EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
September 1, 2000 between Pharmos Corporation, a Nevada corporation with offices
at 99 Wood Avenue South, Suite 301, Iselin, New Jersey 08830 (the "Company") and
each of the entities listed under "Investors" on the signature page hereto (each
an "Investor" and collectively the "Investors"), each with offices at the
address listed under such Investor's name on Schedule I hereto.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Purchase Agreement by and between the
Company and the Investors (the "Purchase Agreement"), the Company has agreed to
sell and issue to the Investors, and the Investors have agreed to purchase from
the Company, an aggregate of $8 million principal amount of the Company's 6%
Convertible Debentures Due February 28, 2002 (the "Debentures") on the terms and
conditions set forth therein;
WHEREAS, the Purchase Agreement contemplates that the Debentures will be
convertible into shares (the "Common Shares") of common stock, par value $.03,
of the Company ("Common Stock");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to issue warrants exercisable for shares of Common Stock (the "Warrant
Shares") (the "Warrants") in connection with the issuance of the Debentures;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investors' agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investors with certain registration rights with respect to
the Common Shares, Warrant Shares and certain other rights and remedies with
respect to the Debentures as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Purchase Agreement and
this Agreement, the Company and the Investors agree as follows:
1. Certain Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement, the
Warrants or the Debentures. As used in this Agreement, the following terms shall
have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such terms
in the Purchase Agreement.
"Conversion Price" shall have meaning ascribed to such term in Section 5(c)
of the Debenture.
"Conversion Value" shall mean the value that a Holder would be entitled to
receive upon (i) conversion of the Debenture at the Conversion Price then in
existence, without reference to Sections 12 or 5(a) thereof or to Section 3.14
of the Purchase Agreement, followed by (ii) the subsequent sale of the Common
Shares received thereby at the greater of the Market Price for Shares of Common
Stock in existence at the time (A) of the closing of a redemption of a Debenture
or (B) of the event triggering the right to redemption.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Debenture Amount" shall mean the Outstanding Principal Amount of, the
accrued but unpaid interest on, and the accrued but unpaid Delay Payments on,
the Debentures.
"Delay Payment" shall mean a payment equal to 2% of the Debenture Amount
held by the relevant Holder.
"Effectiveness Deadline" shall have the meaning set forth in Section 2(a).
"Holder" and "Holders" shall mean the Investor or the Investors,
respectively, and any transferee of the Debentures, Warrants, Warrant Shares,
Option Shares or Common Shares or Registrable Securities which have not been
sold to the public to whom the registration rights conferred by this Agreement
have been transferred in compliance with this Agreement.
"Interfering Events" shall have the meaning set forth in Section 2(b).
"Market Price for Shares of Common Stock" shall have the meaning ascribed
to such term in the Debentures.
"Outstanding Principal Amount" shall have the meaning ascribed to such term
in the Debentures.
"Premium Redemption Price" shall mean the following:
(a) as to the Debentures, the greater of (i) 120% of the Debenture
Amount and (ii) the Conversion Value;
(b) as to the Warrant Shares, 120% of the dollar amount which is the
product of (i) the number of shares to be redeemed, and (ii) the Market Price
for Shares of Common Stock in existence at the time (x) of the closing of a
redemption of the Warrant Shares or (y) of the event triggering the right to
redemption, whichever results in a greater Premium Redemption Price.
2
(c) as to the Warrants, 120% of the dollar amount which is the product
of (i) the number of Warrant Shares to be issued to the Holder upon exercise of
Warrants multiplied by (ii) the Market Price for Shares of Common Stock in
existence at the time (x) of the closing of the redemption Warrants or (y) of
the event triggering the right to redemption, whichever results in a greater
Premium Redemption Price.
"Put Notice" shall have the meaning set forth in Section 2(b)(i)(B).
"Registrable Securities" shall mean: (a) the Common Shares and Warrant
Shares issued or issuable to each Holder or its permitted transferee or designee
upon conversion of the Debentures or exercise of the Warrants, as applicable, or
upon any stock split, stock dividend, recapitalization or similar event with
respect to such Common Shares or Warrant Shares; (b) any securities issued or
issuable to each Holder upon the conversion, exercise or exchange of any
Debentures, Warrants, Warrant Shares or Common Shares; and (c) any other
security of the Company issued as a dividend or other distribution with respect
to, conversion or exchange of, or in replacement of, Registrable Securities.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, "Blue Sky"
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for a
"due diligence" examination of the Company and review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company).
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for Holders not included within "Registration Expenses"
and if the Holders engage a third party as an underwriter for the purpose of
distributing Registrable Securities on an underwritten basis, the fees and
expenses of such underwriting and any additional expenses of an accountant
incurred in order to obtain a "Comfort Letter."
3
2. Registration Requirements. The Company shall use its best efforts to
effect the registration of the Registrable Securities (including without
limitation the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable "Blue Sky" or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) reasonably
requested by the Holder and in all U.S. jurisdictions. Such best efforts by the
Company shall include the following:
(a) The Company shall, as expeditiously as reasonably possible after
the Closing Date:
(i) But in any event within 30 days thereafter, prepare and file
a registration statement with the Commission on Form S-3 under the
Securities Act (or in the event that the Company is ineligible to use
such form, such other form as the Company is eligible to use under the
Securities Act) covering the Registrable Securities (such registration
statement, including any amendments or supplements thereto and
prospectuses contained therein, is referred to herein as the
"Registration Statement"), which Registration Statement, to the extent
allowable under the Securities Act and the rules promulgated
thereunder (including Rule 416), shall state that such Registration
Statement also covers such number of additional shares of Common Stock
as may become issuable to prevent dilution resulting from stock
splits, stock dividends or similar events. The number of shares of
Common Stock initially included in such Registration Statement shall
be no less than the sum of (A) 1.6 times the sum of the number of
Common Shares that are as of the date of this Agreement issuable upon
conversion of the Debentures plus (B) the number of Warrant Shares
issuable upon exercise of the Warrants in each case without regard to
any limitation on the Investor's ability to convert the Debentures or
Warrants. Thereafter, the Company shall use its best efforts to cause
such Registration Statement to be declared effective as soon as
practicable, and in any event prior to the earlier of (i) 60 days
following the Closing Date or (ii) five days after SEC clearance to
request acceleration (the "Effectiveness Deadline"). The Company shall
provide Holders and their legal counsel reasonable opportunity to
review any such Registration Statement or amendment or supplement
thereto prior to filing.
(ii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to
comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement in accordance
with the intended methods of disposition by the seller thereof as set
forth in the Registration Statement and notify the Holders of the
filing and effectiveness of such Registration Statement and any
amendments or supplements.
4
(iii) After the registration, furnish to each Holder such numbers
of copies of a current prospectus conforming with the requirements of
the Act, copies of the Registration Statement, any amendment or
supplement thereto and any documents incorporated by reference therein
and such other documents as such Holder may reasonably require in
order to facilitate the disposition of Registrable Securities owned by
such Holder.
(iv) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or
"Blue Sky" laws of all U.S. jurisdictions; provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(v) Notify each Holder immediately of the happening of any event
as a result of which the prospectus (including any supplements thereto
or thereof and any information incorporated or deemed to be
incorporated by reference therein) included in such Registration
Statement, as then in effect, includes an untrue statement of material
fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances then existing, and, pursuant to Section 2(f), use
its best efforts to promptly update and/or correct such prospectus.
(vi) Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop
order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose. The Company shall
use its best efforts to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the
earliest possible time.
(vii) Permit a single firm of counsel, designated as Holders'
counsel by the Holders of a majority of the Registrable Securities
included in the Registration Statement, to review the Registration
Statement and all amendments and supplements thereto within a
reasonable period of time prior to each filing, and shall not file any
document in a form to which such counsel reasonably objects.
(viii) Use its best efforts to list the Registrable Securities
covered by such Registration Statement with all securities exchange(s)
and/or markets on which the Common Stock is then listed and prepare
and file any required filings with the National Association of
Securities Dealers, Inc. or any exchange or market where the Common
Stock is then traded.
(ix) If applicable, take all steps necessary to enable Holders to
avail themselves of the prospectus delivery mechanism set forth in
Rule 153 (or successor thereto) under the Act.
5
(x) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares
of Common Stock then registered in the existing Registration
Statements hereunder.
(b) Set forth below in this Section 2(b) are (I) events that may arise
that the Investors consider will interfere with the full enjoyment of their
rights under the Debentures, the Purchase Agreement and this Agreement (the
"Interfering Events"), and (II) certain remedies applicable in each of these
events.
Paragraphs (i) through (iv) of this Section 2(b) describe the
Interfering Events, provide a remedy to the Investors if an
Interfering Event occurs and provide that the Investors may require
that the Company redeem outstanding Debentures, Warrants, or
Registrable Securities at a specified price if certain Interfering
Events are not timely cured.
Paragraph (v) provides, inter alia, that each Holder shall have the
option as to whether it would like to receive any payment required as
a remedy in the case of certain of the Interfering Events in cash or
shares of Common Stock.
Paragraph (vi) provides, inter alia, that if payments required as the
remedy in the case of certain of the Interfering Events are not paid
when due, the Company may be required by the Investors to redeem
outstanding Debentures, Warrants, or Registrable Securities at a
specified price.
Paragraph (viii) provides, inter alia, that the Investors have the
right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to serve only as an
introduction to this Section 2(b), are for convenience only, and are not to be
considered in applying, construing or interpreting this Section 2(b).
(i) Delay in Effectiveness of Registration Statement.
(A) In the event that the Registration Statement has not
been declared effective by the Effectiveness Deadline, then the
Company shall pay in cash or common stock, as provided in Section
2(b)(v), to each Holder a Delay Payment for each 30 day period (or
portion thereof) thereafter during which the Registration Statement
has not been declared effective, which Delay Payments shall not in the
aggregate exceed the maximum percentage permitted by law.
(B) If the Registration Statement has not been declared
effective within 60 days of the Effectiveness Deadline, then each
Holder shall have the right to require the Company to redeem the
Debentures, Warrants, Common Shares, and/or Warrant Shares in whole or
in part at the Premium Redemption Price set forth in clauses (a), (b)
and/or (c)
6
(only) of the definition thereof. Each Holder shall exercise such
right by providing the Company with written notice thereof (the "Put
Notice"), which such Put Notice shall include the type and amount of
each security that the Holder seeks to redeem and a date at least five
(5) business days from the date thereof on which the Holder seeks the
redemption to occur (the "Redemption Date"). Nothing herein shall be
construed as precluding the Holder from exercising its conversion
rights under the Debenture unless the Company redeems the Debenture
and pays the Premium Redemption Price set forth above in full pursuant
to Section 2(b)(i)(B). Delay Payments shall no longer accrue on
Debentures after such Debentures have been redeemed by the Company
pursuant hereto.
(ii) No Listing; Premium Price Redemption for Delisting of Class
of Shares.
(A) In the event that the Company fails, refuses or is
unable to cause the Registrable Securities covered by the Registration
Statement to be listed with the applicable Approved Markets and each
other securities exchange and market on which the Common Stock is then
traded at all times during the period ("Listing Period") commencing
the earlier of the effective date of the Registration Statement or the
60th day following the Closing Date, and continuing thereafter for so
long as the Debentures are outstanding, then the Company shall pay in
cash or Common Stock, as provided in Section 2(b)(v), to each Holder a
Delay Payment for each 30-day period (or portion thereof) during the
Listing Period from and after such failure, refusal or inability to so
list the Registrable Securities until the Registrable Securities are
so listed, which Delay Payments shall not in the aggregate exceed the
maximum percentage permitted by law.
(B) In the event that shares of Common Stock of the Company
are delisted from the applicable Approved Markets at any time
following the Closing Date and remain delisted for 5 consecutive
business days, then at the option of each Holder and to the extent
such Holder so elects, the Company shall on 2 business days notice
either (1) pay in cash or Common Stock (as provided in Section
2(b)(v)) to such Holder a Delay Payment for each 30-day period that
the shares are delisted or (2) redeem the Debentures and/or Warrants
and/or Common Shares and/or Warrant Shares held by such Holder, in
whole or in part, at a redemption price equal to the Premium
Redemption Price (as defined above); provided, however, that such
Holder may revoke such request at any time prior to receipt of payment
of such Delay Payments or Premium Redemption Price, as the case may
be. Delay Payments shall no longer accrue on Debentures after such
Debentures have been redeemed by the Company pursuant to the foregoing
provision.
7
(iii) Blackout Periods. In the event any Holder is unable to sell
Registrable Securities under the Registration Statement for more than
(A) seven (7) consecutive days or (B) an aggregate of thirty (30) days
in any 12 month period ("Suspension Grace Period"), including without
limitation by reason of a suspension of trading of the Common Stock on
the Approved Market, any suspension or stop order with respect to the
Registration Statement or the fact that an event has occurred as a
result of which the prospectus (including any supplements thereto)
included in such Registration Statement then in effect includes an
untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, or
the number of shares of Common Stock covered by the Registration
Statement is insufficient at such time to make such sales (a
"Blackout"), then the Company shall pay in cash or Common Stock (as
provided in Section 2(b)(v)) to each Holder a Delay Payment for each
30-day period (or portion thereof) from and after the expiration of
the Suspension Grace Period, which Delay Payment shall not exceed the
maximum percentage permitted by law. In lieu of receiving the Delay
Payment as provided above, a Holder shall have the right but not the
obligation to elect to have the Company redeem its Debentures,
Warrants, Common Shares and Warrant Shares at the price equal to the
Premium Redemption Price.
(iv) Conversion Deficiency; Premium Price Redemption for
Conversion Deficiency. In the event that the Company does not have a
sufficient number of Common Shares available to satisfy the Company's
obligations to any Holder upon receipt of a Conversion Notice (as
defined in the Debenture) or is otherwise unable or unwilling to issue
such Common Shares (including without limitation by reason of the
limit described in Section 10 below) in accordance with the terms of
the Debenture for any reason after receipt of a Conversion Notice,
then:
(A) The Company shall pay in cash or Common Stock (as
provided in Section 2(b)(v)) to each Holder a Delay Payment for each
30-day period (or portion thereof) that the Company fails or refuses
to issue Common Shares in accordance with the Debenture terms, which
Delay Payment shall not exceed the maximum percentage permitted by
law; provided, however, that if such failure is the result of there
being insufficient shares authorized to make such issuance, such
amount shall not be payable if the Company promptly (but in any event
within ten (10) calendar days) authorizes and issues such shares, and
(B) At any time five days after the commencement of the
running of the first 30-day period described above in clause (A) of
this paragraph (iv), at the request of any Holder pursuant to a
redemption notice, the Company promptly (1) shall purchase from such
Holder, at a purchase price equal to the Premium Redemption Price, the
Debenture
8
Amount of Debentures equal to such Holder's pro rata share of the
Deficiency (as such term is defined below), if the failure to issue
Common Shares results from the lack of a sufficient number thereof and
(2) shall purchase all (or such portion as such Holder may elect) of
such Holder's Debentures at such Premium Redemption Price if the
failure to issue Common Shares results from any other cause. The
"Deficiency" shall be equal to the Debenture Amount of Debentures that
would not be able to be converted for Common Shares, due to an
insufficient number of Common Shares available, if all the outstanding
Debentures were submitted for conversion at the Conversion Price set
forth in the Debentures as of the date such Deficiency is determined.
Any request by a Holder pursuant to this paragraph (iv)(B) shall be
revocable by that Holder at any time prior to its receipt of the
Premium Redemption Price.
(v) Delay Payment Terms; Status of Unpaid Delay Payments. All
Delay Payments (which payments shall be pro rata on a per diem basis
for any period of less than 30 days) required to be made in connection
with the above provisions shall be paid at any time upon demand, by
the fifteenth (15th) day of each calendar month for the partial or
full calendar month occurring prior to that date. Such Delay Payments
shall be payable in cash or Common Stock, as determined by each Holder
in its sole discretion. If the Holder elects to be paid in Common
Stock, the Holder shall be entitled to that number of shares of Common
Stock as shall equal to the amount of such Delay Payment multiplied by
a fraction, the numerator of which is one and the denominator of which
is equal to the average of the Market Price for Shares of Common Stock
for the three (3) business days prior to, but not including, the date
upon which such payments are due. Unless the Company shall receive
written notice to the contrary from the respective Holder, the Delay
Payments shall be paid in cash. Until paid as required in this
Agreement, Delay Payments shall be deemed added to, and a part of, the
Outstanding Principal Amount of a Holder's Debentures.
(vi) Premium Price Redemption for Delay Payment Defaults. In the
event that the Company fails or refuses to pay any Delay Payment
provided for in the foregoing paragraphs (i) through (iv) when due, at
any Holder's request and option, the Company shall purchase all or a
portion of the Debentures, Warrants, Common Shares and/or Warrant
Shares held by such Holder (with Delay Payments accruing through the
date of such purchase), within five (5) days of such request, at a
purchase price equal to the Premium Redemption Price (as defined
above); provided that such Holder may revoke such request at any time
prior to receipt of such payment of such purchase price. Until such
time as the Company purchases such Debentures at the request of such
Holder pursuant to the preceding sentence, at any Holder's request and
option the Company shall as to such Holder pay such amount by adding
and including the amount of
9
such Delay Payment to the Outstanding Principal Amount of a Holder's
Debentures.
(vii) Cumulative Remedies. Each Delay Payment triggered by an
Interfering Event provided for in the foregoing paragraphs (ii)
through (iv) shall be in addition to each other Delay Payment
triggered by another Interfering Event; provided, however, that in no
event shall the Company be obligated to pay to any Holder Delay
Payments in an aggregate amount greater than one Delay Payment for any
30-day period (or portion thereof). The Delay Payments and mandatory
redemptions provided for above are in addition to and not in lieu or
limitation of any other rights the Holders may have at law, in equity
or under the terms of the Debentures, the Purchase Agreement, the
Warrants or this Agreement, including without limitation the right to
specific performance. Each Holder shall be entitled to specific
performance of any and all obligations of the Company in connection
with the registration rights of the Holders hereunder.
(viii) Certain Acknowledgments. The Company acknowledges that any
failure, refusal or inability by the Company described in the
foregoing paragraphs (i) through (iv) and paragraph (vi) will cause
the Holders to suffer damages in an amount that will be difficult to
ascertain, including without limitation damages resulting from the
loss of liquidity in the Registrable Securities and the additional
investment risk in holding the Registrable Securities. Accordingly,
the parties agree that it is appropriate to include in this Agreement
the foregoing provisions for Delay Payments and mandatory redemptions
in order to compensate the Holders for such damages. The parties
acknowledge and agree that the Delay Payments and mandatory
redemptions set forth above represent the parties' good faith effort
to quantify such damages and, as such, agree that the form and amount
of such Delay Payments and mandatory redemptions are reasonable and
will not constitute a penalty. The parties agree that the provisions
of this clause (viii) consist of certain acknowledgments and
agreements concerning the remedies of the Holders set forth in clauses
(i) through (iv) and paragraph (vi) of this paragraph; nothing in this
clause (viii) imposes any additional default payments and mandatory
redemptions for violations under this Agreement.
(c) If the Holder(s) intend to distribute the Registrable Securities
by means of an underwriting, the Holder(s) shall so advise the Company. Any such
underwriting may only be administered by investment bankers reasonably
satisfactory to the Company.
(d) The Company shall enter into such customary agreements for
secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities. In the event that
the offering in which the Registrable
10
Securities are to be sold is deemed to be an underwritten offering or an
Investor selling Registrable Securities is deemed to be an underwriter, the
Company shall:
(i) make such representations and warranties to the Holders and
the underwriter or underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in secondary
offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of
independent counsel to the Company, on and dated as of the effective
day (or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto) of the
Registration Statement, and within ninety (90) days following the end
of each fiscal year thereafter, which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Holders
and the underwriter(s), if any, and their counsel and covering,
without limitation, such matters as the due authorization and issuance
of the securities being registered and compliance with securities laws
by the Company in connection with the authorization, issuance and
registration thereof and other matters that are customarily given to
underwriters in underwritten offerings, addressed to the Holders and
each underwriter, if any.
(iii) cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each fiscal
year following a year during which the Company's independent certified
public accountants shall have reviewed any of the Company's books or
records, a "comfort" letter from the Company's independent certified
public accountants addressed to the Holders and each underwriter, if
any, stating that such accountants are independent public accountants
within the meaning of the Securities Act and the applicable published
rules and regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are customarily
covered by letters of the independent certified public accountants
delivered in connection with secondary offerings; such accountants
shall have undertaken in each such letter to update the same during
each such fiscal year in which such books or records are being
reviewed so that each such letter shall remain current, correct and
complete throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the Holders.
(iv) if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten
offerings;
11
(v) deliver such documents and certificates as may be reasonably
requested by the Holders of the Registrable Securities being sold or
the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any; and
(vi) deliver to the Holders on the effective day (or in the case
of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the Registration
Statement, and at the beginning of each fiscal quarter thereafter, a
certificate in form and substance as shall be reasonably satisfactory
to the Holders, executed by an executive officer of the Company and to
the effect that all the representations and warranties of the Company
contained in the Purchase Agreement are still true and correct except
as disclosed in such certificate; the Company shall, as to each such
certificate delivered at the beginning of each fiscal quarter, update
or cause to be updated each such certificate during such quarter so
that it shall remain current, complete and correct throughout such
quarter; and such updates received by the Holders during such quarter,
if any, shall have been reasonably satisfactory to the Holders.
(e) The Company shall make available for inspection, upon reasonable
written notice and during regular business hours, by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of the
Company and review of any Registration Statement, all SEC Documents (as defined
in the Purchase Agreement) filed subsequent to the Closing, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential.
(f) The Company shall file a Registration Statement with respect to
any newly authorized and/or reserved shares, with respect to its obligation to
reserve or register Registerable Securities, within 30 days of any corporate
action authorizing or reserving same and shall file a Registration Statement
with respect to additional Registrable Securities within 30 days of the
occurrence of an event referred to in Section 2(a)(x) and shall use its best
efforts to cause, in either case, such Registration Statement to become
effective within 75 days of such corporate action or such occurrence, as the
case may be. If the Holders become entitled, pursuant to an event described in
clause (iii) of the definition of Registrable Securities, to receive any
securities in respect of Registrable Securities that were already included in a
Registration Statement, subsequent to the date such Registration Statement is
declared effective, and the Company is unable under the securities laws to add
such securities to the then effective Registration Statement, the Company shall
promptly file, in accordance with the procedures set forth herein, an additional
Registration Statement with respect to such newly Registrable
12
Securities. The Company shall use its best efforts to (i) cause any such
additional Registration Statement, when filed, to become effective under the
Securities Act, and (ii) keep such additional Registration Statement effective
during the period described in Section 5 below. All of the registration rights
and remedies under this Agreement shall apply to the registration of such newly
reserved shares and such new Registrable Securities, including without
limitation the provisions providing for Delay Payments contained herein.
3. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses of a Holder shall be borne by such Holder.
4. Registration on Form S-3; Other Forms. The Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form,
such form as the Company is eligible to use under the Securities Act.
5. Registration Period. In the case of the registration effected by the
Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until the later to occur of (i) sales are
permitted of all Registrable Securities without registration under Rule 144(k)
or (ii) such time as there are no longer any Warrants outstanding.
6. Indemnification.
(a) The Company Indemnity. The Company will indemnify each Holder,
each of its officers, directors and partners, and each person controlling each
Holder, within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder, any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each Holder, each of its officers, directors and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to a Holder to the extent that any
13
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by such Holder or the underwriter (if any) therefor and stated to be
specifically for use therein. The indemnity agreement contained in this Section
6(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent will not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not jointly, if
Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, each
other Holder (if any), and each of their officers, directors and partners, and
each person controlling such other Holder(s), against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, and will reimburse the Company and such other Holder(s)
and their directors, officers and partners, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein, and
provided that the maximum amount for which such Holder shall be liable under
this indemnity shall not exceed the net proceeds received by such Holder from
the sale of the Registrable Securities. The indemnity agreement contained in
this Section 6(b) shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is materially and adversely
affected by such failure to
14
provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
7. Contribution. If the indemnification provided for in Section 6 herein is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein (other than by reason of the exceptions
provided therein), then each such Indemnifying Party, in lieu of indemnifying
each of such Indemnified Parties, shall contribute to the amount paid or payable
by each such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 7 exceed the amount that such Indemnifying Party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Section 6(a) or 6(b) hereof had been available under the
circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any Holder, the net proceeds received by such Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that such Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
15
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. Survival. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of the Company referred
to in Section 2(d)(i) shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or the Purchase Agreement or
any underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of the Company, and (iii) the consummation
of the sale or successive resales of the Registrable Securities.
9. Information by Holders. Each Holder shall reasonably promptly furnish to
the Company such information regarding such Holder and the distribution and/or
sale proposed by such Holder as the Company may reasonably request in writing
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement. The intended method
or methods of disposition and/or sale (Plan of Distribution) of such securities
as so provided by such Investor shall be included without alteration in the
Registration Statement covering the Registrable Securities and shall not be
changed without written consent of such Holder, except that such Holder may not
require an intended method of disposition which violates applicable securities
law.
10. NASDAQ Limit on Stock Issuances. Section 3.14 of the Purchase Agreement
shall govern limits imposed by NASDAQ Small Cap rules on the conversion of
Debentures.
11. Replacement Certificates. The certificate(s) representing the Common
Shares or Warrant Shares held by the Investor (or then Holder) may be exchanged
by the Investor (or such Holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Common Shares or Warrant Shares, as reasonably requested by the Investor (or
such Holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
12. Transfer or Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or assigned (in whole or in part) to a transferee
or assignee of Debentures or Warrants, and all other rights granted to the
Investors by the Company hereunder may be transferred or assigned to any
transferee or assignee of any Debentures or Warrants; provided in each case
that: (i) any transfer of Debentures shall be for at least $500,000 in principal
amount thereof; and (ii) the Company must be given written notice by the such
Investor at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; provided that the transferee or assignee of such
rights agrees in writing to be bound by the provisions of this Agreement.
16
13. Miscellaneous.
(a) Remedies. The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) Jurisdiction. THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING
IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE INVESTORS CONSENTS
TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing by facsimile, mail or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
99 Wood Avenue South
Suite 301
Iselin, New Jersey 08830
Phone: (732) 452-9556
Attn: Robert W. Cook, Chief Financial Officer
with copies to:
Ehrenreich Eilenberg & Krause LLP
11 East 44th Street, 17th Floor
New York, New York 10017
Attention: Adam Eilenberg, Esq.
17
Phone: (212) 986-9700
Fax: (212) 986-2399
to the Investors:
To each Investor at the address and/or fax number
set forth on Schedule I of this Agreement
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
parties hereto.
(d) Indemnity. Each party shall indemnify each other party against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) Waivers. No waiver by any party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter. The representations and warranties and the agreements and
covenants of the Company and each Investor contained herein shall survive the
Closing.
(f) Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(g) Publicity. The Company agrees that it will not disclose, and will
not include in any public announcement, the name of any Investor without its
express written approval, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement. The
Company agrees to deliver a copy of any public announcement regarding the
matters covered by this Agreement or any agreement or document executed herewith
to each Investor and any public announcement including the name of an Investor
to such Investor, prior to the publication of such announcements.
(h) No Piggyback on Registration. Neither the Company nor any of its
security holders (other than Ladenburg Thalmann & Co., Inc. and SmallCaps OnLine
LLC and other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
18
(i) Entire Agreement. This Agreement, together with the Purchase
Agreement, the Debentures, the Warrants and the agreements and documents
contemplated hereby and thereby, contains the entire understanding and agreement
of the parties, and may not be modified or terminated except by a written
agreement signed by both parties.
(j) Governing Law. THIS AGREEMENT AND THE VALIDITY AND PERFORMANCE OF
THE TERMS HEREOF SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED
AND TO BE PERFORMED ENTIRELY IN SUCH STATE.
(k) Severability. The parties acknowledge and agree that the Investors
are not agents, affiliates or partners of each other, that all representations,
warranties, covenants and agreements of the Investors hereunder are several and
not joint, that no Investor shall have any responsibility or liability for the
representations, warrants, agreements, acts or omissions of any other Investor,
and that any rights granted to "Investors" hereunder shall be enforceable by
each Investor hereunder.
(l) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY.
(m) Titles. The titles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
(n) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then issued or issuable
Registrable Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by the
Company, or an affiliate of the Company are not deemed outstanding.
Signature page follows
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
PHARMOS CORPORATION
By:
------------------------------------
Name:
Title:
INVESTORS:
MILLENNIUM PARTNERS, LP
By:
------------------------------------
Name:
Title:
STRONG RIVER INVESTMENTS, INC.
By:
------------------------------------
Name:
Title:
ST. ALBANS PARTNERS, LTD.
By:
------------------------------------
Name:
Title:
Signature page to Registration Rights Agreement
Signature page to Registration Rights Agreement
SCHEDULE I
Investor
Millennium Partners, L.P.
c/o Millennium Management, LLC
666 Fifth Avenue
New York, New York 10103
Fax: (212) 841-6302
Attn: Dan Cardella
Strong River Investments, Inc.
c/o Icaza, Gonzalez-Ruiz & Aleman
(BVI) Ltd.
Vanterpool Plaza, 2nd Floor
Wickhams Cay 1, Road Town
Tortola, British Virgin Islands
With copies to:
Cavallo Capital Corp.
660 Madison Avenue
18th Floor
New York, New York 10021
Phone: (212) 651-9000
Fax: (212) 651-9010
Attn: Mor Sagi
St. Albans Partners, Ltd.
c/o Camden Asset Management
2049 Century Park East
Suite 330
Los Angeles, California 90067
Phone: (310) 785-9755
Fax: (310) 785-9780
Attn: Janice Brooks