue and/or sell the Initial Shares
and Warrants to the Investors at the Closing is subject to the satisfaction, at
or before the closing of each of the
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applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of the Investors will be true and correct as of
the date when made and as of the Closing Date.
(b) Performance by the Investors. The Investors shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investors at or prior to the Closing, including payment of the
applicable purchase price.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase. The obligation hereunder of the Investors to acquire and pay for the
Initial Shares and Warrants at the Closing is subject to the satisfaction of
each of the applicable conditions set forth below. These conditions are for the
Investors' benefit and may be waived by the Investors at any time in their sole
discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct as of
the date when made and as of the applicable closing date as though made at that
time (except for representations and warranties expressly as of an earlier date,
which shall be true and correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the applicable closing, including, without
limitation, delivery of certificates representing the applicable Securities.
(c) Nasdaq Trading. Trading in the Company's Common Stock shall not
have been suspended by the SEC and trading in securities generally as reported
by the Principal Market (or other Approved Market) shall not have been suspended
or limited, and the Common Stock shall be listed on an Approved Market.
(d) No Injunction. No statute, rule, regulation, executive, judicial
or administrative order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by Transaction Documents. The NASD
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shall not have objected or indicated that it may object to the consummation of
any of the transactions contemplated by this Agreement.
(e) Opinion of Counsel. The Investors shall have received an opinion
of counsel to the Company in the applicable form attached hereto as Exhibit
4.2(e) and such other opinions, certificates and documents as the Investors or
their counsel shall reasonably require incident to the closing.
(f) Registration Rights Agreement. The Company and the Investors shall
have executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit 4.2(f) attached hereto.
(g) Officer's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' counsel, executed by an officer of the Company, certifying as to
satisfaction of applicable closing conditions, incumbency of signing officers,
and the true, correct and complete nature of the Certificate of Incorporation,
By-laws, good standing and authorizing resolutions of the Company.
(h) Miscellaneous. The Company shall have delivered to the Investors
such other documents relating to the transactions contemplated by this Agreement
as the Investors or their counsel may reasonable request.
Section 4.3 Closing Date Deliveries.
(a) On the Closing Date, the Company shall deliver to the Investor:
(i) Warrants in the form attached as Annex A, Annex B and Annex
C;
(ii) The certificate referred to in Section 4.2(g) above;
(iii) The evidence of blue sky filing required by Section 3.13,
to the extent filing is required on or prior to the Closing Date;
(iv) The executed Registration Rights Agreement; and
(v) The opinion of counsel referred to in Section 4.2(e) above.
(b) On the Closing Date, the Investors shall deliver to the Company:
(i) The Purchase Price set forth on Schedule I hereto; and
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(ii) The executed Registration Rights Agreement.
ARTICLE V
Legend and Stock
Each certificate representing the Common Stock issued hereunder shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue within 3 trading days certificates for Common
Stock without the legend set forth above at such time as such Common Stock (i)
is sold to a purchaser or purchasers who (in the opinion of counsel to the
seller or such purchaser(s), in form and substance reasonably satisfactory to
the Company and its counsel) are able to dispose of such shares publicly without
registration under the Act, (ii) are registered pursuant to an effective
registration statement, or (iii) may be sold pursuant to Rule 144.
Any Common Stock issued pursuant to exercise of Warrants shall bear a
legend in the same form as the legend indicated above; provided that such legend
shall be removed from the Common Stock and the Company shall issue new
certificates without such legend if such Common Stock is registered for resale
under the 1933 Act, or (iii) such Common Stock is sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser(s), in
form and substance reasonably satisfactory to the Company and it counsel) are
able to dispose of such shares publicly without registration under the 1933 Act.
Upon the applicable trade date of each such sale, the Company agrees to issue
within 3 trading days new certificates representing such Common Stock without
such legend. The Investor agrees to sell the Common Stock represented by the new
certificates in accordance with the applicable prospectus delivery requirements
(if copies of a current prospectus are provided to the Investors by the Company)
or in accordance with an exemption from the registration requirements of the
1933 Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement entered
into in compliance with law, including applicable securities laws.
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ARTICLE VI
Indemnification
In consideration of the Investors' execution and delivery of this
Agreement, the Warrants and the Registration Rights Agreement and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Investors and all
of their partners, officers, directors, employees, members and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of the Investor or holder of the Securities or Warrants as investors in
the Company, and (d) the enforcement of this Section. Notwithstanding the
foregoing, Indemnified Liabilities shall not include any liability of any
Indemnitee arising solely out of such Indemnitee's willful misconduct or
fraudulent action(s). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Article VIII shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.
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ARTICLE VII
[INTENTIONALLY LEFT BLANK]
-25-
ARTICLE VIII
Governing Law; Miscellaneous.
Section 8.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS TO BE EXECUTED AND PERFORMED EXCLUSIVELY IN NEW YORK. EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE
VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY 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 TO SUCH
PARTY AT THE ADDRESS FOR SUCH 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. IF ANY PROVISION OF THIS
AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY
OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE
REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE VALIDITY OR
ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER JURISDICTION.
EACH PARTY HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY.
Section 8.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 8.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
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Section 8.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 8.5 Entire Agreement; Amendments; Waivers.
(a) This Agreement supersedes all other prior oral or written
agreements between the Investors, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investors make any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended except by a written instrument signed by
the Company and Investors holding at least a majority of the Initial Shares. No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.
(b) The Investors may at any time elect, by notice to the Company, to
waive (whether permanently or temporarily, and subject to such conditions, if
any, as the Investors may specify in such notice) any of their respective rights
(but not obligations) under any of the Transaction Documents to acquire shares
of Common Stock from the Company, in which event such waiver shall be binding
against the Investors in accordance with its terms.
Section 8.6 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing, must be delivered by (i) courier, mail or hand delivery or (ii)
facsimile, and will be deemed to have been delivered upon receipt. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
-▇▇-
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Chief Financial Officer
With a copy to:
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investors:
To each Investor at the address and/or fax number set
forth in Schedule I of this Agreement.
With a copy to:
Kleinberg, Kaplan, ▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 212-986-8866
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. and
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Each party shall provide five (5) days prior written notice to the other
party of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
Section 8.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective
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successors and assigns, including any Permitted Assignee (as defined below). The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investor, including by merger or
consolidation. The Investors may assign some or all of their rights hereunder to
the other Investor, to an affiliate of either Investor or to an entity or fund
which has the same principal investment adviser as either Investor, without the
consent of the Company, and to others, with the written consent of the Company
(in each case, a "Permitted Assignee"); provided, however, that any such
assignment shall not release the Investors from their obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investor shall be entitled
to pledge the Securities or Warrants in connection with a bona fide margin
account.
Section 8.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9 Survival. The representations, warranties and agreements of the
Company and the Investors contained in the Agreement shall survive each of the
Closing and to the extent applicable, each Optional Closing (as defined in the
Call Warrant) and each Closing, in each case for a period which expires on the
second anniversary of the Closing Date.
Section 8.10 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 8.11 Remedies. Each Investor and each Permitted Assignee shall have
all rights and remedies set forth in this Agreement, the Warrants and the
Registration Rights Agreement and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Each Investor and each Permitted Assignee without
prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time
prior to its complete recovery as a result of such remedy.
Section 8.12 Days. Unless the context refers to "business days" or "trading
days," all references herein to "days" shall mean calendar days.
Section 8.13 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Investors exercise a right, election, demand
or option under a
-29-
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then the Investors may rescind
or withdraw, in their 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.
Section 8.14 Obligations Absolute. The Company's obligations under the
Transaction Documents are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction.
Section 8.15 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
the express written agreement of such Investor, unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. The Company agrees that it will deliver a copy of any public
announcement regarding the matters covered by this Agreement or any agreement
and document executed herewith to each Investor and any public announcement
including the name of an Investor to such Investor, reasonably in advance of the
release of such announcements.
Section 8.16 Like Treatment of Investors and Holders. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption, or exercise of the Securities, or otherwise, to any
Investor or holder of Securities, for or as an inducement to, or in connection
with the solicitation of, any consent, waiver or amendment of any terms or
provisions of the Transaction Documents, unless such consideration is required
to be paid to all Investors or holders of Securities bound by such consent,
waiver or amendment whether or not such Investors or holders so consent, waive
or agree to amend and whether or not such Investors or holders tender their
Securities for redemption, conversion or exercise. The Company shall not,
directly or indirectly, redeem any Securities unless such offer of redemption is
made pro rata to all Investors or holders of Securities, as the case may be, on
identical terms.
* * * * *
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
PHARMOS CORPORATION
By:
--------------------------------
Name:
Title:
INVESTORS:
MILLENNIUM PARTNERS, L.P.
By:
--------------------------------
Name:
Title:
LATERMAN & CO., L.P.
By:
--------------------------------
Name:
Title:
STRONG RIVER INVESTMENTS, INC.
By:
--------------------------------
Name:
Title:
Signature page to Common Stock Investment Agreement
List of Schedules
-----------------
Schedule 1 List of Investors
Exhibit 1.1A Form of Debenture
Exhibit 1.1B Form of Warrant
Exhibit 1.3 Form of Option Warrant
Schedule 2.1(a) List of Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(c)(i) Capitalization
Exhibit 2.1(c)(i) Certificate of Incorporation of the Company
Exhibit 2.1(c)(ii) By-Laws of the Company
Schedule 2.1 (s)(i) Outstanding securities entitled to registration rights
Schedule 2.1 (s)(ii) Outstanding securities affected by the issuance of
Debentures, etc.
Schedule 2.1(aa) Real Property
List of Exhibits
----------------
Exhibit 4.2(e) Opinion of Counsel
Exhibit 4.2(f) Registration Rights Agreement
Exhibit 4.2(g) Officers' Certificate
Annexes
-------
Annex A Initial Warrant
Annex B Adjustment Warrant
Annex C Call Warrant
-32-
SCHEDULE 1
Number of Number of
Investor Residence Initial Shares Initial Warrants Purchase Price
-------- --------- -------------- ---------------- --------------
Millennium Partners, L.P.* New York
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇▇
British Virgin Islands 69,065 $2,000,000
Strong River Investments, Inc.
▇/▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇-▇▇▇▇ &
▇▇▇▇▇▇ (▇▇▇) ▇▇▇.
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ Floor
Wickhams Cay 1, Road Town
Tortala, British Virgin Islands
W/copies to: ▇▇▇▇▇▇▇ Capital
Corp.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: Mor ▇▇▇▇
▇▇▇▇▇▇▇▇ & Co., L.P. 34,532 $1,000,000
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------
* Investor for purposes of Call Warrant only