THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT...
THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID
ACT
IS NOT REQUIRED.
SERIES
Warrant
No.
COMMON
STOCK PURCHASE WARRANT
To
Purchase Shares of Common Stock of DRUGMAX, INC.
THIS
IS
TO CERTIFY THAT ___________________________________, or registered assigns
(the
“Holder”), is entitled, during the Exercise Period (as hereinafter defined), to
purchase from DrugMax, Inc., a Nevada corporation (the “Company”), the Warrant
Stock (as hereinafter defined and subject to adjustment as provided herein),
in
whole or in part, at a purchase price of $.__ per share, all on and
subject to the terms and conditions hereinafter set forth.
1. Definitions.
As used
in this Warrant, the following terms have the respective meanings set forth
below:
“Affiliate”
means
any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
a
person or entity, as such terms are used in and construed under Rule 144 under
the Securities Act. With respect to a Holder of Warrants, any investment fund
or
managed account that is managed on a discretionary basis by the same investment
manager as such Holder will be deemed to be an Affiliate of such Holder.
“Appraised
Value”
means,
in respect of any share of Common Stock on any date herein specified, the fair
saleable value of such share of Common Stock (determined without giving effect
to the discount for (i) a minority interest or (ii) any lack of liquidity of
the
Common Stock or to the fact that the Company may have no class of equity
registered under the Exchange Act) as of the last day of the most recent fiscal
month ending prior to such date specified, based on the value of the Company
on
a fully-diluted basis, as determined by a nationally recognized investment
banking firm selected by the Company’s Board of Directors and having no prior
relationship with the Company.
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a legal holiday
or a
day on which banking institutions in the State of New York generally are
authorized or required by law or other government actions to close.
“Change
of Control”
means
the (i) acquisition by an individual or legal entity or group (as set forth
in
Section 13(d) of the Exchange Act) of more than one-half of the voting rights
or
equity interests in the Company; or (ii) sale, conveyance, or other disposition
of all or substantially all of the assets, property or business of the Company
or the merger into or consolidation with any other corporation (other than
a
wholly owned subsidiary corporation) or effectuation of any transaction or
series of related transactions where holders of the Company’s voting securities
prior to such transaction or series of transactions fail to continue to hold
at
least 50% of the voting power of the Company.
“Closing
Date”
means
June 23, 2006.
“Commission”
means
the Securities and Exchange Commission or any other federal agency then
administering the Securities Act and other federal securities laws.
“Common
Stock”
means
(except where the context otherwise indicates) the Common Stock, $0.001 par
value per share, of the Company as constituted on the Closing Date, and any
capital stock into which such Common Stock may thereafter be changed or
converted, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets on liquidation over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders
of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
“Current
Market Price”
means,
in respect of any share of Common Stock on any date herein specified,
(1) if
there
shall not then be a public market for the Common Stock, the higher of
(a)
the
book value per share of Common Stock at such date, and
(b)
the
Appraised Value per share of Common Stock at such date,
or
(2) if
there
shall then be a public market for the Common Stock, the higher of (x) the book
value per share of Common Stock at such date, and (y) the average of the daily
market prices for the 20 consecutive trading days immediately before such date.
The daily market price for each such trading day shall be (i) the closing bid
price on such day on the principal stock exchange (including Nasdaq) on which
such Common Stock is then listed or admitted to trading, or quoted, as
applicable, (ii) if no sale takes place on such day on any such exchange, the
last reported closing bid price on such day as officially quoted on any such
exchange (including Nasdaq), (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange, the last reported closing bid price
on such day in the over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm
then
engaged in such business, or (v) if there is no such firm, as furnished by
any
member of the National Association of Securities Dealers, Inc. (the “NASD”)
selected mutually by the holder of this Warrant and the Company or, if they
cannot agree upon such selection, as selected by two such members of the NASD,
one of which shall be selected by holder of this Warrant and one of which shall
be selected by the Company.
2
“Current
Warrant Price”
means,
in respect of a share of Common Stock at any date herein specified, the price
at
which a share of Common Stock may be purchased pursuant to this Warrant on
such
date. Until the Current Warrant Price is adjusted pursuant to the terms herein,
the initial Current Warrant Price shall be $.61 per share of Common Stock.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, or any similar federal statute,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
“Exercise
Period”
means
the period during which this Warrant is exercisable pursuant to Section 2.1.
“Expiration
Date”
means
June 23, 2011.
“NASD”
means
the National Association of Securities Dealers, Inc., or any successor
corporation thereto.
“Other
Property”
has
the
meaning set forth in Section 4.5.
“Person”
means
any individual, sole proprietorship, partnership, joint venture, trust,
incorporated organization, association, corporation, limited liability company,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation,
any
instrumentality, division, agency, body or department thereof).
“Purchase
Agreement”
means
that certain Note and Warrant Purchase Agreement dated as of June 23, 2006
among
the Company, Deerfield Special Situations Fund, L.P., and Deerfield Special
Situations Fund International, Limited, pursuant to which this Warrant was
originally issued.
“Restricted
Common Stock”
means
shares of Common Stock which are, or which upon their issuance upon the exercise
of any Warrant would be required to be, evidenced by a certificate bearing
the
restrictive legend set forth in Section 3.2.
“Securities
Act”
means
the Securities Act of 1933, as amended, or any similar federal statute, and
the
rules and regulations of the Commission thereunder, all as the same shall be
in
effect at the time.
“Trading
Day”
means
any day on which the primary market on which shares of Common Stock are listed
is open for trading.
“Transfer”
means
any disposition of any Warrant or Warrant Stock or of any interest in either
thereof, which would constitute a sale thereof within the meaning of the
Securities Act.
3
“Warrants”
means
this Warrant and all warrants issued upon transfer, division or combination
of,
or in substitution for, any thereof. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised.
“Warrant
Price”
means
an amount equal to (i) the number of shares of Common Stock being purchased
upon
exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current
Warrant Price.
“Warrant
Stock”
means
the 2,004,000 shares of Common Stock to be purchased upon the exercise hereof,
subject to adjustment as provided herein.
2. Exercise
of Warrant.
2.1. Manner
of Exercise.
From
and after the issuance hereof and until 5:00 P.M., New York time, on the
Expiration Date (the “Exercise Period”), the Holder may exercise this Warrant,
on any Business Day, for all or any part of the number of shares of Warrant
Stock purchasable hereunder.
In
order
to exercise this Warrant, in whole or in part, the Holder shall deliver to
the
Company at its principal office or at the office or agency designated by the
Company pursuant to Section 11, (i) a written notice of the Holder’s election to
exercise this Warrant, which notice shall specify the number of shares of
Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided
herein, and (iii) this Warrant. Such notice shall be substantially in the form
of the subscription form appearing at the end of this Warrant as Exhibit
A,
duly
executed by the Holder or its agent or attorney. Upon receipt thereof, the
Company shall, as promptly as practicable, and in any event within three
Business Days thereafter, execute or cause to be executed and deliver or cause
to be delivered to the Holder a certificate or certificates representing the
aggregate number of full shares of Warrant Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as the Holder shall request
in
the notice and shall be registered in the name of the Holder or such other
name
as shall be designated in the notice. This Warrant shall be deemed to have
been
exercised and such certificate or certificates shall be deemed to have been
issued, and the Holder or any other Person so designated to be named therein
shall be deemed to have become a Holder of record of such shares for all
purposes, as of the date when the notice, together with the payment of the
Warrant Price and this Warrant, is received by the Company as described above.
If this Warrant shall have been exercised in part, the Company shall, at the
time of delivery of the certificate or certificates representing Warrant Stock,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or
at the request of the Holder, appropriate notation may be made on this Warrant
and the same returned to the Holder.
Payment
of the Warrant Price may be made at the option of the Holder by: (i) certified
or official bank check payable to the order of the Company, (ii) wire transfer
to the account of the Company or (iii) the surrender and cancellation of a
portion of shares of Common Stock then held by the Holder or issuable upon
such
exercise of this Warrant, which shall be valued and credited toward the total
Warrant Price due the Company for the exercise of the Warrant based upon the
Current Market Price of the Common Stock;
provided, however, that payment of the Warrant Price under this clause (iii)
may
only be made if all of the amounts owed by the Company under the promissory
notes issued under the Purchase Agreement have been paid in full. All shares
of
Common Stock issuable upon the exercise of this Warrant pursuant to the terms
hereof shall be validly issued and, upon payment of the Warrant Price, shall
be
fully paid and nonassessable and not subject to any preemptive
rights.
4
2.2. Fractional
Shares.
The
Company shall not be required to issue a fractional share of Common Stock upon
exercise of any Warrant. As to any fraction of a share which the Holder of
one
or more Warrants, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay an amount in cash equal to the Current Market Price per share of Common
Stock on the date of exercise multiplied by such fraction.
2.3. Restrictions
on Exercise Amount.
(i) Unless
a
Holder delivers to the Company irrevocable written notice at least sixty-one
days prior to the effective date of the exercise of this Warrant that this
Section 2.3(i) shall not apply to such Holder, the Holder may not acquire a
number of shares of Warrant Stock to the extent that, upon such exercise, the
number of shares of Common Stock then beneficially owned by such Holder and
its
Affiliates and any other persons or entities whose beneficial ownership of
Common Stock would be aggregated with the Holder’s for purposes of Section
13(d)
of
the Exchange Act (including shares held by any “group” of which the Holder is a
member,
but
excluding shares beneficially owned by virtue of the ownership of securities
or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein)
exceeds
9.95% of
the total number of shares of Common Stock of the Company then issued and
outstanding. For purposes hereof, “group” has the meaning set forth in Section
13(d) of the Exchange Act and applicable regulations of the Securities and
Exchange Commission, and the percentage held by the Holder shall be determined
in a manner consistent with the provisions of Section 13(d) of the Exchange
Act.
Each delivery of a notice of exercise by a Holder will constitute a
representation by such Holder that it has evaluated the limitation set forth
in
this paragraph and determined, based on the most recent public filings by the
Company with the Commission, that the issuance of the full number of shares
of
Warrant Stock requested in such notice of exercise is permitted under this
paragraph.
(ii) In
the
event the Company is prohibited from issuing shares of Warrant Stock as a result
of any restrictions or prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization, the Company shall as soon as possible seek the
approval of its stockholders and take such other action to authorize the
issuance of the full number of shares of Common Stock issuable upon exercise
of
this Warrant.
3. Transfer,
Division and Combination.
3.1. Transfer.
The
Warrants and the Warrant Stock shall be freely transferable, subject to
compliance with all applicable laws, including, but not limited to the
Securities Act. If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant or the resale of the Warrant Stock, this
Warrant or the Warrant Stock, as applicable, shall not be registered under
the
Securities Act, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant or the Warrant Stock
as the case may be, furnish to the Company a written opinion of counsel that
is
reasonably acceptable to the Company to the effect that such transfer may be
made without registration under the Securities Act, (ii) that the Holder or
transferee execute and deliver to the Company an investment letter in form
and
substance acceptable to the Company and substantially in the form attached
as
Exhibit
C
hereto
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a) promulgated under the Securities Act. Transfer of this Warrant and all
rights hereunder, in whole or in part, in accordance with the foregoing
provisions, shall be registered on the books of the Company to be maintained
for
such purpose, upon surrender of this Warrant at the principal office of the
Company referred to in Section 2.1 or the office or agency designated by the
Company pursuant to Section 11, together with a written assignment of this
Warrant substantially in the form of Exhibit
B
hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and shall issue to
the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. Following a transfer that complies
with the requirements of this Section 3.1, the Warrant may be exercised by
a new
Holder for the purchase of shares of Common Stock regardless of whether the
Company issued or registered a new Warrant on the books of the Company.
5
3.2. Restrictive
Legends.
Each
certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted
with
legends in substantially the following form:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED
OR
TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.”
“THE
SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT
DATED AS OF JUNE 23, 2006, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY,
DEERFIELD SPECIAL SITUATIONS FUND, L.P., AND DEERFIELD SPECIAL SITUATIONS FUND
INTERNATIONAL, LIMITED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST
BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY.”
3.3. Division
and Combination; Expenses; Books.
This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. The Company shall prepare, issue and deliver at its own
expense the new Warrant or Warrants under this Section 3. The Company agrees
to
maintain, at its aforesaid office or agency, books for the registration and
the
registration of transfer of the Warrants.
6
4. Adjustments.
The
number of shares of Common Stock for which this Warrant is exercisable, and
the
price at which such shares may be purchased upon exercise of this Warrant,
shall
be subject to adjustment from time to time as set forth in this Section 4.
The
Company shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Sections 5.1 and
5.2.
4.1. Stock
Dividends, Subdivisions and Combinations.
If at
any time while this Warrant is outstanding the Company shall:
(i) declare
a
dividend or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock,
(ii) subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock, or
(iii) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then:
(1) the
number of shares of Common Stock acquirable upon exercise of this Warrant
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number
of
shares of Common Stock that would have been acquirable under this Warrant
immediately prior to the record date for such dividend or distribution or the
effective date of such subdivision or combination would own or be entitled
to
receive after such record date or the effective date of such subdivision or
combination, as applicable, and
(2) the
Warrant Price shall be adjusted to equal:
(A) the
Current Warrant Price in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision or combination,
multiplied by the number of shares of Common Stock into which this Warrant
is
exercisable immediately prior to the adjustment, divided by
(B) the
number of shares of Common Stock into which this Warrant is exercisable
immediately after such adjustment.
Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clauses
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.
7
4.2. Securities
Issuances.
In the
event that the Company or any of its subsidiaries (A) issues or sells any Common
Stock or convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock (“Convertible
Securities”) or (B) directly or indirectly effectively reduces the conversion,
exercise or exchange price for any Convertible Securities which are currently
outstanding, at or to an effective Per Share Selling Price (as defined below)
which is less than the greater of (I) the closing sale price per share of the
Common Stock on the principal market on which the Common Stock is traded the
trading day next preceding such issue or sale or, in the case of issuances
to
holders of its Common Stock, the date fixed for the determination of
stockholders entitled to receive such warrants, rights, or options (“Fair Market
Price”), or (II) the Current Warrant Price, then in each such case the Current
Warrant Price in effect immediately prior to such issue or sale or record date,
as applicable, shall be automatically reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Current Warrant Price
then in effect by a fraction, (x) the numerator of which shall be the sum of
(1)
the number of shares of Common Stock outstanding immediately prior to such
issue
or sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Fair Market Price or Current Warrant Price, as the case may be, and
(y)
the denominator of which shall be the number of shares of Common Stock of the
Company outstanding immediately after such issue or sale. The foregoing
provision shall not apply to any issuances or sales of Common Stock or
Convertible Securities (i) pursuant to any Convertible Securities currently
outstanding on the date hereof in accordance with the terms of such Convertible
Securities in effect on the date hereof, or (ii) to any officer, director or
employee of the Company pursuant to a bona fide option or equity incentive
plan
duly adopted by the Company. The Company shall give to the Holder written notice
of any such sale of Common Stock within 24 hours of the closing of any such
sale
and shall within such 24 hour period issue a press release announcing such
sale
if such sale is a material event for, or otherwise material to, the
Company.
For
the
purposes of the foregoing adjustments, in the case of the issuance of any
Convertible Securities, the maximum number of shares of Common Stock issuable
upon exercise, exchange or conversion of such Convertible Securities shall
be
deemed to be outstanding, provided that no further adjustment shall be made
upon
the actual issuance of Common Stock upon exercise, exchange or conversion of
such Convertible Securities, and provided further that to the extent such
Convertible Securities expire or terminate unconverted or unexercised, then
at
such time the Current Warrant Price shall be readjusted as if such portion
of
such Convertible Securities had not been issued.
For
purposes of this Section 4.2, if an event occurs that triggers more than one
of
the above adjustment provisions, then only one adjustment shall be made and
the
calculation method which yields the greatest downward adjustment in the Current
Warrant Price shall be used.
8
“Per
Share Selling Price” shall include the amount actually paid by third parties for
each share of Common Stock in a sale or issuance by the Company. In the event
a
fee is paid by the Company in connection with such transaction directly or
indirectly to such third party or its affiliates, any such fee shall be deducted
from the selling price pro rata to all shares sold in the transaction to arrive
at the Per Share Selling Price. A sale of shares of Common Stock shall include
the sale or issuance of Convertible Securities, and in such circumstances the
Per Share Selling Price of the Common Stock covered thereby shall also include
the exercise, exchange or conversion price thereof (in addition to the
consideration received by the Company upon such sale or issuance less the fee
amount as provided above). In case of any such security issued in a transaction
in which the purchase price or the conversion, exchange or exercise price is
directly or indirectly subject to adjustment or reset based on a future date,
future trading prices of the Common Stock, specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock, or otherwise (but excluding standard stock split anti-dilution
provisions), the Per Share Selling Price shall be deemed to be the lowest
conversion, exchange, exercise or reset price at which such securities are
converted, exchanged, exercised or reset or might have been converted,
exchanged, exercised or reset, or the lowest adjustment, as the case may be,
over the life of such securities. If shares are issued for a consideration
other
than cash, the Per Share Selling Price shall be the fair value of such
consideration as determined in good faith by independent certified public
accountants mutually acceptable to the Company and the Holder. In the event
the
Company directly or indirectly effectively reduces the conversion, exercise
or
exchange price for any Convertible Securities which are currently outstanding,
then the Per Share Selling Price shall equal such effectively reduced
conversion, exercise or exchange price.
4.3. Other
Provisions Applicable to Adjustments.
The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock into which this Warrant is exercisable and
the
Current Warrant Price provided for in Section 4:
(a)
When
Adjustments to Be Made.
The
adjustments required by Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any that would
otherwise be required may be postponed (except in the case of a subdivision
or
combination of shares of the Common Stock, as provided for in Section 4.1)
up
to, but not beyond the date of exercise if such adjustment either by itself
or
with other adjustments not previously made adds or subtracts less than 1% of
the
shares of Common Stock into which this Warrant is exercisable immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result
in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of
business on the date of its occurrence.
(b)
Fractional
Interests.
In
computing adjustments under this Section 4, fractional interests in Common
Stock
shall be taken into account to the nearest 1/100th of a share.
(c)
When
Adjustment Not Required.
If the
Company undertakes a transaction contemplated under this Section 4 and as a
result takes a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or purchase
rights or other benefits contemplated under this Section 4 and shall, thereafter
and before the distribution to stockholders thereof, legally abandon its plan
to
pay or deliver such dividend, distribution, subscription or purchase rights
or
other benefits contemplated under this Section 4, then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
9
4.4. Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.
(a)
If
there shall occur a Change of Control and, pursuant to the terms of such Change
of Control, shares of common stock of the successor or acquiring corporation,
or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring corporation
(“Other Property”), are to be received by or distributed to the holders of
Common Stock of the Company, then the Holder of this Warrant shall have the
right thereafter to receive, upon the exercise of the Warrant, the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and the Other Property receivable
upon or as a result of such Change of Control by a holder of the number of
shares of Common Stock into which this Warrant is exercisable immediately prior
to such event.
(b)
In
case of any such Change of Control described in Section 4.4(a) above, the
successor or acquiring corporation (if other than the Company) shall expressly
assume the due and punctual observance and performance of each and every
covenant and condition of contained in this Warrant to be performed and observed
by the Company and all the obligations and liabilities hereunder, subject to
such modifications as may be deemed appropriate (as determined by resolution
of
the Board of Directors of the Company) in order to provide for adjustments
of
shares of the Common Stock into which this Warrant is exercisable which shall
be
as nearly equivalent as practicable to the adjustments provided for in Section
4. For purposes of Section 4, common stock of the successor or acquiring
corporation shall include stock of such corporation of any class which is not
preferred as to dividends or assets on liquidation over any other class of
stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities
which
are convertible into or exchangeable for any such stock, either immediately
or
upon the arrival of a specified date or the happening of a specified event
and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4 shall similarly apply to successive
Change of Control transactions.
(c)
At
the Holder’s option and request, in lieu of the successor or acquiring
corporation expressly assuming the due and punctual observance and performance
of each and every covenant and condition of contained in this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder as set forth in Section 4.4(b), the successor or acquiring corporation
shall purchase from the Holder for a purchase price, payable in cash within
five
(5) Trading Days after such request (or, if later, on the effective date of
the
Change of Control), equal to the Black ▇▇▇▇▇▇ value (with an assumed volatility
equal to the greater of (i) 50% or (ii) the Bloomberg calculated then prevailing
100 day historical realized volatility) of the remaining unexercised portion
of
this Warrant on the date of such request.
10
4.5. Certain
Limitations.
Notwithstanding anything herein to the contrary, the Company agrees not to
enter
into any transaction which, by reason of any adjustment hereunder, would cause
the Current Warrant Price to be less than the par value per share of Common
Stock.
4.6. Stock
Transfer Taxes.
The
issue of stock certificates upon exercise of this Warrant shall be made without
charge to the holder for any tax in respect of such issue. The Company shall
not, however, be required to pay any tax which may be payable in respect of
any
transfer involved in the issue and delivery of shares in any name other than
that of the holder of this Warrant, and the Company shall not be required to
issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
5. Notices
to Warrant Holders.
5.1. Certificate
as to Adjustments.
Upon
the occurrence of each adjustment or readjustment of the Current Warrant Price,
the Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
the
Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of the Holder of this Warrant, furnish or cause to be furnished to such Holder
a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the
Current Warrant Price at the time in effect and (iii) the number of shares
of
Common Stock and the amount, if any, or other property which at the time would
be received upon the exercise of Warrants owned by such Holder.
5.2. Notice
of Corporate Action.
If at
any time:
(a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend (other than a cash dividend payable
out
of earnings or earned surplus legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company) or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or
substantially all the property, assets or business of the Company to, another
corporation, or
(c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up
of
the Company;
11
then,
in
any one or more of such cases, the Company shall give to the Holder (subject
to
the Holder’s execution of a reasonable confidentiality agreement) (i) at least
10 days’ prior written notice of the record date for such dividend, distribution
or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, and (ii) in the case of
any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days’ prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the record date
for
such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to the
Holder at the last address of the Holder appearing on the books of the Company
and delivered in accordance with Section 13.2.
5.3. No
Rights as Stockholder.
This
Warrant does not entitle the Holder to any voting or other rights as a
stockholder of the Company prior to exercise and payment for the Warrant Price
in accordance with the terms hereof.
6. No
Impairment.
The
Company shall not by any action, including, without limitation, amending its
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may
be
necessary or appropriate to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of
this Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant. Upon the request of the Holder, the Company will at any
time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
12
7. Reservation
and Authorization of Common Stock; Registration With Approval of Any
Governmental Authority.
From
and after the Closing Date, the Company shall at all times reserve and keep
available for issue upon the exercise of Warrants such number of its authorized
but unissued shares of Common Stock as will be sufficient to permit the exercise
in full of all outstanding Warrants (without regard to any ownership limitations
provided in Section 2.3(i)). All shares of Common Stock which shall be so
issuable, when issued upon exercise of any Warrant and payment therefor in
accordance with the terms of such Warrant, shall be duly and validly issued
and
fully paid and nonassessable, and not subject to preemptive rights. Before
taking any action which would cause an adjustment reducing the Current Warrant
Price below the then par value, if any, of the shares of Common Stock issuable
upon exercise of the Warrants, the Company shall take any corporate action
which
may be necessary in order that the Company may validly and legally issue fully
paid and non-assessable shares of such Common Stock at such adjusted Current
Warrant Price. Before taking any action which would result in an adjustment
in
the number of shares of Common Stock for which this Warrant is exercisable
or in
the Current Warrant Price, the Company shall obtain all such authorizations
or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof. If any shares of Common
Stock required to be reserved for issuance upon exercise of Warrants require
registration or qualification with any governmental authority under any federal
or state law before such shares may be so issued (other than as a result of
a
prior or contemplated distribution by the Holder of this Warrant), the Company
will in good faith and as expeditiously as possible and at its expense endeavor
to cause such shares to be duly registered.
8. Taking
of Record; Stock and Warrant Transfer Books.
In the
case of all dividends or other distributions by the Company to the holders
of
its Common Stock with respect to which any provision of Section 4 refers to
the
taking of a record of such holders, the Company will in each such case take
such
a record and will take such record as of the close of business on a Business
Day. The Company will not at any time, except upon dissolution, liquidation
or
winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of
any
Warrant.
9. Registration
Rights.
The
resale
of the
Warrant
Stock shall be registered in accordance with the terms and conditions contained
in that
certain
Investor Rights Agreement dated of even date hereof, among Deerfield Special
Situations Fund, L.P., Deerfield Special Situations Fund International, Limited
and the Company (the “Investor Rights Agreement”). The Holder acknowledges that
pursuant to the Investor Rights Agreement, the Company has the right to request
that the Holder furnish information regarding such Holder and the distribution
of the Warrant Stock as is required by law or the Commission to be disclosed
in
the Registration Statement (as such term is defined in the Investor Rights
Agreement), and the Company may exclude from such registration the shares of
Warrant Stock acquirable hereunder if Holder fails to furnish such information
within a reasonable time prior to the filing of each Registration Statement,
supplemented prospectus included therein and/or amended Registration Statement.
10. Loss
or Mutilation.
Upon
receipt by the Company from the Holder of evidence reasonably satisfactory
to it
of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto
and
in case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to the Holder;
provided, however, that in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company
for
cancellation.
13
11. Office
of the Company.
As long
as any of the Warrants remain outstanding, the Company shall maintain an office
or agency (which may be the principal executive offices of the Company) where
the Warrants may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
12. Limitation
of Liability.
No
provision hereof, in the absence of affirmative action by the Holder to purchase
shares of Common Stock, and no enumeration herein of the rights or privileges
of
the Holder hereof, shall give rise to any liability of the Holder for the
purchase price of any Common Stock, whether such liability is asserted by the
Company or by creditors of the Company.
13. Miscellaneous.
13.1 Nonwaiver
and Expenses.
No
course of dealing or any delay or failure to exercise any right hereunder on
the
part of the Holder shall operate as a waiver of such right or otherwise
prejudice Holder’s rights, powers or remedies. If the Company fails to make,
when due, any payments provided for hereunder, or fails to comply with any
other
provision of this Warrant, the Company shall pay to the Holder such amounts
as
shall be sufficient to cover any third party costs and expenses including,
but
not limited to, reasonable attorneys’ fees, including those of appellate
proceedings, incurred by the Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
13.2 Notice
Generally.
All
notices, requests, demands or other communications provided for herein shall
be
in writing and shall be given in the manner and to the addresses set forth
in
the Purchase Agreement.
13.3 Successors
and Assigns.
Subject
to compliance with the provisions of Section 3.1, this Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of the Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant, and shall be enforceable by any such Holder.
13.4 Amendment.
This
Warrant may be modified or amended or the provisions of this Warrant waived
with
the written consent of both the Company and the Holder.
13.5 Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be modified to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Warrant.
13.6 Headings.
The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
14
13.7 Governing
Law.
This
Warrant and the transactions contemplated hereby shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the provisions thereof relating to conflicts of laws. The Company hereby
irrevocably consents to the exclusive jurisdiction of the State and Federal
courts located in New York City, New York in connection with any action or
proceeding arising out of or relating to this Warrant. In any such litigation
the Company agrees that the service thereof may be made by certified or
registered mail directed to the Company pursuant to Section 13.2.
[Signature
Page Follows]
IN
WITNESS WHEREOF, DrugMax, Inc. has caused this_________________________
Warrant to be executed by its duly authorized officer and attested by its
Secretary.
Dated:
June 23, 2006
DRUGMAX,
INC.
By:______________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
Secretary
15
EXHIBIT
A
SUBSCRIPTION
FORM
[To
be
executed only upon exercise of Warrant]
DrugMax,
Inc.
31▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Farmington,
CT 06032-1968
Attention:
___________
Facsimile
No.: ____________
The
undersigned registered owner of this Warrant exercises this Warrant for the
purchase of ________________ shares of Common Stock of DrugMax, Inc. (“Common
Stock”), and herewith makes payment therefor, all at the price and on the terms
and conditions specified in this Warrant and requests that certificates for
the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
____________________________________________________ and whose address is
___________________________________________________________, and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable
as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
(Delete
following paragraph if not applicable:)
Holder
hereby represents to you that it has sold or has current plans to resell all
of
such Common Shares received upon this exercise of this Warrant, solely in
accordance with the terms of the Registration Statement filed with the U.S.
Securities and Exchange Commission by the Company covering such Common Shares
as
described under the section entitled "Plan of Distribution"
therein.
_____________________________________
(Name
of
Registered Owner)
_____________________________________
(Signature
of Registered Owner)
_____________________________________
(Street
Address)
_____________________________________
(State)
(Zip Code)
NOTICE:
The signature on this subscription must correspond with the name as written
upon
the face of the Warrant in every particular, without alteration or enlargement
or any change whatsoever.
EXHIBIT
B
ASSIGNMENT
FORM
FOR
VALUE
RECEIVED the undersigned registered owner of this Warrant for the purchase
of
shares of common stock of DrugMax, Inc. hereby sells, assigns and transfers
unto
the Assignee named below all of the rights of the undersigned under this
Warrant, with respect to the number of shares of common stock set forth
below:
_______________________________________
_______________________________________
_______________________________________
(Name
and
Address of Assignee)
_______________________________________
(Number
of Shares of Common Stock)
and
does
hereby irrevocably constitute and appoint ____________ attorney-in-fact to
register such transfer on the books of the Company, maintained for the purpose,
with full power of substitution in the premises.
Dated:_________________________________
______________________________________
(Print
Name and Title)
______________________________________
(Signature)
______________________________________
(Witness)
NOTICE:
The signature on this assignment must correspond with the name as written upon
the face of the Warrant in every particular, without alteration or enlargement
or any change whatsoever.
EXHIBIT
C
FORM
OF
INVESTMENT REPRESENTATION LETTER
|
Re:
|
Common
Stock, par value $0.001 per share (“Common Stock”), of DrugMax, Inc., a
Nevada corporation
(“Company”).
|
In
connection with the acquisition by the undersigned (“Transferee”)
of:
| □ |
warrants
(“Warrants”) to purchase _______ shares of Common Stock,
or
|
| □ |
_______
shares of Common Stock issued upon the exercise of
Warrants,
|
the
Transferee hereby represents and warrants to the Company as follows:
The
Transferee (i) is an “Accredited Investor” as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933, as amended (the
“Act”); and (ii) has the ability to bear the economic risks of such Transferee’s
prospective investment, including a complete loss of Transferee’s investment in
the Warrants and/or the shares of Common Stock issuable upon the exercise
thereof (collectively, the “Securities”).
The
Transferee, by acceptance of the Securities, represents and warrants to the
Company that the Securities and all other securities acquired upon any and
all
exercises of the Warrants are purchased for the Transferee’s own account, and
not with view to distribution of either the Securities or any other securities
purchasable upon exercise of the Warrants in violation of applicable securities
laws.
The
Transferee acknowledges that (i) the Securities have not been registered under
the Act, (ii) the Securities are “restricted securities” and the certificate(s)
representing the Securities shall bear the following legend, or a similar legend
to the same effect, until (i) in the case of the shares of Common Stock
underlying the Warrants, such shares shall have been registered for resale
by
the Transferee under the Act and effectively been disposed of in accordance
with
a registration statement that has been declared effective; or (ii) in the
opinion of counsel for the Company such Securities may be sold without
registration under the Act:
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “Act”), and all such securities are
subject to restrictions on transferability as set forth in this certificate.
The
securities represented hereby may not be sold, transferred, or otherwise
disposed of in the absence of an effective registration statement under the
Act
or an opinion of counsel, reasonably acceptable to counsel for the company,
to
the effect that the proposed sale, transfer, or disposition may be effectuated
without registration under the Act.”
IN
WITNESS WHEREOF, the Transferee has caused this Investment Representation Letter
to be duly executed this __ day of __________ 20__.
Transferee
Name: __________________________
By:
_______________________
Name:
Title: