EXHIBIT 10.1
VOID AFTER 5:00 P.M. NEW YORK, NEW YORK
TIME ON February 4, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 100,000 Shares of
Common Stock, par value $.03 per share
Date: February 4, 1998
PHARMOS CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, the undersigned or its registered
assigns (each a "Holder"), is entitled to purchase from Pharmos Corporation, a
Nevada corporation (the "Company"), at any time or from time to time during the
period specified in Section 2 hereof, __________ fully paid and nonassessable
shares of the Company's common stock, par value $.03 per share (the "Common
Stock"), at an exercise price of _____ per share (the "Exercise Price"). This
Warrant is being issued pursuant to that certain Securities Purchase Agreement
dated as of January 30, 1998 between the Company and the signatories thereto
(the "Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to Holder if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 8(f) hereof, this Warrant
may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 8(c)
hereof), together with a completed exercise agreement in the Form of
Exercise Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"),
to the Company at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the
Holder), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of
the Exercise Price for the Warrant Shares specified in the Exercise
Agreement or (ii) if the Holder elects to effect a Cashless Exercise (as
defined in Section 12(c) below), delivery to the Company of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall
be deemed to be issued to the Holder or Holder's designees, as the record
owner of such shares, as of the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall
have been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the
Holder within a reasonable time, not exceeding four (4) business days,
after this Warrant shall have been so exercised (the "Delivery Period").
The certificates so delivered shall be in such denominations as may be
requested by the Holder and shall be registered in the name of Holder or
such other name as shall be designated by such Holder. If this Warrant
shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Holder a new Warrant representing the number
of shares with respect to which this Warrant shall not then have been
exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with this Section. If such dispute
involves the calculation of the Exercise Price, the Company shall submit
the disputed calculations to an independent accounting firm of national
standing, reasonably acceptable to the Holder and the Company via facsimile
within three (3) business days of receipt of the Exercise Agreement. The
accounting firm shall audit the calculations and notify the Company and the
converting Holder of the results no later than two
(2) business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Exercise Price of a
share of Common Stock; provided that in the event that sufficient funds are
not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
(e) Buy-In. If (i) the Company fails for any reason to deliver during
the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to
such an exercise, Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery upon a sale by Holder of
the shares of Common Stock (the "Sold Shares") which Holder was entitled to
receive upon such exercise (a "Buy-in"), the Company shall pay Holder (in
addition to any other remedies available to Holder) the amount by which (x)
Holder's total purchase price (including brokerage commission, if any) for
the shares of Common Stock so purchased exceeds (y) the lesser of (A) the
Exercise Price or (B) the net proceeds received by Holder from the sale of
the Sold Shares. Holder shall provide the Company written notification
indicating any amounts payable to Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from time to
time on or after the first (1st) anniversary of the date hereof and before
5:00 P.M., New York, New York time on the fifth (5th) anniversary of the
date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and agrees
as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company shall
at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon the Nasdaq
National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange as required by Section 4.9 of
the Securities Purchase Agreement and upon each national securities
exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed and shall maintain, so
long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon
the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the
case may be, and shall maintain such listing of any other shares of
capital stock of the Company issuable upon the exercise of this
Warrant so long as any shares of the same class shall be listed on
such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of its
charter 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 to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying
out of all the provisions of this Warrant and in the taking of all
such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of
this Warrant, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will
not increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price and
the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such
Exercise Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e)
hereof, if and whenever
after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for
a consideration per share less than the Exercise Price as in effect on
the date of issuance of such shares of Common Stock (a "Dilutive
Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following
formula:
E' = (E) (O + P/E) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or
exchangeable for Common Stock ("Convertible Securities"), but not
to include the grant or exercise of any shares of Common Stock,
or options or rights to acquire Common Stock, which may hereafter
be granted or exercised under any employee or Director benefit
plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock, options or rights
is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of
a committee of non-employee
directors established for such purpose (such warrants, rights and
options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options"), and the price per share
for which Common Stock is issuable upon the exercise of such
Options is less than the Exercise Price as in effect on the date
of issuance ("Below Market Options"), then the maximum total
number of shares of Common Stock issuable upon the exercise of
all such Below Market Options (assuming full exercise, conversion
or exchange of Convertible Securities, if applicable) will, as of
the date of the issuance of such Below Market Options, be deemed
to be outstanding and to have been issued and sold by the Company
for the price per share provided for pursuant to such Below
Market Option. For purposes of the preceding sentence, the price
per share for which Common Stock is issuable upon the exercise of
such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise
of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the exercise
of all such Below Market Options (assuming full conversion of
Convertible Securities, if applicable) on the date of issuance of
such Below Market Options. No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
1) If the Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible (other
than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is
less than the Exercise Price as in effect on the date of
issuance, then the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of
all such Convertible Securities will, as of the date of the
issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company
for the price per share pursuant to such Convertible
Security. For the purposes of the preceding sentence, the
price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issuance or sale of all
such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will
be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible
Securities.
2) If the Company in any manner issues or sells any Convertible
Securities with a
fluctuating conversion or exercise price or exchange ratio
(a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise,
conversion or exchange for purposes of the calculation
contemplated by Section 4(b)(ii)(A) shall be deemed to be
the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to
any discounts contained in such Convertible Security have
been satisfied, and (2) the Market Price on the date of
issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may
hereafter be granted or exercised under any employee or
Director benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-
employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee
directors established for such purpose, if there is a change
at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options;
(ii) the amount of additional consideration, if any, payable
to the Company upon the exercise, conversion or exchange or
any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable
for Common Stock (other than under or by reason of
provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible
Securities still outstanding provided for such changed
additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Options or upon
exercise, conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange
such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had
such Options or Convertible Securities, to the extent
outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for
purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any
Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be
other than cash, the amount of the consideration other than
cash received by the Company will be the fair market value
of such consideration except where such consideration
consists of freely-tradeable securities, in which case the
amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
in connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market
value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities,
as the case may be. The fair market value of any
consideration other than cash or securities will be
determined in the good faith reasonable business judgment of
the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and
outstanding on the date hereof in accordance with the terms
of such securities as of such date; (ii) upon the grant or
exercise of any shares of Common Stock, or options or rights
to acquire Common Stock, which may hereafter be granted or
exercised under any employee or Director benefit plan of the
Company now existing or to be implemented in the future, so
long as the issuance of such stock, options or rights is
approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established
for such purpose; (iii) upon the issuance of the Common
Shares (as defined in the Securities Purchase Agreement) or
Warrants in accordance with terms of the Securities Purchase
Agreement; or (iv) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company, at
any time after the initial issuance of this Warrant, subdivides
(by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) its shares of
Common Stock into a greater number of shares, then, after the
date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the
initial issuance of this Warrant, combines (by reverse stock
split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of
shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions
of this Section 4, the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted by multiplying a
number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable
upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) Major Transactions. If the Company shall consolidate with or
merge into any corporation or reclassify its outstanding shares
of Common Stock (other than by way of subdivision or reduction of
such shares) (each a "Major Transaction"), then each holder of a
Warrant shall thereafter be entitled to receive consideration, in
exchange for such Warrant, equal to the greater of, as determined
in the sole discretion of such holder, a warrant to purchase (at
the same aggregate exercise price and on the same terms and
conditions as the Warrant surrendered) the number of shares of
stock or securities or property of the Company, or of the entity
resulting from such consolidation or merger (the "Major
Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon exercise of such Warrant
would have been entitled upon such Major Transaction had the
holder of such Warrant exercised (without regard to any
limitations on exercise herein contained) the Warrant on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such
Common Stock been issued and outstanding and had such holder been
the holder of record of such Common Stock at the time of such
Major Transaction, and the Company shall make lawful provision
therefor as a part of such consolidation, merger or
reclassification. No sooner than twenty (20) days nor later than
five (5) days prior to the consummation of the Major Transaction,
but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice ("Notice of
Major Transaction") to each holder of Warrants, which Notice of
Major Transaction shall be deemed to have been delivered one (1)
business day following the Company's sending such notice by
telecopy (provided that the Company sends a confirming copy of
such notice on the same day by overnight courier) of such Notice
of Major Transaction. Such Notice of Major Transaction shall
indicate the amount and type of the Major Transaction
Consideration which
such holder would receive under clause (i) of this paragraph (e).
If the Major Transaction Consideration does not consist entirely
of United States currency, such holder may elect to receive
United States currency in an amount equal to the value of the
Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the
Company within five (5) days of the holder's receipt of the
Notice of Major Transaction.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a partial liquidating dividend, by
way of return of capital or otherwise (including any dividend or
distribution to the Company's shareholders of cash or shares (or
rights to acquire shares) of capital stock of a subsidiary) (a
"Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets (or
rights) which would have been payable to the Holder had such
Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to
such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the Holder,
which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease in the number of Warrant
Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method of calculation and the facts upon
which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1%
of such Exercise Price.
(i) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock
of any class or other rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or
substantially all of its assets to, another corporation or
entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(j) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including
shares of
Common Stock held in the treasury of the Company), plus (x)
in case of any adjustment required by Section 4(a) resulting
from the issuance of any Options, the maximum total number
of shares of Common Stock issuable upon the exercise of the
Options for which the adjustment is required (including any
Common Stock issuable upon the conversion of Convertible
Securities issuable upon the exercise of such Options), and
(y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities,
the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of the Convertible
Securities for which the adjustment is required, as of the
date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the Closing Bid
Price for the shares of Common Stock as reported to Nasdaq
Small-Cap National Market System for the trading day
immediately preceding such date, or (ii) if the Nasdaq
Small-Cap National Market System is not the principal
trading market for the Common Stock, the average of the last
reported bid prices on the principal trading market for the
Common Stock during the same period, or, if there is no bid
price for such period, the last reported sales price for
such period, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market
Price shall be the average fair market value as reasonably
determined by an investment banking firm selected by the
Company and reasonably acceptable to the Holders of a
majority in interest of the Warrants, with the costs of the
appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth
in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to
market value must be made under this Section 4.
(iii) "Common Stock," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the
Company having no preference as to dividends or
distributions on
liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only Common Stock in respect
of which this Warrant is exercisable, or shares resulting
from any subdivision or combination of such Common Stock, or
in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to
in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the Certificate of
Designation, Preferences and Rights attached as Exhibit A to the Securities
Purchase Agreement), in the event that Nasdaq Rule 4460(i) (or any
successor rule) applies to the Company, unless otherwise permitted by the
Nasdaq SmallCap Market or the Nasdaq National Market System if the Common
Stock of the Company trades on such market, in no event shall the Company
be required to issue more shares of Common Stock upon the exercise of the
Warrant than the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to such rule or rules,
which, as of the date of initial issuance of the shares of Preferred Stock
and Warrants, shall be the amount indicated to be the Cap Amount in the
officer's certificate delivered pursuant to the Securities Purchase
Agreement. The Cap Amount shall be allocated pro-rata to the Holders. A
Holder's allocable portion of the Cap Amount shall be applicable to both
shares of Preferred Stock and Warrants held by it and shall be applied to
such Preferred Stock and Warrants on the basis of the time of conversion or
exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder of such
shares for any issuance tax or other costs in respect thereof, provided
that the Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle
the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action
by the Holder to purchase Warrant Shares, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of
the Holder for the Exercise Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to the
Holder are transferable, in whole or in part, upon surrender of this Warrant,
together with a properly executed assignment in the Form of Assignment attached
hereto as Exhibit 2, at the office or
agency of the Company referred to in Section 8(e) below, provided, however, that
any transfer or assignment shall be subject to the provisions of Section 5.1 and
5.2 of the Securities Purchase Agreement. Until due presentment for registration
of transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the rights described in Section 9 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of January 30, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement").
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable in increments of 10,000 or more of Warrant Shares, upon the
surrender hereof by the Holder at the office or agency of the Company referred
to in Section 8(e) below, for new Warrants, in the form hereof, of different
denominations representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
or, in the case of any such loss, theft, or destruction, upon delivery, of an
indemnity agreement (or bond, in cases in which the Holder actually received the
original or replacement certificate for such Warrant from the Company)
reasonably satisfactory in form and amount to the Company, or, in the case of
any such mutilation, upon surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Warrant, in the form hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange, or replacement as provided in this
Section 8, this Warrant shall be promptly canceled by the Company. The Company
shall pay all issuance taxes (other than securities transfer taxes) and charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the Holder), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee and each prior owner
of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding anything
to the contrary contained herein, the Warrants shall not be exercisable by the
Holder to the extent (but only to the extent) that, if exercisable by Holder,
Holder or any of its affiliates (as defined under Rule 12b-2 of the Securities
Exchange Act of 1934, as amended) would beneficially own in excess of 4.9% of
the shares of Common Stock. To the extent the above limitation applies, the
determination of whether the Warrants shall be exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants shall be exercisable (as among
Warrants) shall be in the sole discretion of the Holder and submission of the
Warrants for exercise shall be deemed to be the Holder's determination of
whether such Warrants are exercisable (vis-a-vis other securities owned by
Holder) and of which warrants are exercisable (among Warrants) subject to such
aggregate percentage limitation. No prior inability to exercise Warrants
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms this paragraph with
the approval of the Board of Directors of the Company and the Holder: (i) with
respect to any matter to cure any ambiguity herein, to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
4.9% beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such 4.9%
limitation; and (ii) with respect to any other matter, with the further consent
of the holders of a majority of the then outstanding shares of Common Stock. The
provisions of this paragraph may be waived by Holder at its election upon not
less than sixty-one (61) days prior written notice from Holder to the Company,
including, without limitation, a limited waiver to increase the 4.9% limit
herein contained to any other percentage specified by such Holder. The
limitations contained in this paragraph shall apply to a successor Holder of
Warrants if, and to the extent, elected by such successor Holder concurrently
with its acquisition of such Warrants, such election to be promptly confirmed in
writing to the Company (provided no transfer or series of transfers to a
successor Holder or Holders shall be used by a Holder to evade the limitations
contained in this paragraph).
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights
in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
10. Notices. Any notice herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier and shall be
deemed delivered at the time and date of receipt. The addresses for such
communications shall be:
If to the Company:
Pharmos Corporation
33 Wood Avenue South, Suite 466
Iselin, NJ 08830
Telecopy: 732-603-3532
Attention: Chief Financial Officer
with a copy to:
Ehrenreich Eilenberg Krause & Zivian, LLP
11 East 44th Street, 17th Floor
New York, NY 10017
Telecopy: 212-986-2399
Attention: Adam D. Eilenberg
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 9.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed in the State of New York. The Company
and each Holder irrevocably consent to the jurisdiction of the United
States federal courts located in the County of New York in the State of New
York in any suit or proceeding based on or arising under this Warrant and
irrevocably agree that all claims in respect of such suit or proceeding may
be determined in such courts. The Company and each Holder irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit
or proceeding. The Company and each Holder further agrees that service of
process upon any other party to this Warrant mailed by the first class mail
shall be deemed in every respect effective service of process upon such
party in any suit or proceeding arising hereunder. Nothing herein shall
affect the right of the Company or any Holder to serve process in any other
manner permitted by law. The Company and each Holder agree that a final
nonappealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in
any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may be amended or
waived by an instrument in writing signed by the Company and the
Holder to be affected by such amendment or waiver.
b. Descriptive Headings. The descriptive headings of the several Sections
of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary contained
in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive
offices with a written notice of the Holder's intention to effect a
cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the
terms hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, in lieu of paying the Exercise Price in cash, the Holder
shall surrender this Warrant for the number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per
share of the Common Stock and the Exercise Price, and the denominator
of which shall be such then current Market Price per share of Common
Stock.
d. Assignability. This Warrant shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Holder and
its successors and assigns. The Holder shall notify the Company upon
the assignment of this Warrant.
* * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
PHARMOS CORPORATION
By:
Name:
Title:
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Pharmos Corporation, a Nevada
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except in
compliance with the Warrant and otherwise under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:
Signature of Holder
Name of Holder (Print)
Address:
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.