REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
February 4, 1998, by and among Pharmos Corporation, a Nevada corporation (the
"Company"), with headquarters located at 33 Wood Avenue South, Suite 466,
Iselin, New Jersey, 08830 and the undersigned (the "Initial Purchasers").
RECITALS
A. In connection with the Securities Purchase Agreement dated of even date
herewith by and between the Company and the Initial Purchasers (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Purchasers (i)
shares of Series C Convertible Participating Preferred Stock of the Company (the
"Preferred Stock") that is convertible into shares (the "Conversion Shares") of
the Company's common stock, par value $.03 per share (the "Common Stock") and
(ii) a Warrant (a "Warrant" and, when taken together with all of the warrants
issuable under the Securities Purchase Agreement, the "Warrants") entitling the
holder thereof to purchase the number of shares of Common Stock set forth in the
Warrant (the "Warrant Shares"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations, Preferences and
Rights with respect to such Preferred Stock (the "Certificate of Designation"),
in the form attached as Exhibit A to the Securities Purchase Agreement.
B. To induce the Initial Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Purchasers" means the Initial Purchasers and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(b) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares (including
any Conversion Shares issuable with respect to conversion default payments
under the Certificate of Designation) issued or issuable with respect to
the Preferred Stock, and the Warrant Shares issued or issuable with respect
to the Warrants (without regard to any limitations on conversion or
exercise), and any shares of capital stock issued or issuable, from time to
time (with any adjustments), on or in exchange for or otherwise with
respect to the Common Stock or any other Registrable Securities. For
purposes of this Agreement, each security described above shall cease to be
a Registrable Security when such security (i) has been effectively
registered under the Securities Act, and has been disposed of pursuant to
an effective registration statement covering such security, (ii) is
distributed to the public pursuant to Rule 144 (or any similar provisions
then in force) under the Act, or (iii) may be sold or transferred pursuant
to Rule 144(k) (or any similar provision then in force) under the Act.
(d) "Registration Statement" means a registration statement of the
Company under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 Mandatory Registration. The Company shall prepare, and, on or prior to
thirty (30) days after the date of the Closing (the "Filing Date"), file with
the SEC a Registration Statement on Form S-3 or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities covering the resale of all
of the Registrable Securities, 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 indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and the exercise of the Warrants
(i) to prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock or the Exercise Price of the Warrants in
accordance with the terms thereof, as the case may be. The Registrable
Securities included in the Registration Statement shall be allocated among the
Purchasers as set forth in Section 11.11 hereof. The Registration Statement (and
each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of
(which approval shall not be unreasonably withheld or denied)) the Initial
Purchasers and a single counsel for the Initial Purchasers prior to its filing
or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, shall have the right to select a total of one
legal counsel to represent the Purchasers and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day following the date of the Closing (the "Registration
Deadline"). If (i) the registration statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2.1 hereof is
not declared effective by the SEC on or before the Registration Deadline, or
(ii) after the registration statement has been declared effective by the SEC,
sales of all the Registrable Securities (including any Registrable Securities
required to be registered pursuant to Section 3.2 hereof) cannot be made
pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Initial Purchasers), then the Company will make
payments to the Purchasers in such amounts and at such times as shall be
determined pursuant to this Section 2.3 as partial relief for the damages to the
Purchasers by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). In such event, the Company shall pay to
each Purchaser (i) an amount equal to (A) .01 times (B) the aggregate purchase
price of the Preferred Stock held by such Purchaser (including, without
limitation, shares of Preferred Stock that have been converted into Conversion
Shares) for the first thirty (30) days (pro rated based on the number of days if
less than 30) following the Registration Deadline (the "Grace Period") prior to
the date the Registration Statement filed pursuant to Section 2.1 is declared
effective by the SEC (the "Effective Date"), and (ii) an amount equal to (x) (A)
.02 times (B) the aggregate purchase price of the Preferred Stock held by such
Purchaser (including, without limitation, shares of Preferred Stock that have
been converted into Conversion Shares) times (y) the sum of: (A) the number of
months (prorated per day for partial months) following the Grace Period prior to
the Effective Date plus (B) the number of months (prorated per day for partial
months) following the Grace Period but prior to the termination of the
Registration Period that sales cannot be made pursuant to the Registration
Statement after the Effective Date. Such amounts shall be paid in cash or, at
each Purchaser's option, may be convertible into Common Stock at the "Conversion
Price" (as defined in the Certificate of Designation). Any shares of Common
Stock issued upon conversion of such amounts shall be Registrable Securities. If
the Purchaser desires to convert or exercise the amounts due hereunder into
Registrable Securities it shall so notify the Company in
writing within two (2) days prior to the date on which such amounts are first
payable in cash and such amounts shall be so convertible (pursuant to the terms
of the Certificate of Designation), beginning on the last day upon which the
cash amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, payments shall be made for
each such thirty (30) day period within five (5) days after the end of such
thirty (30) day period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Registration Statement required
to be filed and/or amended pursuant to this Agreement is not effective, and
during such period of ineffectiveness, the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), then the Company shall send to each Purchaser who
has a right to have Registrable Securities covered by a Registration Statement
pursuant to this Agreement written notice of such determination and, if within
ten (10) days after the date of such notice, such Purchaser shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Purchaser requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Purchaser has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Purchasers seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Purchasers; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement. No
right to registration of Registrable Securities under this Section 2.4 shall be
construed to limit any registration required under Section 2.1 or 3.2 hereof. If
an offering in connection with which a Purchaser is entitled to registration
under this Section 2.4 is an underwritten offering, then each Purchaser whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
2.5 Eligibility for Form S-3. The Company represents and warrants that it
meets the current requirements for the use of Form S-3 for registration of the
sale by the Initial Purchasers and any other Purchaser of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold (and no further
Registrable Securities may be issued in the future) and (ii) the date on which
all of the Registrable Securities (in the reasonable opinion of counsel to the
Initial Purchasers) may be immediately sold to the public without registration
and without restriction as to the number of Registrable Securities to be sold,
whether pursuant to Rule 144 or otherwise (the "Registration Period"). The
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading, except for any such untrue statement or
omission provided to the Company by any Purchaser which is provided in writing
by Purchaser expressly for use therein.
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any five (5)
consecutive trading days (the last of such five (5) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred fifty percent
(150%) of the Registrable Securities issued or issuable upon conversion of the
Preferred Stock held by any Purchaser, the Company shall amend, if permissible,
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover one hundred
seventy-five percent (175%) of the Registrable Securities issued or issuable to
such Purchaser, in each case, as soon as practicable, but in any event within
five (5) business days in the
case of an amendment and ten (10) business days in the case of a Registration
Statement after the Registration Trigger Date (based on the market price of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed or filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Purchaser.
3.4 The Company shall use reasonable efforts to (a) register and qualify
the Registrable Securities covered by the Registration Statement under
securities laws of such jurisdictions in the United States as each Purchaser who
holds (or has the right to hold) Registrable Securities being offered reasonably
requests, (b) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (c) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (d) take all other actions which the Company reasonably
deems necessary or advisable to qualify the Registrable Securities for sale in
such jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3.4, (ii) subject itself to taxation in any such jurisdiction,
(iii) file a general consent to service of process in any such jurisdiction, or
(iv) provide any undertakings that cause the Company material expense or burden.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering in accordance with Section 2.2 of this
Agreement, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
3.6 As soon as practicable after becoming aware of such event, the Company
shall notify (by telephone and also by facsimile and, if telephone contact is
not made, by reputable overnight
courier) each Purchaser of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts promptly
(but in any event within ten (10) days) to prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each Purchaser
as such Purchaser may reasonably request.
3.7 The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable time and to notify (by
telephone and also by facsimile and reputable overnight carrier) each Purchaser
who holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
3.8 The Company shall permit a single firm of counsel designated by the
Initial Purchasers to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
3.9 The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date of
the Registration Statement.
3.10 At the request of any Purchaser, the Company shall furnish, on the
date of effectiveness of the Registration Statement and thereafter from time to
time on such dates as a Purchaser may reasonably request (a) written
confirmation by the Company that the Registration Statement is effective and (b)
in connection with an underwritten offering, a letter, dated as of such
applicable date, from the Company's independent certified public accountants
addressed to the Purchasers and in form, scope and substance as customarily
given to underwriters in an underwritten public offering.
3.11 The Company shall make available at reasonable times for inspection by
(i) any Purchaser, (ii) any underwriter participating in any disposition
pursuant to the Registration Statement, (iii) one firm of attorneys and one firm
of accountants retained by the Purchasers, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), to enable each Inspector to exercise
its due diligence responsibility, if any, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
Records which the Company determines, in good faith, to be confidential and
which the Company
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors for any reason unless the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction. Each
Purchaser agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential by the Company. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.11.
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (c) the release of such
information is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or is otherwise required by
applicable law or legal process, (d) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement (to the knowledge of the Company), or (e) such Purchaser
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning a
Purchaser is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Purchaser prior
to making such disclosure, and allow the Purchaser, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
3.13 The Company shall cause the listing and the continuation of listing of
all the Registrable Securities covered by the Registration Statement on the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, and cause the Registrable Securities to
be quoted or listed on each additional national securities exchange or quotation
system upon which the Common Stock is then listed or quoted.
3.14 The Company shall provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Purchasers may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Purchasers may request.
3.16 At the request of any Purchaser, the Company shall promptly prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary in order to change the plan of distribution set forth in
such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission).
3.18 The Company shall take all such other actions as any Purchaser or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities.
3.19 From and after the date of this Agreement, the Company shall not, and
shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement or any amendment
or supplement thereto under Section 2.1 or 3.2 hereof without the consent of the
holders of a majority of the Registrable Securities.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Purchaser that such Purchaser shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least ten (10)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements and any amendments and supplements thereto hereunder, unless such
Purchaser has notified the Company in writing of such Purchaser's election to
exclude all of such Purchaser's Registrable Securities from the Registration
Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser
shall comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 [Intentionally Deleted].
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 and, if so directed by the Company, such
Purchaser shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all copies in
such Purchaser's possession (other than a limited number of permanent file
copies), of the prospectus covering such Registrable Securities current at the
time of receipt of such notice.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2 hereof,
no Purchaser may participate in any underwritten distribution hereunder unless
such Purchaser (a) agrees to sell such Purchaser's Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
agrees to pay its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company pursuant to Article
V.
ARTICLE V
EXPENSES OF REGISTRATION
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and III, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Purchasers pursuant to Section 2.2, hereof shall be
borne by the Company.
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6.3 with respect to the number of legal
counsel, the Company shall reimburse the Purchasers, each such underwriter and
controlling person, and each such other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.1: (x) shall
not apply to an Indemnified Person with respect to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (z) with respect
to any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3.3 hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser is
participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any
person who controls such stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act (each an "Indemnified Party"), against any
Claim to which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Purchaser expressly for use in connection with
such Registration Statement; and subject to Section 6.3 such Purchaser will
reimburse any legal or other expenses (promptly as such expenses are incurred
and are due and payable) reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6.2 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Purchaser, which consent shall not be unreasonably withheld;
provided, further, however, that a Purchaser shall be liable under this
Agreement (including this Section 6.2 and Article VII) for only that amount as
does not exceed the net proceeds actually received by such Purchaser as a result
of the sale of Registrable Securities pursuant to such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Purchasers pursuant to Article
IX. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.2 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Article VI, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall diligently pursue such defense and
that such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and any such Indemnified Person or
Indemnified Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which are different
from or in addition to those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by
Purchasers holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Purchasers if they hold Registrable Securities included in such
Registration Statement), if the Purchasers are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
ARTICLE VII
CONTRIBUTION
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Article
VI to the fullest extent permitted by law; provided, however, that (i) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is a
holder of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (ii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Purchasers the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii)
a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Purchasers to sell such
securities pursuant to Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assigned by each Purchaser to any transferee of all or any portion
of the Preferred Stock or the Registrable Securities if: (a) the Purchaser
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee, and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c) following
such transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act or applicable
state securities laws, (d) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence, the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (e) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company and Purchasers who
hold a majority interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Article X shall be binding upon each Purchaser
and the Company. Notwithstanding the foregoing, no amendment or waiver shall
retroactively affect any Purchaser without its consent or prospectively
adversely affect any Purchaser who no longer owns any Preferred Stock, Warrants
or Registrable Securities without its consent. Neither Article VI nor Article
VII hereof may be amended or waived in a manner adverse to a Purchaser without
its consent.
ARTICLE XI
MISCELLANEOUS
11.1 A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Pharmos Corporation
33 Wood Avenue South
Suite 466
Iselin, NJ 08830
Attention: Chief Financial Officer
with a copy to:
Ehrenreich, Eilenberg, Krause & Zivian, LLP
11 East 44th Street
17th Floor
New York, NY 10017
Attn: Adam D. Eilenberg
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman, Esq.
and if to any other Purchaser, at such address as such Purchaser, 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 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11.4 This Agreement 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 irrevocably consents to the
jurisdiction of the federal courts located in the State of New York and the
state courts of the State of New York located in the County of New York in the
State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. Each party irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process upon each such party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. The parties hereto agree that a final non-appealable 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.
11.5 This Agreement, the Preferred Stock, Warrants and the Securities
Purchase Agreement (including all schedules and exhibits thereto and all
certificates and opinions required thereby) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the Preferred
Stock, the Warrants and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX, the rights of a Holder
hereunder shall be assignable to and exercisable by a bona fide pledgee of the
Registrable Securities in connection with a Holder's margin or brokerage
accounts.
11.7 The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10 All consents and other determinations to be made by the Purchasers or
the Initial Purchasers pursuant to this Agreement shall be made by the
Purchasers or the Initial Purchasers holding a majority of the Registrable
Securities (determined as if all Preferred Stock then outstanding had been
converted into Registrable Securities) held by all Purchasers or Initial
Purchasers, as the case may be.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. For purposes of making the
pro rata allocations set forth in this paragraph, all Preferred Stock then
outstanding shall be deemed to have been converted into Registrable Securities.
11.12 If any provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
PHARMOS CORPORATION
By: ______________________________________
Its: ______________________________
Initial Purchasers:
CC INVESTMENTS, LDC
By: ______________________________________
Its: ______________________________
GEMINI CAPITAL,
a Division of R.D. Kushnir & Co.
By: _____________________________________
Its: _____________________________