Exhibit 14
EXHIBIT C
WARRANT AGREEMENT
Between
AKSYS, LTD.
And
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Dated as of ___________, 2006
This Agreement, dated as of [insert date], is between Aksys, Ltd., a
Delaware corporation (the "Company"), and _____________________________, as
warrant agent (the "Warrant Agent").
RECITALS
WHEREAS, the Company has entered into a Securities Purchase Agreement
(the "Purchase Agreement") dated as of March 31, 2006 by and between the Company
and Durus Life Sciences Master Fund Ltd. (the "Investor");
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
sell to the Investor, and the Investor has agreed to acquire from the Company,
(i) five thousand (5,000) shares of the Company's Series B Convertible Preferred
Stock (the "Preferred Shares"), each of which Preferred Share is convertible
into shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), pursuant to the terms of the Certificate of Designation (such
shares of Common Stock into which the Preferred Shares may be converted
hereinafter referred to as the "Conversion Shares") and (ii) warrants (the
"Warrants") to purchase at an initial exercise price of $1.10 per share five
million (5,000,000) shares of Common Stock (the "Warrant Shares");
WHEREAS, pursuant to the Purchase Agreement, the Company has agreed to
sell to the Investor or other persons or entities designated by the Investor
(such other persons or entities designated by the Investor herein are
collectively referred to with the Investor as the "Investors"), and the
Investors have the option to purchase, in one or more installments, for an
aggregate purchase price of up to $15,000,000, additional preferred shares and
warrants containing substantially the same terms and conditions as the Preferred
Shares and the Warrants except that the expiration date of such later issued
warrants shall be five years from their original date of issue (any such later
acquired preferred shares and warrants are herein collectively referred to with
the initially issued Preferred Shares and Warrants as the "Preferred Shares" and
the "Warrants", respectively, and the initially issued Warrants under the
Purchase Agreement are sometimes referred to herein as the "Initial Warrants");
WHEREAS, the Company wishes to retain the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, transfer, exchange and replacement of the certificates
evidencing the Warrants to be issued under this Agreement (the "Warrant
Certificates") and the exercise of the Warrants;
WHEREAS, the Company and the Warrant Agent wish to enter into this
Agreement to set forth the terms and conditions of the Warrants and the rights
of the holders thereof ("Warrantholders") and to set forth the respective rights
and obligations of the Company and the Warrant Agent; and
WHEREAS, each Warrantholder is an intended beneficiary of this
Agreement with respect to the rights of Warrantholders herein.
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NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for the purpose of defining the terms and
provisions of the Warrants and the Warrant Certificates and the respective
rights and obligations thereunder of the Company, the Warrantholders and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT
The Company appoints the Warrant Agent to act as agent for the Company
in accordance with the instructions in this Agreement and the Warrant Agent
accepts such appointment.
SECTION 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES
The Warrant Certificates (and the Form of Election to Purchase and the
Form of Assignment to be printed on the reverse thereof) shall be in registered
form only and shall be substantially in the form attached hereto as EXHIBIT A
(the provisions of which are hereby incorporated herein), and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law, or with any
rule or regulation made pursuant thereto, or with any rule or regulation of any
stock exchange or automated quotation system on which the Common Stock (or other
securities issuable upon exercise of the Warrants) or the Warrants may be
listed, or to conform to usage. Each Warrant Certificate for the Initial
Warrants shall entitle the registered holder thereof, subject to the provisions
of this Agreement and of the Warrant Certificate, to purchase, on or before the
close of business on _____________, 2011 (the "Expiration Date"), and each
Warrant Certificate for any later issued series of Warrants shall entitle the
registered holder thereof, subject to the provisions of this Agreement and the
Warrant Certificate, to purchase, on or before the date that is the first
business day falling five years after the initial date of issuance of such later
issued Warrants (and such date shall be the "Expiration Date" for such later
issued series of Warrants), one fully paid and non-assessable share of Common
Stock for each Warrant evidenced by such Warrant Certificate for $1.10 (the
"Exercise Price), in each case subject to the adjustments provided in Section 6
hereof. Each Warrant Certificate issued to the Investors as described in the
recitals, above, shall be dated the date of issuance thereof; and each other
Warrant Certificate shall be dated the date on which the Warrant Agent receives
valid issuance instructions from the Company or a transferring holder of a
Warrant Certificate or, if such instructions specify another date, such other
date.
For purposes of this Agreement, the term "close of business" on any
given date shall mean 5:00 p.m., New York Time, on such date; provided, however,
that if such date is not a business day, it shall mean 5:00 p.m., New York Time,
on the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which the New York Stock Exchange (or banking institutions in the state in which
the Warrant Agent maintains the principal office in which it conducts business
related to the Warrants) are authorized or obligated by law to be closed.
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Each Warrant Certificate shall be executed on behalf of the Company by
its Chief Executive Officer or Chief Financial Officer, either manually or by
facsimile signature printed thereon, and have affixed thereto the Company's seal
or a facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. Each
Warrant Certificate shall be manually or by facsimile signature printed thereon
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. In case any officer of the Company who shall have signed any
Warrant Certificate shall cease to be such officer of the Company before
countersignature by the Warrant Agent and issue and delivery thereof by the
Company, such Warrant Certificate, nevertheless, may be countersigned by the
Warrant Agent, issued and delivered with the same force and effect as though the
person who signed such Warrant Certificate had not ceased to be such officer of
the Company.
Except as otherwise permitted by this Agreement, each Warrant
(including each Warrant issued upon the transfer of any Warrant) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE SECURITIES LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
SECTION 3. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES
Subsequent to their original issuance, no Warrant Certificates shall be
reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares or securities purchasable thereunder pursuant to Section 22 hereof.
The Warrant Agent is hereby irrevocably authorized to countersign and deliver,
in accordance with the provisions of Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.
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SECTION 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES;
COMPLIANCE WITH THE SECURITIES ACT
The Warrant Agent will keep or cause to be kept at its stock transfer
office in _________________________ ("Stock Transfer Office") books for
registration of ownership and transfer of the Warrant Certificates issued
hereunder. Such registers shall show the names and addresses of the respective
holders of the Warrant Certificates and the number of Warrants evidenced by each
such Warrant Certificate.
The Warrant Agent shall, from time to time, promptly register the
transfer of any outstanding Warrants in whole or in part in the books to be
maintained by the Warrant Agent for that purpose, upon surrender of the Warrant
Certificate evidencing such Warrants, with the Form of Assignment duly filled in
and executed with such signature guaranteed by a financial institution that is a
member of a Securities Transfer Association approved medallion program, such as
STAMP, SEMP or MSP and such supporting documentation as the Warrant Agent or the
Company may reasonably require, to the Warrant Agent at its Stock Transfer
Office at any time on or before the Expiration Date, and upon payment to the
Warrant Agent for the account of the Company of an amount equal to any
applicable transfer tax. Payment of the amount of such tax may be made in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment duly
filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
provided, however, that in case the registered holder of any Warrant Certificate
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent in addition shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates for
the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged at the option
of the holder thereof for another Warrant Certificate or Certificates of
different denominations, of like tenor and representing in the aggregate the
same kind and number of Warrants, upon surrender of such Warrant Certificate or
Certificates, with the Form of Assignment duly filled in and executed, to the
Warrant Agent, at any time or from time to time after the close of business on
the date hereof and prior to the close of business on the applicable Expiration
Date. The Warrant Agent shall promptly cancel the surrendered Warrant
Certificate and deliver the new Warrant Certificate pursuant to the provisions
of this Section.
Upon transfer of any Warrant, such Warrant shall be transferred free of
any restrictive legend and registered in such name and in such denominations as
specified by the transferor in question provided:
(i) The Warrant Agent receives written notice from the Company that a
registration statement covering re-sales of the Warrants has been declared
effective by the Securities and
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Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), and written confirmation from the transferor in question that
the resale of such Warrant was made pursuant to such effective registration
statement; or
(ii) The Warrant Agent receives written notice from the Company that
the re-sale of such Warrants may be effected under Rule 144 of the Securities
Act or otherwise pursuant to an exemption from registration under the Securities
Act.
Unless and until the Warrant Agent receives written notice from the
Company that a registration statement covering resales of the Warrants has been
declared effective by the Securities and Exchange Commission under the
Securities Act, the Warrant Agent shall promptly notify the Chief Financial
Officer of the Company in writing of any request that the Warrant Agent receives
pertaining to the proposed transfer of any Warrant.
SECTION 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES
Upon receipt by the Company and the Warrant Agent (i) of evidence
reasonably satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, and (ii) in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and reimbursement to them of all reasonable expenses incidental thereto,
and, (iii) in the case of mutilation, upon surrender and cancellation of the
Warrant Certificate, then: the Warrant Agent shall countersign and deliver a new
Warrant Certificate of like tenor for the same number of Warrants.
SECTION 6. ADJUSTMENTS AND LIMITATION OF NUMBER AND KIND OF SHARES
PURCHASABLE AND EXERCISE PRICE
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. COMMON STOCK DIVIDENDS AND DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS
AND RECLASSIFICATIONS. In the event that the Company shall (i) pay a dividend or
make a distribution on its outstanding shares of Common Stock using shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the Exercise Price in effect immediately prior to such
dividend, distribution, subdivision, combination or reclassification shall be
adjusted to equal the product obtained by multiplying the Exercise Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately prior to such dividend, distribution, subdivision,
combination or reclassification and the denominator of which is the number of
shares of Common Stock outstanding after giving effect to such dividend,
distribution, subdivision, combination or reclassification. Likewise, the number
of shares of Common Stock
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issuable upon exercise of each Warrant immediately prior to such Exercise Price
adjustment shall be adjusted, effective simultaneously with the Exercise Price
adjustment, to equal the product obtained by multiplying such number of shares
of Common Stock by a fraction, the numerator of which is the Exercise Price per
share immediately prior to such Exercise Price adjustment and the denominator of
which is the Exercise Price per share in effect upon such Exercise Price
adjustment, which adjusted number of shares of Common Stock shall be the number
of shares of Common Stock issuable upon exercise of the Warrant until further
adjusted as provided herein. An adjustment made pursuant to this Section 6A
shall become effective immediately after the dividend or distribution date
retroactive to the record date in the case of a dividend or distribution of
shares of Common Stock, and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
B. DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company shall
pay on its outstanding shares of Common Stock (i) any dividend or other
distribution (including any dividend or distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation) of
cash, evidences of its indebtedness, shares of its capital stock or any other
properties or securities or (ii) any options, warrants or other rights to
subscribe for or purchase any of the foregoing (other than, in the case of
clause (i) and (ii) above, (x) any dividend or distribution described in Section
6A, and (y) any rights, options, warrants or securities described in Section 6C
or Section 6D), then the number of shares of Common Stock issuable upon the
exercise of each Warrant immediately prior to the record date for any such
dividend or distribution shall be increased to a number determined by
multiplying the number of shares of Common Stock issuable upon the exercise of
such Warrant immediately prior to such record date by a fraction, the numerator
of which shall be the Market Price (as defined below) per share of Common Stock
on such record date, and the denominator of which shall be such Market Price per
share of Common Stock on such record date less the sum of (x) the amount of
cash, if any, dividended or distributed per share of Common Stock and (y) the
then fair value (as reasonably determined in good faith by the Company's Board
of Directors, whose determination shall be evidenced by a board resolution filed
with the Warrant Agent, a copy of which will be sent to Warrantholders upon
request) per share of Common Stock of the dividend or distribution consisting of
evidences of indebtedness, shares of stock, securities, other property,
warrants, options or subscription or purchase rights. In the case of any such
dividend or distribution, subject to Section 6H, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise Price immediately prior
to the record date for such dividend or distribution by the fraction set forth
in the preceding sentence. As used herein, "Market Price" shall be the
arithmetic mean of the last reported sale prices of the Common Stock for the ten
(10) consecutive trading days ending on the date for which the Market Price is
being calculated, such sale prices as reported by the primary exchange on which
the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, or by Nasdaq, if the Common Stock is traded on a Nasdaq
automated quotation system, or, if not listed on Nasdaq or traded on any such
exchange, the average of the bid and asked price per share on Nasdaq or, if such
quotations are not available, the fair market value per share of the Common
Stock as reasonably determined in good faith by the Board of Directors of the
Company. Such adjustments shall be made, and shall only become effective,
whenever any dividend or distribution is made. Notwithstanding the foregoing,
the Company shall not be required to make an adjustment pursuant to this Section
6B,
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if at the time of any such dividend or distribution, the Company makes the same
distribution to Warrantholders as it makes to holders of Common Stock pro rata
based on the number of shares of Common Stock for which a Warrantholder's
Warrants are exercisable (whether or not currently exercisable). No adjustment
shall be made pursuant to this Section 6B which shall have the effect of
decreasing the number of shares of Common Stock issuable upon exercise of a
Warrant or increasing the Exercise Price thereof.
C. ISSUANCE OF COMMON STOCK OR RIGHTS OR OPTIONS. In the event that the
Company shall issue shares of Common Stock, or rights, options or warrants to
acquire shares of Common Stock, or securities convertible or exchangeable into
shares of Common Stock, for consideration per share of Common Stock that is less
than the Market Price per share of Common Stock as of the issuance date of such
shares, or entitling the holders of such rights, options, warrants or
convertible or exchangeable securities to subscribe for or purchase shares of
Common Stock at a price that is less than the Market Price per share of Common
Stock as of the issuance date of such rights, options, warrants or convertible
or exchangeable securities, the number of shares of Common Stock issuable upon
the exercise of each Warrant immediately after such issuance date shall be
adjusted by multiplying the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such issuance date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately preceding the issuance of such shares, rights, options, warrants or
convertible or exchangeable securities plus the number of additional shares of
Common Stock to be issued in such transaction or which may be issued upon
exercise of such rights, options or warrants or conversion of such convertible
or exchangeable securities, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately preceding the date for the
issuance of such shares or rights, options, warrants or convertible or
exchangeable securities plus the total number of shares of Common Stock which
the aggregate consideration expected to be received by the Company upon the
issuance of such shares of Common Stock and the exercise, conversion or exchange
of such rights, options, warrants or convertible or exchangeable securities (as
reasonably determined in good faith by the Company's Board of Directors, whose
determination shall be evidenced by a board resolution filed with the Warrant
Agent, a copy of which will be sent to Warrantholders upon request) would
purchase at the Market Price per share of Common Stock as of the date of such
issuance. Subject to Section 6H, in the event of any such adjustment, the
Exercise Price of each Warrant shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such date of issuance by the
fraction set forth in the foregoing sentence. No adjustment to the number of
Warrant Shares issuable upon the exercise of a Warrant or to the Exercise Price
shall be made as a result of (i) the issuance of any Warrants (or the later
exercise thereof) in accordance with the terms of the Purchase Agreement as the
same may be amended from time to time, (ii) the exercise, conversion or exchange
of any right, option, warrant or convertible or exchangeable security, in
accordance with its terms at the time of the issuance of such right, option,
warrant or convertible or exchangeable security, whether or not the issuance
thereof previously resulted in an adjustment to the number of Warrant Shares
issuable upon the exercise of the Warrants or to the Exercise Price pursuant to
this ▇▇▇▇▇▇▇ ▇▇, (▇▇▇) the issuance of any Preferred Shares (or the later
conversion thereof) in accordance with the terms of the Purchase Agreement as
the same may be amended from time to time, or (iv) the issuance, award,
exercise, conversion or exchange of shares of Common Stock or options to acquire
shares of
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Common Stock under any employee or director benefit plan of the Company approved
by the Company's Board of Directors if such issuance, award, exercise,
conversion or exchange is made to, by, or for the benefit of officers,
directors, employees or consultants of the Company in accordance with such
employee or director benefit plan. Such adjustment shall be made, and shall only
become effective, whenever such shares or such rights, options, warrants or
convertible or exchangeable securities are issued. No adjustment shall be made
pursuant to this Section 6C which shall have the effect of decreasing the number
of shares of Common Stock issuable upon exercise of each Warrant or increasing
the Exercise Price.
D. FUNDAMENTAL TRANSACTIONS; LIQUIDATION.
(a) Except as provided in Section 6D(b), in the event of a Fundamental
Transaction (as defined in the next sentence), each Warrantholder shall have the
right to receive upon exercise of the Warrants the kind and amount of shares of
capital stock or other securities or property which such Warrantholder would
have been entitled to receive upon completion of or as a result of such
Fundamental Transaction had such Warrant been exercised immediately prior to
such event or prior to the relevant record date for any such entitlement
(regardless of whether the Warrants are then exercisable). "Fundamental
Transaction" shall mean any transaction or series of related transactions by
which the Company consolidates with or merges with or into another corporation
or entity or sells, assigns, transfers, leases, conveys or otherwise disposes of
all or substantially all of its properties and assets to any other person or
entity or group of affiliated persons or entities or is a party to a merger or
binding share exchange which reclassifies or changes its outstanding Common
Stock. Unless Section 6D(b) is applicable to a Fundamental Transaction, the
Company shall provide that the surviving or acquiring person, corporation or
entity (the "Successor Company") in such Fundamental Transaction will enter into
an agreement (a "Supplemental Warrant Agreement") with the Warrant Agent
confirming the Warrantholders' rights pursuant to this Section 6D(a) and
providing for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. Any such
Supplemental Warrant Agreement shall further provide that such Successor Company
will succeed to and be substituted for every right and obligation of the Company
in respect of this Agreement and the Warrants. The provisions of this Section
6D(a) shall similarly apply to successive Fundamental Transactions involving any
Successor Company.
(b) In the event of (i) a Fundamental Transaction with another person,
corporation or entity (other than a subsidiary of the Company) where
consideration to the holders of Common Stock in exchange for their shares is
payable solely in cash or (ii) the dissolution, liquidation or winding-up of the
Company, the Warrantholders of the Warrants shall be entitled to receive, upon
surrender of their Warrant Certificates, such cash distributions on an equal
basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price. In the event of any Fundamental
Transaction described in this Section 6D(b), the Successor Company and, in the
event of any dissolution, liquidation or winding-up of the Company, the Company,
shall deposit promptly with the Warrant Agent the funds, if any, necessary to
pay the Warrantholders of the Warrants the amounts to which they are entitled as
described above. After such funds and the surrendered Warrant Certificates are
received, the Warrant Agent shall make payment to the Warrantholders by
delivering a check in such amount as is appropriate (or, in the
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case of consideration other than cash, such other consideration as is
appropriate) to such party as it may be directed in writing by the
Warrantholders surrendering such Warrant Certificates.
E. OTHER EVENTS. If any event occurs as to which the foregoing provisions
of this Section 6 are not strictly applicable or, if strictly applicable, would
not, in the good faith judgment of the Company's Board of Directors, fairly and
adequately protect the purchase rights of the Warrants in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make such adjustments in the application of such provisions, in accordance
with such essential intent and principles, as shall be reasonably necessary, in
the good faith opinion of the Board of Directors, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Exercise Price or decreasing the number of shares of Common
Stock issuable upon exercise of the Warrants.
F. SUPERSEDING ADJUSTMENT. Upon the expiration of any rights, options,
warrants or conversion or exchange privileges which resulted in adjustments
pursuant to this Section 6, if any thereof shall not have been exercised, the
number of Warrant Shares issuable upon the exercise of each Warrant shall be
readjusted pursuant to the applicable section of Section 6 as if (i) the only
shares of Common Stock issuable upon exercise of such rights, options, warrants,
conversion or exchange privileges were the shares of Common Stock, if any,
actually issued upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (ii) shares of Common Stock actually
issued, if any, were issuable for the consideration actually received by the
Company upon such exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion or exchange privileges whether or not exercised
and the Exercise Price shall be readjusted inversely; provided, however, that no
such readjustment (except by reason of an intervening adjustment under Section
6A) shall have the effect of decreasing the number of Warrant Shares issuable
upon the exercise of each Warrant, or increasing the Exercise Price, by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion or
exchange privileges.
G. MINIMUM ADJUSTMENT. The adjustments required by the preceding sections
of this Section 6 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no adjustment of the Exercise
Price or the number of shares of Common Stock issuable upon exercise of the
Warrants that would otherwise be required shall be made unless and until such
adjustment either by itself or with other adjustments not previously made
increases or decreases by at least 1% of the Exercise Price or the number of
shares of Common Stock issuable upon exercise of the Warrants immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 6 and not
previously made, would result in a minimum adjustment. 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. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
H. NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
shares of Common Stock and other property, if any, issuable upon exercise of the
Warrants is adjusted, as herein
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provided, the Company shall deliver to the Warrant Agent a certificate of a firm
of independent accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which (i) the
Board of Directors determined the then fair value of any evidences of
indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the Market Price of the Common Stock
was determined, if either of such determinations were required), and specifying
the Exercise Price and the number of shares of Common Stock issuable upon
exercise of the Warrants after giving effect to such adjustment. The Company
shall promptly cause the Warrant Agent, at the Company's expense, to mail a copy
of such certificate to each Warrantholder in accordance with Section 23. The
Warrant Agent shall be entitled to rely on such certificate and shall be under
no duty or responsibility with respect to any such certificate, except to
exhibit the same from time to time, to any Warrantholder desiring an inspection
thereof during reasonable business hours. The Warrant Agent shall not at any
time be under any duty or responsibility to any Warrantholder to determine
whether any facts exist which may require any adjustment of the Exercise Price
or the number of shares of Common Stock or other stock or property issuable on
exercise of the Warrants, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment or the validity or value of any shares of Common Stock, evidences of
indebtedness, warrants, options, or other securities or property.
I. ADJUSTMENT TO WARRANT CERTIFICATE. The form of Warrant Certificate need
not be changed because of any adjustment made pursuant to this Section 6, and
Warrant Certificates issued after such adjustment may state the same Exercise
Price and the same number of shares of Common Stock issuable upon exercise of
the Warrants as are stated in the Warrant Certificates initially issued pursuant
to this Agreement. The Company, however, may at any time in its sole discretion
make any change in the form of Warrant Certificate that it may deem appropriate
to give effect to such adjustments and that does not affect the substance of the
Warrant Certificate, and any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
J. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall not be
obligated to issue any shares of Common Stock upon the exercise of any Warrants
after the aggregate number of shares of Common Stock previously issued by the
Company upon (i) the exercise of Warrants and (ii) the conversion of Preferred
Shares issued by the Company and purchased by holders of Warrants has exceeded
the Nasdaq Conversion Limitation (as defined below), except that such limitation
shall not apply from and after such time as the Company obtains Shareholder
Approval (as defined below) for issuances of Warrant Shares upon the exercise of
Warrants in excess of such amount. In the event the Company receives on the same
date a notice requesting the exercise of Warrants from more than one holder of
Warrants and the Company can exercise some, but not all, of the Warrants
presented for exercise, the Company shall exercise from each holder electing to
exercise Warrants at such time a pro rata amount of such holder's Warrants
submitted for exercise based on the number Warrants submitted for exercise on
such date by such holder relative to the number of all Warrants submitted for
exercise on such date. The Nasdaq Conversion Limitation shall mean [6,425,476]
shares of Common Stock or such other amount as
10
Nasdaq shall determine is the applicable limitation under Marketplace Rule
4350(i)(1)(D). Shareholder Approval shall mean the approval of the Company's
stockholders as may be required by the applicable rules and regulations of
Nasdaq, including Marketplace Rule 4350(i)(1)(D).
SECTION 7. EXERCISE OF WARRANTS
The registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole or in part from time to time at or prior to the
close of business on the Expiration Date, subject to the provisions of Section
9, at which time the Warrant Certificates shall be and become wholly void and of
no value. Warrants may be exercised by their holders as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the Form of Election to
Purchase on the reverse side thereof duly filled in and executed, to the Warrant
Agent at its Stock Transfer Office, together with payment to the Company of the
Exercise Price (as of the date of such surrender) of the Warrants then being
exercised and an amount equal to any applicable transfer tax and, if requested
by the Company, any other taxes or governmental charges which the Company may be
required by law to collect in respect of such exercise. Payment of the Exercise
Price and other amounts may be made by wire transfer of same day funds to an
account in a bank designated by the Company for such purpose, or by certified or
bank cashier's check, payable in lawful money of the United States of America to
the order of the Company, or by any combination of such methods. No adjustment
shall be made for any cash dividends, whether paid or declared, on any
securities issuable upon exercise of a Warrant. The Warrant Agent shall deposit
or invest any and all funds received in connection with the exercise of the
Warrants in federally insured, interest bearing accounts with a financial
institution or institutions designated by the Warrant Agent. The Warrant Agent
shall have no liability with respect to the performance of any such investments
other than, in the case of funds deposited in accounts maintained by the Warrant
Agent, the liability of the Warrant Agent to its depositors in such accounts
generally. The Company shall be entitled to the interest, if any, on funds
deposited with the Warrant Agent. At the request of the Company, the Warrant
Agent shall remit any funds held by it as a result of the exercise of the
Warrants to the Company.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and an amount equal to any applicable
transfer tax and, if requested by the Company, any other taxes or governmental
charges which the Company may be required by law to collect in respect of such
exercise), the Warrant Agent shall promptly request from the Company's transfer
agent with respect to the securities to be issued and shall promptly, and in any
event within five business days thereof, deliver to or upon the order of the
registered holder of such Warrant Certificate, in such name or names as such
registered holder may designate, a certificate or certificates for the number of
full shares of the securities to be purchased, together with cash made available
by the Company pursuant to Section 8 hereof in respect of any fraction of a
share of such securities otherwise issuable upon such exercise. If the Warrant
is then exercisable to purchase property other than securities, the Warrant
Agent shall take appropriate steps to cause such property to be delivered as
soon as practicable to or upon the order of the registered holder of such
Warrant Certificate. In addition, if it is required by law and upon instruction
by the
11
Company, the Warrant Agent will deliver to each Warrantholder a prospectus which
complies with the provisions of Section 10 of the Securities Act of 1933, as
amended, and the Company agrees to supply the Warrant Agent with a sufficient
number of prospectuses to effectuate that purpose.
C. In case the registered holder of any Warrant Certificate shall exercise
fewer than all of the Warrants evidenced by such Warrant Certificate, the
Warrant Agent shall promptly countersign and deliver to the registered holder of
such Warrant Certificate, or to his duly authorized assigns, a new Warrant
Certificate or Certificates evidencing the number of Warrants that were not so
exercised.
D. Each person in whose name any certificate for securities is issued upon
the exercise of Warrants shall for all purposes be deemed to have become the
holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price (and of any
applicable taxes or other governmental charges) was made; provided, however,
that if the date of such surrender and payment is a date on which the stock
transfer books of the Company are closed, such person or entity shall be deemed
to have become the record holder of such shares as of, and the certificate for
such shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Warrant Agent shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a period of
more than twenty (20) consecutive business days except upon consolidation,
merger, sale of all or substantially all of its assets, dissolution or
liquidation or as otherwise required by law.
SECTION 8. FRACTIONAL INTERESTS
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
Market Price, except that for all purposes of this Section 8, the time periods
set forth in the definition thereof shall be the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required, fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.
SECTION 9. RESERVATION AND LISTING OF EQUITY SECURITIES
The Company covenants that it will at all times reserve and keep
available, free from any pre-emptive rights, out of its authorized and unissued
equity securities, solely for the purpose of
12
issuance upon exercise of the Warrants, 120% of such number of shares of equity
securities of the Company, including the Common Stock, as shall then be issuable
upon the exercise of all outstanding Warrants ("Equity Securities"). The Company
covenants that all Equity Securities which shall be so issuable shall, upon such
issue, be duly authorized, validly issued, fully paid and non-assessable.
The Company covenants and agrees that from and after the date hereof:
(a) it will use its best efforts to prepare and file with the Securities and
Exchange Commission a registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective with respect to the resale of the Warrants and Equity Securities and
the issuance of the Equity Securities to be delivered upon the exercise of the
Warrants and, to the extent required under applicable law, to keep such
registration statement current from the date of issuance thereof through the
final Expiration Date or until such earlier time as no Warrants remain
outstanding; (b) as expeditiously as possible, it will register or qualify the
Equity Securities to be delivered upon exercise of the Warrants under the
securities or Blue Sky laws of each jurisdiction in which such registration or
qualification is necessary and use its best efforts to maintain all such
registrations or qualifications in effect from the date of issuance thereof
through the final Expiration Date or until such earlier time as no Warrants
remain outstanding; provided, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to general service of process in any
jurisdiction where it is not now so subject; (c) it will pay all expenses
incurred by the Company in complying with this Section 9, including, without
limitation, (i) all registration and filing fees, (ii) all printing expenses,
(iii) all fees and disbursements of counsel for the Company and independent
public accountants, (iv) all NASD and Blue Sky fees and expenses (including fees
and expenses of counsel in connection with any Blue Sky surveys), and (v) the
entire expense of any special audits incident to or required by any such
registration; and (d) it will use its best efforts to list for quotation on the
Nasdaq Capital Market, or such other over-the-counter quotation system on which
the Common Stock may at any time be listed, or on any national securities
exchange on which the Common Stock may at any time be listed, the Equity
Securities, and will maintain such listing so long as any other shares of Equity
Securities are so listed; and the Company shall use its best efforts to so list
on the Nasdaq Capital Market, or such other over-the-counter quotation system,
or each national securities exchange, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of the
Warrants if and so long as any shares of capital stock of the same class are
traded on the Nasdaq Capital Market or such over-the-counter quotation system or
listed on such national securities exchange, and any such quotation or listing
will be at the Company's expense; provided, however, that in no event shall such
Equity Securities be issued, and the Company is authorized to refuse to honor
the exercise of any Warrant, if such exercise would result, in the opinion of
the Company's Board of Directors, upon advice of counsel, in the violation of
any law; provided, however, that the foregoing proviso shall not affect or in
any way limit the obligations of the Company pursuant to clauses (a) and (b) of
this paragraph.
13
SECTION 10. REDUCTION OF EXERCISE PRICE BELOW PAR VALUE
The Company shall not take any action that would cause an adjustment
pursuant to Section 6 hereof to reduce the Exercise Price required to purchase
one share of capital stock below the then par value (if any) of a share of such
capital stock, unless and until the Company shall have taken any corporate
action which, in the opinion of its counsel, is necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
SECTION 11. PAYMENT OF CERTAIN TAXES
The Company covenants and agrees that it will pay when due and payable
any and all federal and state documentary stamp and other original issue taxes
which may be payable in respect of the original issuance of the Warrant
Certificates, or any shares of Common Stock or other securities upon the
exercise of Warrants. The Company shall not, however, be required (i) to pay any
tax which may be payable in respect of the transfer and delivery of Warrant
Certificates or the issuance or delivery of certificates for Common Stock or
other securities in a name other than that of the registered holder of the
Warrant Certificate surrendered for purchase or (ii) to issue or deliver any
certificate for shares of Common Stock or other securities upon the exercise of
any Warrant Certificate until any such tax shall have been paid, all such taxes
being payable by the holder of such Warrant Certificate at the time of
surrender.
SECTION 12. NOTICE OF CERTAIN CORPORATE ACTION
In case the Company after the date hereof shall propose (i) to take a
record of the holders of any class of securities for the purpose of determining
the holders thereof that are entitled to receive any dividend or other
distribution, rights to subscribe for or to purchase any shares of any class of
its capital stock or any other securities or property, any evidences of its
indebtedness or assets, or any other rights, warrants or options, (ii) to issue
any shares of its capital stock or rights, options or warrants entitling to
subscribe for shares of such capital stock or securities convertible or
exchangeable or exercisable for shares of such capital stock (other than any
such issuances under any employee or director benefit plan of the Company
approved by the Company's Board of Directors), (iii) to effect any capital
reclassification or reorganization, or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company is
required, or any sale, lease, transfer or other disposition of all or
substantially all of its property and assets, or the liquidation, voluntary or
involuntary dissolution or winding-up of the Company, or (iv) the commencement
by any "person" or "group" (within the meaning of Section 13(d) and Section
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) of a BONA
FIDE tender offer or exchange offer in accordance with the rules and regulations
of the Exchange Act to purchase shares of Common Stock of the Company, then, in
each such case, the Company shall file with the Warrant Agent, and the Company,
or the Warrant Agent on its behalf and at the Company's request, shall provide
to all registered holders of the Warrant Certificates notice of such proposed
action or event, which notice shall specify the date on which the books of the
Company shall close or a record be taken for such dividend, distribution or
offer of rights or options, or the date on which such issuance,
reclassification,
14
reorganization, consolidation, merger, sale, lease, transfer, other disposition,
liquidation, voluntary or involuntary dissolution, winding-up or tender offer
shall take place, commence, or be completed, as the case may be, and which shall
also specify any record date for determination of holders of Common Stock
entitled to vote thereon or participate therein, and as of which the holders of
record of the Company's Common Stock (or other securities) shall be entitled to
exchange their shares of such Common Stock (or other securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, sale, lease,
transfer, other disposition, dissolution, liquidation, winding-up, tender offer
or other event, and shall set forth such facts with respect thereto as shall be
reasonably necessary to indicate any adjustments in the Exercise Price and the
number or kind of shares or other securities, cash or property purchasable upon
exercise of Warrants which will be required as a result of such action, if
applicable. Such notice shall be filed and provided in the case of any action
covered by clause (i) above, at least 10 days prior to the record date for
determining holders of the Common Stock for purposes of such action or, if a
record is not to be taken, the date as of which the holders of shares of Common
Stock of record are to be entitled to such offering; and, in the case of any
action covered by clauses (ii) through (iv) above, at least 20 days prior to the
earlier of the date on which such issuance, reclassification, reorganization,
consolidation, merger, sale, lease, transfer, other disposition, liquidation,
voluntary or involuntary dissolution or winding-up, exchange or tender offer is
expected to become effective or be completed and the date on which it is
expected that holders of shares of Common Stock of record shall be entitled to
exchange their shares for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, voluntary or involuntary dissolution or winding-up,
exchange or tender offer. Notwithstanding the foregoing, the Company's
obligation to provide notice under this Section 12 is subject and subordinate to
the Company's legal obligations regarding the handling and dissemination of
material non-public information under the Securities Act, the rules and
regulations of the quotation system or securities exchange on which the Common
Stock may at any time be listed and other applicable law.
Failure to give any notice or any defect therein shall not affect the
legality or validity of any transaction listed in this Section 12.
SECTION 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT
CERTIFICATES, ETC.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its Stock Transfer
Office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its Stock Transfer Office.
15
SECTION 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER
No Warrantholder, as such, shall be entitled to vote, receive dividends
or be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Warrants represented
thereby for any purpose whatsoever, nor shall anything contained herein or in
any Warrant Certificate be construed to confer upon any Warrantholder, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 12 hereof), or to receive
dividends or subscription rights, or otherwise, until such Warrant Certificate
shall have been exercised in accordance with the provisions hereof and the
receipt by the Warrant Agent of the Exercise Price and any other amounts payable
upon such exercise.
SECTION 15. RIGHTS OF ACTION
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, on its own behalf for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, its right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.
SECTION 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES
Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
A. The Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute and lawful
owner of the Warrant (notwithstanding any notation of ownership or other writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes whatsoever and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
SECTION 17. CANCELLATION OF WARRANT CERTIFICATES
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to
16
it for exercise, in whole or in part, or delivered to it for transfer, split-up,
combination or exchange. Warrant Certificates so canceled shall be delivered by
the Warrant Agent to the Company from time to time, or disposed of in accordance
with the instructions of the Company.
SECTION 18. CONCERNING THE WARRANT AGENT
The Company agrees to pay to the Warrant Agent from time to time, on
demand of the Warrant Agent, reasonable compensation for all services rendered
by it hereunder and also its reasonable expenses, including counsel fees, and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Warrant Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Warrant Agent, arising out of or in
connection with the acceptance and administration of this Agreement.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor to
the Warrant Agent shall succeed to the agency created by this Agreement, any of
the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned; and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
17
SECTION 20. DUTIES OF WARRANT AGENT
The Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Warrant Certificates, by their acceptance thereof, shall be
bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion; provided, however, that the Warrant
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company.
B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chief Executive Officer or the Chief
Financial Officer of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the Warrant Agent or action taken or to be
taken by it or its obligations hereunder) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have been made by
the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution and delivery hereof by the Warrant Agent) or in respect of the
validity or execution of any Warrant Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Warrant Certificate;
nor shall it be responsible for the making of any change in the number of shares
of Common Stock for which a Warrant is exercisable required under the provisions
of Section 6 or responsible for the manner, method or amount of any such change
or the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
non-assessable.
18
F. The Warrant Agent shall be under no obligation to institute any action,
suit or legal proceeding or take any other action likely to involve expense
unless the Company or one or more registered holders of Warrant Certificates
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrants or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrant Certificates, as their respective rights
or interests may appear.
G. The Warrant Agent and any stockholder, director, officer or employee of
the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chief Executive Officer or the Chief Financial Officer of the Company, and to
apply to such officers for advice or instructions in connection with the Warrant
Agent's duties, and it shall not be liable for any action taken or suffered or
omitted by it in good faith in accordance with instructions of any such officer.
I. The Warrant Agent will not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; provided, however, that reasonable care shall have
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken, or any
failure to take action, in reliance on any notice, resolution, waiver, consent,
order, certificates or other paper, document or instrument reasonably believed
by the Warrant Agent to be genuine and to have been signed, sent or presented by
the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
19
SECTION 21. CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from all further duties
and liabilities under this Agreement (except liabilities arising as a result of
the Warrant Agent's own negligence, bad faith or willful misconduct) upon 30
days prior notice in writing mailed, by registered or certified mail, to the
Company. The Company may remove the Warrant Agent or any successor warrant agent
upon 30 days prior notice in writing, mailed to the Warrant Agent or successor
warrant agent, as the case may be, by registered or certified mail. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent and shall,
within 15 days following such appointment, give notice thereof in writing to
each registered holder of the Warrant Certificates. If the Company shall fail to
make such appointment within a period of 15 days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent, then the holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent. Any new Warrant Agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having capital
and surplus of not less than $10,000,000 or a stock transfer company that is a
registered transfer agent under the Exchange Act. After appointment and
execution of a copy of this Agreement in effect at that time, the successor
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent, within a reasonable time, any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to give any notice provided for
in this Section, however, or any defect therein shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the appointment
of the successor warrant agent, as the case may be.
SECTION 22. ISSUANCE OF NEW WARRANT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
SECTION 23. NOTICES
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made (A) upon delivery if sent by
personal delivery or courier, (B) when sent, if sent by confirmed facsimile
during normal business hours of the recipient, if not, then on the next business
day, or (C) by first-class certified or registered mail, postage prepaid, return
receipt requested, in each case addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows: Aksys, Ltd., ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Financial Office,
Tel: ▇▇▇-▇▇▇-▇▇▇▇, Fax: ▇▇▇-▇▇▇-▇▇▇▇.
20
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made (A)
upon delivery if sent by personal delivery or courier, (B) when sent, if sent by
confirmed facsimile during normal business hours of the recipient, if not, then
on the next business day, or (C) by first-class certified or registered mail,
postage prepaid, return receipt requested, in each case addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
[Insert Address of Warrant Agent].
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made (A) upon delivery if sent by personal delivery or courier, (B)
when sent, if sent by confirmed facsimile during normal business hours of the
recipient, if not, then on the next business day, or (C)by first-class certified
or registered mail, postage prepaid, return receipt requested, in each case
addressed to the last address of such holder as it shall appear on the registers
maintained by the Warrant Agent (until another address is filed in writing by
such holder with the Warrant Agent).
SECTION 24. MODIFICATION OF AGREEMENT
The Company and the Warrant Agent, without the consent of any Warrant
holder, may supplement this Agreement in order to make any changes in this
Agreement which the Warrant Agent has been advised by counsel (i) are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error contained herein, (ii) add to the
covenants and agreements of the Company or the Warrant Agent in the Warrants
such further covenants and agreements thereafter to be observed or (iii) result
in the surrender of any right or power reserved to or conferred upon the Company
or the Warrant Agent in the Warrants, but which changes or corrections do not or
will not adversely affect, alter or change the rights, privileges or immunities
of the registered holders of Warrants. In addition, this Agreement may be
modified, supplemented or altered with the consent in writing of the holders of
Warrants representing not less than 50% of the Warrants then outstanding, except
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or increase in the applicable Exercise Price therefor,
or acceleration of the Expiration Date shall be made without the consent in
writing of the registered holder of each Warrant. For the purposes of any
amendment, modification or waiver hereunder, Warrants held by the Company shall
be disregarded.
Any modification or amendment made in accordance with this Agreement
will be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment made in accordance with this Agreement will be
conclusive and binding on all subsequent holders of such Warrant Certificate.
As of the date hereof, this Agreement contains the entire and only
agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of this
Section.
21
SECTION 25. SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 26. GOVERNING LAW
This Agreement and each Warrant Certificate issued hereunder shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
SECTION 27. TERMINATION
This Agreement shall terminate as of the close of business on the final
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the final Expiration Date.
SECTION 28. NO IMPAIRMENT
The Company will not, by amendment of its governing documents 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
Agreement and the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholders
against impairment. The Company will take such further action as may be
necessary or appropriate to effectuate the purposes and intent of this Agreement
and the Warrants including execution and delivery of such further documents and,
instruments and agreements as may be required to carry out the purposes and
intention of this Agreement and the Warrants. In furtherance and not in
limitation of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefore on such exercise, (ii)
will take all such action as may be reasonably necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares on the exercise of the Warrants, (iii) will not close its
shareholder books or records in any manner which interferes with the timely
exercise of the Warrants and (iv) will, to the extent that the Warrantholder is
not able to exercise any Warrants for the full number of shares subject to such
Warrants for any reason, then the Company shall take such further action as may
be necessary to facilitate such exercise, and failing the ability of the
Warrantholder to exercise in full, the Company shall take such further action as
may be necessary to give the Warrantholder the economic benefit of the Warrants
including payment to the Warrantholder of the value of the Warrants upon the
expiration of the Warrant or at the time of any merger, acquisition or other
Fundamental Transaction in an amount equal to the value of the Common
22
Stock that the Warrantholder would have received upon such exercise of the
Warrants in full less the applicable Exercise Price.
SECTION 29. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement or in the Warrant Certificates shall be
construed to give to any person or entity other than the Company, the Warrant
Agent, the registered holders of the Warrant Certificates and their respective
successors and assigns hereunder, any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent, the registered holders of the Warrant
Certificate and their respective successors and assigns hereunder.
SECTION 30. DESCRIPTIVE HEADINGS
The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof
SECTION 31. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
AKSYS, LTD.
By:
---------------------------------
Name:
Title:
-------------------------------------
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
EXHIBIT A
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
VOID AFTER 5:00 P.M. NEW YORK TIME ON ___________, 20__
WARRANTS TO PURCHASE COMMON STOCK
W________ _________ Warrants
AKSYS, LTD.
CUSIP [INSERT NUMBER]
THIS CERTIFIES THAT FOR VALUE RECEIVED _____________________ or its
registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant initially entitles the registered
holder thereof to purchase from Aksys, Ltd., a corporation incorporated under
the laws of the State of Delaware (the "Company"), subject to the terms and
conditions set forth hereinafter and in the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $0.001 par
value, of the Company ("Common Stock") upon presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at any time prior to 5:00 p.m., New York Time, on ________, 20__, at
the stock transfer office of _________________________, Warrant Agent of the
Company (the "Warrant Agent"), or of its successor warrant agent or, if there be
no successor warrant agent, at the corporate offices of the Company, and upon
payment of the Exercise Price (as defined in the Warrant Agreement) paid either
in cash, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $1.10. In the
event of certain contingencies provided for in the Warrant Agreement, the
Exercise Price or the number and kind of securities or other property for which
the Warrants are exercisable are subject to adjustment or modification.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of ____________, 2006 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant
1
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Warrant Agent, the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: President and Chief Executive Officer.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
The Company has agreed in the Warrant Agreement that, among other
things: it will use its best efforts to prepare and file with the Securities and
Exchange Commission a registration statement and the prospectuses used in
connection therewith as may be necessary to keep such registration statement
effective with respect to the resale of the Warrants and Equity Securities and
the issuance of the Equity Securities to be delivered upon the exercise of the
Warrants and, to the extent required under applicable law, to keep such
registration statement current from the date of issuance thereof through the
final Expiration Date (as defined in the Warrant Agreement) or until such
earlier time as no Warrants remain outstanding; and (b) as expeditiously as
possible, it will register or qualify the Equity Securities to be delivered upon
exercise of the Warrants under the securities or Blue Sky laws of each
jurisdiction in which such registration or qualification is necessary and use
its best efforts to maintain all such registrations or qualifications in effect
from the date of issuance thereof through the final Expiration Date or until
such earlier time as no Warrants remain outstanding; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so subject.
However, the Company will not be required to honor the exercise of Warrants if,
in the opinion of the Board of Directors upon advice of counsel, the sale of
securities upon such exercise would be unlawful; provided, further, that the
foregoing provisos shall not affect or in any way limit the obligations of the
Company pursuant to clauses (a) and (b) of this paragraph.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatsoever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting
2
thereof or give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Warrant Agreement) or to receive
dividends or subscription rights or otherwise until the Warrants evidenced by
this Warrant Certificate shall have been exercised and the receipt by the
Warrant Agent of the Exercise Price.
The Company shall not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile signatures of the proper officers of
the Company and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________________, 2006.
AKSYS, LTD.
By:
----------------------------------------
President and Chief Executive Officer
Attest:
------------------------------------
Secretary
Countersigned
----------------------------------------
____________, as Warrant Agent
By:
-----------------------------------
Authorized Officer
3
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_____________ of the Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------
-------------------
-------------------
-------------------
[please print or type name and address]
and be delivered to
-------------------
-------------------
-------------------
-------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced
by this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
1
If applicable, the undersigned represents that the exercise of the
Warrants evidenced hereby was solicited by a member of the National Association
of Securities Dealers, Inc. If not solicited by an NASD member, please leave
blank or write "unsolicited" in the space below.
------------------------------------
(Name of NASD Member)
Dated:
------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address
--------------------------------------
Taxpayer Identification Number
--------------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER,
AND MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
2
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------
-------------------
-------------------
-------------------
[please print or type name and address]
of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:
---------------------
------------------------------
Signature Guaranteed
------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER,
AND MUST BE GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
3