Exhibit 4.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of September 26, 2003, by
and among Pharmos Corporation, a corporation incorporated under the laws of
Nevada having an address at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ (the "Company"), the purchasers signatory hereto (each an "Purchaser" and
together the "Purchasers"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP, with an address at ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement referred to in the first recital.
W I T N E S S E T H
WHEREAS, the Company and the Purchasers have entered into a Securities
Purchase Agreement, dated September 26, 2003 (the "Purchase Agreement") pursuant
to which the Purchasers are purchasing from the Company, the Company's 4%
Convertible Debentures due March 31, 2005 (the "Debentures") and Warrants;
NOW, THEREFORE, it is agreed as follows:
1. Closing.
(a) Upon the Escrow Agent's receipt of the $21,000,000 into its
master escrow account, together with the Purchasers' executed counterparts
of this Agreement, the Purchase Agreement and the Registration Rights
Agreement, it shall telephonically advise the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into
its master escrow account.
(b) Wire transfers to the Escrow Agent shall be made as follows:
STERLING NATIONAL BANK
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Account Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
ABA ROUTING NO:
ACCT NO:
Remark: PARS/[FUND NAME]
(c) The Company, upon receipt of (i) said notice and (ii) a
"transaction form" or related confirmation from the Nasdaq Listing
Qualifications Group acknowledging receipt of the Company's Notification
Form: Listing of Additional Shares regarding the issuance of securities to
be issued pursuant to the Purchase Agreement (a copy of which shall be
provided to the Escrow Agent), shall deliver to the Escrow Agent the
certificates representing the Debentures and the Warrants to be issued to
each Purchaser at the Closing together with:
(i) the executed counterpart of the Registration
Rights Agreement;
(ii) the executed opinions of Company Counsel and
Nevada Counsel;
(iii) the executed counterpart of the Purchase
Agreement; and
(iv) an executed counterpart of this Escrow
Agreement.
(d) In the event that the foregoing items are not in the Escrow
Agent's possession within five (5) Trading Days of the Escrow Agent
receiving the Subscription Amounts (net of permitted deductions pursuant
to the Purchase Agreement), then each Purchaser shall have the right to
demand the return of their Subscription Amounts.
(e) Once the Escrow Agent receives all of the items required to be
delivered hereunder, it shall wire 5% of the gross proceeds raised
pursuant to the Purchase Agreement per the written instruction of ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, Inc. ("▇▇▇▇▇▇") as its fee in connection with the transaction
described herein, $20,000 to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP for the legal costs and
expenses of ▇▇▇▇▇▇, $16,000,000 ("Secured Proceeds") shall be initially
transferred into a separate non-interest bearing escrow account of the
Escrow Agent ("Escrow Account") and the remaining balance per the written
instructions of the Company. Thereafter the Escrow Account shall be
maintained by the Escrow Agent in accordance with the terms of this
Agreement and may be invested in an interest-bearing government securities
or commercial money market fund designated from time to time by the
Company and made available by the Escrow Agent's bank. The Escrow Agent,
by its execution and delivery of this Agreement, hereby agrees to accept
receipt of the Secured Proceeds.
(f) Once the funds (as set forth above) have been sent per the
Company's instructions, the Escrow Agent shall then arrange to have the
Purchase Agreement, the Warrants, the Debentures, the Registration Rights
Agreement, the Escrow Agreement and the opinions of counsel delivered to
the appropriate parties.
(g) The Escrow Agent shall hold the Secured Proceeds in escrow and
not release such proceeds, except as provided herein.
2. Release of Secured Proceeds upon Conversion of Debentures. At any time
after the principal amount outstanding of a Debenture(s) held by a Purchaser has
been reduced by an amount at least equal to such Purchaser's Pro Rata Portion of
$5,000,000, whether by conversion, redemption or otherwise, upon the conversion
by a Purchaser of all or part of the principal amount of the Debentures held by
such Purchaser (the "Converted Principal Amount"), whether voluntarily or by
means of a Forced Conversion pursuant to the terms of the Debenture, such
Purchaser and the Company shall promptly thereafter execute a joint certificate
to the Escrow Agent certifying that such Converted Principal Amount has been
converted by the Purchaser (a "Conversion Certificate"). Upon receipt of a
Conversion Certificate, the Escrow Agent shall release, to the account specified
in the written instructions of the Company, the Converted Principal Amount out
of the Secured Proceeds. "Pro Rata Portion" is the ratio of (x) such Purchaser's
Subscription Amount and (y) the aggregate sum of all of the Subscription
Amounts. Notwithstanding anything in this Agreement to the contrary, the Escrow
Agent shall only release funds to the Company or a Purchaser, if such release
relates solely to a Purchaser, up to such Purchaser's Pro Rata Portion of the
Secured Proceeds.
3. Release of Secured Proceeds upon Monthly Redemption of Debentures. At
any time after the principal amount outstanding of a Debenture(s) held by a
Purchaser has been reduced by an amount at least equal to such Purchaser's Pro
Rata Portion of $5,000,000, whether by conversion, redemption or otherwise, such
Purchaser and the Company shall execute a joint certificate to the Escrow Agent
certifying that such required Monthly Redemption amounts have been received in
full by Purchaser, whether by conversion, redemption or otherwise (a "Redemption
Certificate"). Upon receipt of a Redemption Certificate and upon written
instructions from the Company to effect a Monthly Redemption, the Escrow Agent
shall release to such
Purchaser its Pro-Rata Portion of the Secured Proceeds in satisfaction of the
payment of such Monthly Redemption Amount.
4. Release of Secured Proceeds Upon Consent of Purchasers. Upon receipt by
the Company of written consent of holders of at least 75% of the principal
amount of Debentures then outstanding to release any portion of Secured
Proceeds, all of the consenting Purchasers and the Company shall execute a joint
certificate to the Escrow Agent certifying that consent to release such Secured
Proceeds has been obtained, which certificate shall include the amount of
Secured Proceeds to be released, representations from each Purchaser as to the
outstanding principal amount of Debentures held by it at the time such consent
was obtained and a representation by the Company's chief financial officer as to
the aggregate principal amount of Debentures outstanding at the time consent was
obtained (a "Consent Certificate"). Upon receipt of the Consent Certificate, the
Escrow Agent shall release, to the account designated in the written
instructions of the Company, such portion of the Secured Proceeds. If less than
all of the Secured Proceeds are released, the remaining amount, for purposes of
calculating each Purchaser's rights hereunder, shall be re-allocated according
to such Purchaser's Pro-Rata Portion. Upon any release of Secured Proceeds
pursuant to this Section 4, such Secured Proceeds shall be used solely for
purposes of funding an acquisition by the Company.
5. Release of Secured Proceeds Upon Events of Default under the
Debentures.
(a) If, on the maturity date of the Debentures, any Debentures shall
remain unpaid, then upon receipt by the Escrow Agent of a written notice
from a Purchaser holding such Debentures certifying that such Debentures
remain unpaid, the Escrow Agent shall release to such Purchaser their Pro
Rata Portion of the Secured Proceeds remaining in the Escrow Account
relating to such Purchaser (but not more than the amount due under such
Debentures then held by such Purchaser and amounts due under the Purchase
Agreement to such Purchaser), and such Secured Proceeds shall be applied
to reduce amounts due and owing to such Purchaser with the respect to the
Debentures and the Purchase Agreement as follows: first, to the payment of
fees and expenses, second, to interest payable in cash with respect to the
Debentures, and third, to the outstanding principal under the Debentures.
(b) Following an Event of Default under the Debentures, a Purchaser
may, at its option, deliver a certificate to the Escrow Agent and the
Company specifying the nature of the Event of Default. If within ten days
of receipt of such certificate, the Escrow Agent shall not have received
written notice from the Company that it disputes the occurrence of an
Event of Default under the Debentures, then the Escrow Agent shall release
to such Purchaser such Purchaser's Pro Rata Portion of the Secured
Proceeds remaining in the Escrow Account. In the event that the Company
does deliver a timely notice to the Escrow Agent and the Purchaser that it
disputes such determination, then such dispute shall be resolved between
the Company and the Purchaser by arbitration conducted as follows: the
arbitration shall be conducted in New York, New York, before an
arbitration panel of three arbitrators, one of whom shall be selected by
the Purchaser, one of whom shall be selected by the Company, with the
remaining arbitrator to be agreed upon by the first two. The arbitration
shall be conducted in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect. Any arbitration
decision or award shall be final and conclusive as to the parties to this
Agreement and their successors and assigns; judgment upon such decision or
award may be entered in any competent Court. In the event that the
arbitration shall be decided in favor of the Purchaser, then upon delivery
of a written copy of such decision by the Purchaser to the Escrow Agent,
the Escrow Agent shall immediately release the Purchaser's Pro Rata
Portion of the remaining Secured Proceeds to the Purchaser.
6. Security Agreement.
(a) The Company hereby grants to the Purchasers a continuing
security interest in the Secured Proceeds held in the Escrow Account by
the Escrow Agent. This Agreement secures the payment or performance of the
following obligations (collectively, the "Obligations"): all present and
future indebtedness, obligations, covenants, duties and liabilities of any
kind or nature of the Company to the Purchasers (or any of them) now
existing or hereafter arising under or in connection with the Transaction
Documents.
(b) The Company hereby represents and warrants to the Purchasers as
follows:
(i) The grant of the security interest in the
Secured Proceeds pursuant to this Agreement creates a valid and perfected
first priority security interest in the Secured Proceeds, securing payment
and performance of the Obligations; and
(ii) No consent of any other person or entity and no
authorization, approval, or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required (i) for
the grant of a security interest in the Secured Proceeds pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by the Company or (ii) for the perfection or maintenance of the security
interest created hereby (including the first priority nature of such
security interest).
(c) Further Assurances.
(i) The Company agrees that at any time and from time to time,
at the expense of the Company, the Company shall promptly execute
and deliver all further instruments, documents and/or control
agreements and take all further action, that may be necessary or
desirable, or that the Purchasers may reasonably request, in order
to perfect and protect any security interest granted or purported to
be granted hereby or to enable any Purchaser to exercise and enforce
its rights and remedies hereunder with respect to any Secured
Proceeds; and
(ii) The Company agrees that it will not create or permit to
exist any lien upon or with respect to any of the Secured Proceeds,
except for the security interest granted pursuant to this Agreement.
Notwithstanding the fact that the Company acknowledges and agrees
that the filing of a financing statement is not required in order
perfect the security interest in the Secured Proceeds, the Company
consents to the Purchasers filing UCC-1s or other documents required
to perfect the security interested granted hereunder.
7. Condition to Escrow Agent's Duties. The acceptance by the Escrow Agent
of its duties as such under this Agreement is subject to the following terms and
conditions, which all of the parties to this Agreement hereby agree shall govern
and control with respect to the rights, duties, liabilities and immunities of
the Escrow Agent:
(a) The Escrow Agent is not a party to, nor is it bound by, any
other agreement by which the other parties hereto may be bound (whether or
not it has knowledge of such), other than as expressly herein set forth.
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other document which the
Escrow Agent, in good faith, believes to be genuine and what it purports
to be. No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other
covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the
time for performance of any other obligation or act. If the Escrow Agent
reasonably requires other or further instruments in connection with this
Agreement or obligations in respect hereto, the necessary parties hereto
shall join in furnishing such instruments.
(c) The Escrow Agent shall be indemnified and held harmless by the
Company and the Purchasers, jointly and severally, from and against any
and all loss, expense, fees (including attorneys' fees) and damages that
may be incurred by the Escrow Agent as a result of its agreeing to act in
such capacity and its performance of this Agreement. The Escrow Agent
shall not be obligated to any party for any error in judgment or for any
act done or steps taken or omitted by it in good faith, or for any mistake
of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except as a result of its own gross negligence or
willful misconduct. This indemnity includes the costs of enforcing the
indemnification (including attorneys' fees).
(d) The Escrow Agent may consult with or retain legal counsel in
connection with any dispute or question as to the construction of any of
the provisions hereof or with regard to its duties and shall be held
harmless and protected by the Company and the Purchasers in acting in good
faith in accordance with the instructions of such counsel. Such counsel's
fees and expenses shall be paid as set forth in Paragraph 7(f) hereof. The
Escrow Agent may represent itself at its usual rates.
(e) The Escrow Agent shall not be responsible or liable for the
default or misconduct of its agents, attorneys or employees, if they are
selected with reasonable care.
(f) The Company will pay the Escrow Agent's fees (at the Escrow
Agent's customary hourly rate for legal services) and out-of-pocket
disbursements for time spent in performing its duties under this
Agreement, and if any of Escrow Agent's invoices are not paid in full
within 30 days, the Escrow Agent is directed to pay itself directly from
the Escrow Account; provided that if fees are taken directly from the
Escrow Account by the Escrow Agent, the Purchasers shall have no claim
against the Escrow Agent for such funds but shall have a claim against the
Company for reimbursement. The Company shall promptly replenish any funds
that are disbursed to the Escrow Agent from the Escrow Account.
(g) No modification of this Agreement shall, without the consent of
the Escrow Agent and all other parties hereto, modify the provisions of
this Agreement relating to the duties, obligations or rights of the Escrow
Agent. This Agreement is the final expression of, and contains the entire
agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto.
8. Conflict with Respect to Secured Proceeds.
(a) In the event the Escrow Agent before the termination of the
escrow receives or becomes aware of conflicting demands or claims with
respect to this escrow or the Secured Proceeds, the Escrow Agent shall
have the right to discontinue any or all further acts on its part until
such conflict is resolved to its satisfaction.
(b)The Escrow Agent shall have the further right to commence or
defend any action or proceedings for the determination of such conflict.
The Company and the Purchasers jointly and severally agree to pay all
costs, damages, judgments and expenses, including reasonable attorneys'
fees, suffered or incurred by the Escrow Agent in connection with or
arising out of this escrow in the
event of bona fide conflicting claims or demands with respect to this
escrow, including, but without limiting the generality of the foregoing, a
suit in interpleader brought by the Escrow Agent. In the event the Escrow
Agent files a suit in interpleader, it shall thereupon be fully released
and discharged from all further obligations to perform any and all duties
or obligations imposed upon it by this Agreement (except it may not
release the Secured Proceeds except as designated by the court).
9. Acknowledgement. All parties hereto agree that the Escrow Agent is
counsel for ▇▇▇▇▇▇, placement agent in connection with the consummation of the
Purchase Agreement and shall be entitled to represent such placement agent with
respect to the Purchase Agreement and the transactions contemplated thereunder.
The Company and each Purchaser hereby waives any right or claim to object to
such legal representation by Escrow Agent of the placement agent, and further
agrees that nothing in this Agreement or contemplated hereby shall constitute a
waiver of any attorney-client, work product or other privilege.
10. Resignation of Escrow Agent. The Escrow Agent may at any time resign
hereunder by giving written notice of its resignation to the Company and the
Purchasers, at least ten (10) days prior to the date specified for such
resignation to take effect, and upon the effective date of such resignation, all
property then held by the Escrow Agent hereunder shall be delivered by it to
such person as may be designated by the Company and the Purchasers, in writing,
whereupon all the Escrow Agent's obligations hereunder shall cease and
terminate. If no such person shall have been designated by such date, all
obligations of the Escrow Agent hereunder shall, nevertheless, cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be to keep
safely all property then held by it and to deliver the same to a person
designated by the parties hereto or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction, or to file a suit in
interpleader as provided in Paragraph 8 above.
11. Interest on Secured Proceeds. Except as otherwise provided in Section
1(e), the Escrow Agent shall deposit the Secured Proceeds in a
non-interest-bearing account.
12. Successors and Assigns. Purchasers may assign their rights hereunder
in connection with the transfer of Debentures, provided that: (i) such transfer
is for at least $500,000 in principal amount of Debentures (or such lesser
amount representing the remaining amount outstanding under the Debentures held
by a Holder) and (ii) the transferee of Debentures agrees in writing to be bound
by the terms of this Agreement. In such event the Secured Proceeds for the
transferred Debentures shall be transferred to a new Escrow Account for the
transferee. The Company may not assign its rights under this Agreement. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, administrators, successors and assigns.
13. Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE
PARTIES AGREE AND CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS LOCATED IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING
HEREUNDER, AND TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED
(WHICH SHALL CONSTITUTE "PERSONAL SERVICE").
14. Amendment. No provision of this Agreement may be amended or waived
without the prior written consent of the Company and all the Purchasers;
provided, that any provision relating to the duties, obligations and rights of
the Escrow Agent shall in addition require the approval of the Escrow Agent, as
provided in paragraph 5(g) above.
15. Notices. All notices or other communications between the parties
contemplated under, or relating to, this Agreement shall be in writing, shall be
signed by each person giving such notice or communication,
and shall be delivered by hand, reputable overnight courier or by certified
mail, return receipt requested, to the parties at their respective addresses set
forth above or to such other address as to which the sending party has received
written notice in accordance with this Paragraph 15.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
PHARMOS CORPORATION
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
ESCROW AGENT:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Partner
[PURCHASERS' SIGNATURE PAGES FOLLOW]