Document:

Exhibit 10.2

 

COVANCE INC.

 

RESTRICTED STOCK AGREEMENT

 

2002 Employee Equity
Participation Plan

(2004 Award)

 

RESTRICTED
STOCK AGREEMENT dated as of December 17, 2004 (the “Agreement”) between
COVANCE INC., a Delaware corporation (“Company”), located at 210 Carnegie
Center, Princeton, New Jersey 08540, and Richard F. Cimino (the “Employee”).

 

W  I  T  N  E
S  S  E  T  H:

 

A.                                   WHEREAS,
the Employee is currently employed by the Company, or a corporation which is a “subsidiary
corporation” within the meaning of Section 424(f) of the Internal Revenue
Code of 1986, as amended, modified or supplemented from time to time (“Code”)
or which is an entity in which the Company holds beneficially at least fifty
percent (50%) of the ownership interest (each, a “Subsidiary Company”), in an
important executive, managerial or technical capacity.

 

B.                                     WHEREAS,
the Company desires to have the Employee remain in the employment of the
Company or a Subsidiary Company and to afford the Employee the opportunity to
acquire, or enlarge the Employee’s, stock ownership in the Company so that the
Employee may have a direct proprietary interest in the Company’s success.

 

NOW,
THEREFORE, in consideration of the premises, the mutual covenants and
agreements set forth below, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereby agree as follows:

 

1.  Grant of Shares.  Subject to the terms and conditions of the
Employee Equity Participation Plan (as amended, modified or supplemented from
time to time the “Plan”) and this Agreement, the Company hereby grants (“Grant”)
to the Employee, as of the date of this Agreement (“Grant Date”) 5,000 shares
of Common Stock, par value $.01 per share (the “Common Stock”), of the Company.

 

2.  Vesting of Restricted Shares;
Rights.  (a) The Shares shall
vest on December 20, 2007.

 

(b)  Subject to the terms and conditions of this
Agreement, Employee shall have all rights relating to the Shares, including the
right to vote and collect dividends as declared and paid by the Company,
subject to appropriate withholding to satisfy applicable tax requirements.

 

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3.  Termination.  (a) 
The Grant with respect to any unvested Shares shall be forfeited and be
of no further force or effect upon the termination of the Employee’s
employment, for any reason, with the Company, except in the case of his death,
disability (as defined 22(e)(3) of the Code) or his retirement with the consent
of the Company, in which case all unvested Shares shall thereupon immediately
vest.

 

(b)  If the Employee shall be transferred from the
Company to a Subsidiary Company, or from a Subsidiary Company to the Company,
or from a Subsidiary Company to a Subsidiary Company, his employment shall not
be deemed to be terminated by reason of such transfer.  The unvested portion of the Shares shall
terminate immediately if, while the Employee is employed by a Subsidiary
Company, such Subsidiary Company shall cease to be a Subsidiary Company and the
Employee is not thereupon transferred to and employed by the Company or another
Subsidiary Company.

 

4.  Construction.  Whenever the word “Employee” is
used in any provision of this Agreement in circumstances where the provision
should logically be construed to apply to the estate, personal representative,
or beneficiary to whom this Grant may be transferred by Will, by the laws of
descent and distribution, or by a qualified domestic relations order pursuant
to the Code or Title I of the Employment Retirement Income Security Act of
1974, as amended, modified or supplemented from time to time (“ERISA”), it
shall be deemed to include such person.

 

5.  Physical Possession of Shares;
Restrictions on Transfer. 
(a)  Each certificate of Shares
shall be registered in the name of the Employee but shall be held by the
Company until the Employee is entitled to physical possession of the Shares
pursuant to the terms of this Agreement. 
Until the Employee has received physical possession of the Shares, the
Employee may not give, grant, sell, exchange, transfer legal title, pledge,
assign or otherwise encumber or dispose of any unvested Shares granted pursuant
to the Plan or any interest therein or this Agreement, otherwise than by Will,
the laws of descent and distribution, or by a qualified domestic relations
order pursuant to the Code or Title I of ERISA.

 

(b)  No assignment or transfer of any unvested
Shares, or of the rights represented thereby or this Agreement, whether
voluntary or involuntary, by operation of law or otherwise (except by Will, the
laws of descent and distribution, or a qualified domestic relations order
pursuant to the Code or Title I of ERISA), shall vest in the assignee or
transferee any interest or right herein whatsoever.  Further, immediately upon any attempt to
assign or transfer any unvested Shares granted pursuant to this Agreement, the
Grant shall immediately terminate and be of no further force or effect (except
by Will, the laws of descent and distribution, or a qualified domestic
relations order pursuant to the Code or Title I or ERISA).

 

6.  Powers.  The existence of this Grant shall
not affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalization, reorganizations or
other changes in the Company’s capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds,

 

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debentures, preferred or
prior preference stocks ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.

 

7.  Change of Control.  Except as set forth in Paragraph 3
hereof, notwithstanding anything in this Agreement to the contrary, all Shares
which have not vested as of the date of a Change of Control (as defined below)
occurs, shall immediately vest upon a Change of Control and be delivered to the
Employee pursuant to the delivery provisions of this Agreement.  For purposes of this Agreement, a Change of
Control shall be defined as:

 

(1)                                  any person (including as such term is
used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended) who becomes the beneficial owner, directly or indirectly, of
securities representing 20% or more of the combined voting power of the Company’s
then outstanding securities; or

 

(2)                                  as a result of a proxy contest or
contests or other forms of contested shareholder votes (in each case either
individually or in the aggregate), a majority of the individuals elected to
serve on the Company’s Board of Directors are different than the individuals
who served on the Company’s Board of Directors at any time within the two years
prior to such proxy contest or contests or other forms of contested shareholder
votes (in each case either individually or in the aggregate); or

 

(3)                                  when the Company’s shareholders approve a
merger, or consolidation (where in each case the Company is not the survivor
thereof), or sale or disposition of all or substantially all of the Company’s
assets or a plan or partial or complete liquidation; or

 

(4)                                  when an offerer (other than the Company)
purchases shares of the Company’s Common Stock pursuant to a tender or exchange
offer for securities representing 20% or more of the combined voting power of
the Company’s then outstanding securities.

 

8.  Issuance of Shares; Power of
Attorney.  (a)  Within sixty (60) days of the date of this
Agreement, the Company shall cause its transfer agent to issue in the Employee’s
name a certificate evidencing the Shares granted pursuant to this Agreement.  The certificate representing unvested Shares
shall be retained by the Company and shall bear a legend stating that such
Shares are subject to the provisions of this Agreement.  The Company may place a “stop transfer” order
with respect to all unvested Shares with its transfer agent.

 

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(b)  Within thirty (30) days of the vesting date
as set forth in Section 2 hereof, the Company shall cause its transfer
agent to issue to the Employee, upon the Company’s surrender of the appropriate
certificate representing unvested Shares, a new certificate representing the
Shares vested during the plan year.  The
transfer agent shall thereupon re-issue on behalf of and in the Employee’s name
a certificate representing the remaining unvested Shares still subject to the
terms of this Agreement, which certificate shall be retained by the Company.

 

(c)  The Company shall have the right to deduct
from any vested shares a number of shares sufficient to cover the withholding
of any federal, state or local or other governmental taxes or charges required
by law or such greater amount of withholding as permitted by applicable law,
rules or regulations, or to take such other action as may be necessary to
satisfy any such withholding obligations.

 

(d)  The Employee hereby constitutes and appoints
the Company as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him in his name, place and stead, in any
and all capacities to take all actions and to execute all instruments necessary
and proper to carry out the issuance and cancellation of the Shares hereunder.

 

(e)  The Employee represents and warrants that he
will take all actions necessary, as directed by the Company, to cancel the
certificate representing any or all unvested Shares upon termination of his
employment.

 

9.  Changes in Law.  Notwithstanding anything in this
Agreement to the contrary, if at any time any law or regulations of any
governmental authority having jurisdiction in the premises shall require either
the Company or the Employee to take any action in connection with the Shares
then to be issued, the issue of such Shares shall be deferred until such action
shall have been taken.

 

10.  Dispute.  Any dispute or disagreement which
shall arise under, as a result of, or pursuant to, this Agreement shall be
finally determined by the Company’s Compensation and Organization Committee of
the Board of Directors in its absolute and uncontrolled discretion, and any
such determination or any other determination by the Company’s Compensation and
Organization Committee of the Board of Directors under or pursuant to this
Agreement, and any interpretation by the Company’s Compensation and
Organization Committee of the Board of Directors of the terms of this
Agreement, shall be final, binding and conclusive on all persons affected
thereby.

 

11.  Securities Law Restrictions.
The Employee represents and warrants that he or she is acquiring the Shares for
investment, for his or her own account and not with a view to the distribution
thereof, and that the Employee has no present intention of disposing of the
Shares or any interest therein or sharing ownership thereof with any other
person or entity.  The Employee shall not
sell, hypothecate or transfer the Shares except pursuant to an effective registration
statement under the Securities Act of 1933, as amended or an

 

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applicable exemption
thereto evidenced by an opinion of counsel in form and substance satisfactory
to the Company.

 

12.  No Effect Upon Employment.  This Agreement does not give, nor shall it be
construed as giving, the Employee any right to employment by the Company or any
of its subsidiaries or affiliates.

 

13.  Governing Law;  Binding Effect.  THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW JERSEY (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF)
AND ALL QUESTIONS CONCERNING THE VALIDITY AND CONSTRUCTION THEREOF SHALL BE
GOVERNED IN ACCORDANCE WITH THE LAWS OF SAID STATE; PROVIDED, HOWEVER,
THAT ALL MATTERS OF CORPORATE GOVERNANCE AND OTHER CORPORATE MATTERS CONCERNING
DELAWARE CORPORATIONS SHALL BE GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW.
Except as otherwise expressly provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto, their legal
representatives, successors and assigns.

 

14.  Effect on Compensation and
Discretionary Nature of Grant. 
Notwithstanding anything in this Agreement to the contrary, none of the
Shares, if any, granted or paid to Employee shall be considered compensation
for the purpose of determining Employee’s compensation under any other benefit
or compensation plan of the Company, including, without limitation, any bonus
plan, variable compensation plan, long-term incentive plan, pension plan or
other retirement plans.  The Employee acknowledges and agrees that the
Plan is discretionary in nature and may be amended, cancelled, or terminated by
the Company, in its sole discretion, at any time.  The grant of restricted stock under the Plan
is a one-time benefit and does not create any contractual or other right to
receive a restricted grant of stock or benefits in lieu of restricted stock in
the future.  Future grants of restricted stock,
if any, will be at the sole discretion of the Company, including, but not
limited to, the timing of any grant, the number of shares of restricted stock
and the vesting provisions.

 

15.  Section 83(b)
Election.  If Employee makes
an election with respect to the receipt of the Shares pursuant to Section 83(b)
of the Code (the “Election”), such Election shall contain all information
required by Treasury Regulation Section 1.83-2 and shall, in accordance
with that regulation, be filed no later than 30 days after the transfer of the
Shares to the Employee.  The Election shall
be filed with the Internal Revenue Service Center at which the Employee files
his or her income tax return. 
Contemporaneously with such filing, the Employee shall furnish a copy of
the Election to the Company, in accordance with Treasury Regulation Section 1.83-2(d).

 

16.  Plan Document.  This Agreement is subject in all respects to
the Plan, a copy of which may be obtained from the Company’s Corporate Senior
Vice President, Human Resources, 210 Carnegie Center, Princeton, New Jersey
08540.  To the extent

 

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that there is any
inconsistency or conflict between this Agreement and the Plan, the Plan shall
control.

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

 

	
   

  	
   

  	
  COVANCE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Christopher
  A. Kuebler

  
	
   

  	
   

  	
  Christopher A.
  Kuebler

  
	
   

  	
   

  	
  Chairman
  of the Board and

  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  James W. Lovett

  	
   

  	
   

  
	
  James
  W. Lovett

  	
   

  	
   

  
	
  Corporate Senior
  Vice President,

  	
   

  	
   

  
	
  General Counsel
  and Secretary

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EMPLOYEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:
  /s/ Richard F. Cimino

  
	
   

  	
   

  	
  Richard F.
  Cimino

  

 

6Exhibit 4.1

 

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND
THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE CORPORATION OF
AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH
TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED

 

THE
TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.

 

CardioTech International,
Inc.

 

Warrant for the Purchase
of Shares of Common Stock,

par value $0.01 per Share

 

	
  No. W-   

  	
          Shares

  

 

THIS CERTIFIES that, for
value received,                  ,
whose address is                                          
(the “Holder”), is entitled to subscribe for and purchase from
CardioTech International, Inc., a Massachusetts corporation (the “Company”),
upon the terms and conditions set forth herein,               
shares of the Company’s Common Stock, par value $0.01 per share (“Common Stock”),
at a price of $3.00 per share (the “Exercise Price”). As used herein the
term “this Warrant” shall mean and include this Warrant and any Common
Stock or Warrants hereafter issued as a consequence of the exercise or transfer
of this Warrant in whole or in part.

 

The number of shares of
Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”)
and the Exercise Price may be adjusted from time to time as hereinafter set
forth. The Warrant Shares are entitled to the benefits, and subject to the
obligations, set forth in the Registration Rights Agreement among the Company,
the Holder and certain other parties dated concurrently herewith.

 

1.               Exercise Price
and Exercise Period.  This Warrant
may be exercised at any time or from time to time during the period commencing
at 10:00 A.M. Eastern time on December 22, 2004 and ending at
5:00 P.M. Eastern Time on December 22, 2009 (the “Exercise Period”).

 

2.               Procedure for
Exercise; Effect of Exercise.

 

(a)          Cash Exercise. This Warrant may be exercised, in whole or in part,
by the Holder during normal business hours on any business day during the
Exercise Period by (i) the presentation and surrender of this Warrant to the
Company at its principal office along with a

 

1

 

duly
executed Notice of Exercise (in the form attached to this Agreement) specifying
the number of Warrant Shares to be purchased, and (ii) delivery of payment to
the Company of the Exercise Price for the number of Warrant Shares specified in
the Notice of Exercise by cash, wire transfer of immediately available funds to
a bank account specified by the Company, or by certified or bank cashier’s
check.

 

(b)         Cashless Exercise.  This Warrant may also be exercised by the
Holder through a cashless exercise, as described in this Section 2(b). In
such case, this Warrant may be exercised, in whole or in part, by the Holder
during normal business hours on any business day during the Exercise Period by
the presentation and surrender of this Warrant to the Company at its principal
office along with a duly executed Notice of Exercise specifying the number of
Warrant Shares to be applied to such exercise. The number of shares of Common
Stock to be issues upon exercise of this Warrant pursuant to this Section 2(b)
shall equal the value of this Warrant (or the portion thereof being canceled)
computed as of the date of delivery of this Warrant to the Company using the
following formula:

 

 

	
  X =

  	
  Y(A-B)

  A

  

 

Where:

 

	
   

  	
  X  = 
  the number of shares of Common Stock to be issued to Holder under this
  Section 2(b);

  
	
   

  	
  Y  = 
  the number of Warrant Shares identified in the Notice of Exercise as
  being applied to the subject exercise;

  
	
   

  	
  A  = 
  the Current Market Price on such date; and

  
	
   

  	
  B  = 
  the Exercise Price on such date

  

 

For purposes of this Section 2(b),
Current Market Price shall have the definition provided in Section 6(g).

 

The
Company acknowledges and agrees that this Warrant was issued on the date set
forth at the end of this Warrant. Consequently, the Company acknowledges and
agrees that, if the Holder conducts a cashless exercise pursuant to this Section 2(b),
the period during which the Holder held this Warrant may, for purposes of Rule
144 promulgated under the Securities Act of 1933, as amended (the “Securities
Act”), be “tacked” to the period during which the Holder holds the Warrant
Shares received upon such cashless exercise.

 

Notwithstanding
the foregoing, the Holder may conduct a cashless exercise pursuant to this Section 2(b)
only after the first anniversary of the initial issuance date of this Warrant,
and then only in the event that a registration statement covering the resale of
the Warrant Shares is not then effective at the time that the Holder wishes to
conduct such cashless exercise.

 

(c)          Effect of Exercise.  Upon receipt by the Company of this Warrant
and a Notice of Exercise, together with proper payment of the Exercise Price,
as provided in this Section 2,

 

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the Company agrees that
such Warrant Shares shall be deemed to be issued to the Holder as the record
holder of such Warrant Shares as of the close of business on the date on which
this Warrant has been surrendered and payment has been made for such Warrant
Shares in accordance with this Agreement and the Holder shall be deemed to be
the holder of record of the Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the Holder.
A stock certificate or certificates for the Warrant Shares specified in the
Notice of Exercise shall be delivered to the Holder as promptly as practicable,
and in any event within seven (7) business days, thereafter. The stock
certificate(s) so delivered shall be in any such denominations as may be
reasonably specified by the Holder in the Notice of Exercise.  If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to
purchase the balance of the Warrant Shares subject to purchase hereunder.

 

3.               Registration of
Warrants; Transfer of Warrants.  Any
Warrants issued upon the transfer or exercise in part of this Warrant shall be
numbered and shall be registered in a Warrant Register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable for any registration
or transfer of Warrants which are registered or to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. 
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer.  In all cases
of transfer by an attorney, executor, administrator, guardian, or other legal
representative, duly authenticated evidence of his or its authority shall be
produced.  Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares, upon surrender to the Company or its duly authorized
agent.

 

4.               Restrictions on
Transfer.  (a) The Holder, as of the
date of issuance hereof, represents to the Company that such Holder is
acquiring the Warrants for its own account for investment purposes and not with
a view to the distribution thereof or of the Warrant Shares.  Notwithstanding any provisions contained in
this Warrant to the contrary, this Warrant and the related Warrant Shares shall
not be transferable except pursuant to the proviso contained in the following
sentence or upon the conditions specified in this Section 4, which
conditions are intended, among other things, to insure compliance with the
provisions of the Securities Act and applicable state law in respect of the
transfer of this Warrant or such Warrant Shares. The Holder by acceptance of
this Warrant agrees that the Holder will not transfer this Warrant or the
related Warrant Shares prior to delivery to the Company of an opinion of the
Holder’s counsel

 

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(as such opinion and such
counsel are described in Section 4(b) hereof) or until registration of
such Warrant Shares under the Securities Act has become effective or after a
sale of such Warrant or Warrant Shares has been consummated pursuant to Rule
144 or Rule 144A under the Securities Act; provided, however,
that the Holder may freely transfer this Warrant or such Warrant Shares
(without delivery to the Company of an opinion of Counsel) (i) to one of its
nominees, affiliates or a nominee thereof, (ii) to a pension or profit-sharing
fund established and maintained for its employees or for the employees of any
affiliate,  (iii) from a nominee to any
of the aforementioned persons as beneficial owner of this Warrant or such
Warrant Shares, or (iv) to a qualified institutional buyer, so long as such
transfer is effected in compliance with Rule 144A under the Securities Act.

 

(b)                                 The
Holder, by its acceptance hereof, agrees that prior to any transfer of this
Warrant or of the related Warrant Shares (other than as permitted by Section 4(a)
hereof or pursuant to a registration under the Securities Act), the Holder will
give written notice to the Company of its intention to effect such transfer,
together with an opinion of such counsel for the Holder as shall be reasonably
acceptable to the Company, to the effect that the proposed transfer of this
Warrant and/or such Warrant Shares may be effected without registration under
the Securities Act.  Upon delivery of
such notice and opinion to the Company, the Holder shall be entitled to
transfer this Warrant and/or such Warrant Shares in accordance with the
intended method of disposition specified in the notice to the Company.

 

(c)                                  Each
stock certificate representing Warrant Shares issued upon exercise or exchange
of this Warrant shall bear the following legend unless the opinion of counsel
referred to in Section 4(b) states such legend is not required:

 

“THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT UPON
DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933,
AS AMENDED.”

 

The
Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Warrant Shares to place, a stop transfer notation
in the securities records in respect of the Warrant Shares.

 

5.               Reservation of
Shares. The Company shall at all times during the Exercise Period reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of providing for the exercise of the rights to purchase all Warrant
Shares granted pursuant to the Warrants, such number of shares of Common Stock
as shall, from time to time, be sufficient therefor.  The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the
Company of the full Exercise Price therefor, and all shares of Common Stock
issuable upon conversion of this Warrant, shall be validly issued, fully paid,
non-assessable, and free of preemptive rights.

 

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6.               Exercise Price
Adjustments.  The Exercise Price
shall be subject to adjustment from time to time as follows:

 

(a)                                  (i)  In the event that the Company shall (A) pay a
dividend or make a distribution to all its stockholders, in shares of Common
Stock, on any class of capital stock of the Company or any subsidiary which is
not directly or indirectly wholly owned by the Company, (B) split or subdivide
its outstanding Common Stock into a greater number of shares, or (C) combine
its outstanding Common Stock into a smaller number of shares, then in each such
case the Exercise Price in effect immediately prior thereto shall be adjusted
so that the Holder of a Warrant thereafter surrendered for Exercise shall be
entitled to receive the number of shares of Common Stock that such Holder would
have owned or have been entitled to receive after the occurrence of any of the
events described above had such Warrant been exercised immediately prior to the
occurrence of such event.  An adjustment
made pursuant to this Section 6(a)(i) shall become effective immediately
after the close of business on the record date in the case of a dividend or
distribution (except as provided in Section 6(e) below) and shall become
effective immediately after the close of business on the effective date in the
case of such subdivision, split or combination, as the case may be.  Any shares of Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the close of business on the record date for such dividend for purposes of calculating
the number of outstanding shares of Common Stock under clauses (ii) and (iii)
below.

 

(ii)  In the event that the Company shall commit to
issue or distribute New Securities (as defined in the Securities Purchase
Agreement, of even date herewith, among the Company, the Holder and certain
other Purchasers named therein), in any such case at a price less than $3.00 per
share on the earliest of (A) the date the Company shall enter into a firm
contract for such issuance or distribution, (B) the record date for the
determination of stockholders entitled to receive any such New Securities, if
applicable, or (C) the date of actual issuance or distribution of any such New
Securities (provided that the issuance of Common Stock upon the exercise of New
Securities that are rights, warrants, options or convertible or exchangeable
securities (“New Derivative Securities”) will not cause an adjustment in
the Exercise Price if no such adjustment would have been required at the time
such New Derivative Security was issued), then the Exercise Price in effect
immediately prior to such earliest date shall be adjusted so that the Exercise
Price shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to such earliest date by the fraction:

 

(x)
whose numerator shall be (I) the number of shares of Common Stock outstanding
on such date plus (II) the number of shares of
Common Stock which the aggregate offering price of the total number of New
Securities so offered would have purchased at $3.00 per share (such amount,
with respect to any New Derivative Securities, determined by multiplying the
total number of shares of Common Stock subject thereto by the exercise price of
such New Derivative Securities, and dividing the product so obtained by $3.00),
and

 

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(y)
whose denominator shall be (I) the number of shares of Common Stock outstanding
on such date plus (II) the number of
additional shares of Common Stock to be issued or distributed or receivable
upon exercise of any such New Derivative Security.

 

Such adjustment shall be
made successively whenever any such New Securities are issued. In determining
whether any New Derivative Securities entitle the holders to subscribe for or
purchase shares of Common Stock at less than $3.00 per share, and in
determining the aggregate offering price of shares of Common Stock so issued,
there shall be taken into account any consideration received by the Company for
such Common Stock or New Derivative Securities, the value of such
consideration, if other than cash, to be determined by the Board of Directors,
whose determination shall be conclusive and described in a certificate filed
with the records of corporate proceedings of the Company. If any New Derivative
Security to purchase or acquire Common Stock, the issuance of which resulted in
an adjustment in the Exercise Price pursuant to this subsection (ii) shall
expire and shall not have been exercised, the Exercise Price shall immediately
upon such expiration be recomputed to the Exercise Price which would have been
in effect had the adjustment of the Exercise Price made upon the issuance of
such New Derivative Security been made on the basis of offering for
subscription, purchase or issuance, as the case may be, only of that number of
shares of Common Stock actually purchased or issued upon the actual exercise of
such New Derivative Security.

 

(iii)  No adjustment in the
Exercise Price shall be required unless the adjustment would require an
increase or decrease of at least 1% in the Exercise Price then in effect; provided, however, that any adjustments that by reason of
this Section 6(a) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.  All calculations under this Section 6(a)
shall be made to the nearest cent or nearest 1/100th of a share.

 

(iv)  The Company from time to time may reduce the
Exercise Price by any amount for any period of time in the discretion of the
Board of Directors. A voluntary reduction of the Exercise Price does not change
or adjust the Exercise Price otherwise in effect for purposes of this Section 6(a).

 

(v)  In the event that, at
any time as a result of an adjustment made pursuant to Sections 6(a)(i) through
6(a)(iii) above, the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive any shares of the Company other than shares of
the Common Stock, thereafter the number of such other shares so receivable upon
exercise of any such Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in Sections 6(a)(i) through 6(a)(iv)
above, and the other provisions of this Section 6(a) with respect to the
Common Stock shall apply on like terms to any such other shares.

 

6

 

(b)                                 In
case of any reclassification of the Common Stock (other than in a transaction
to which Section 6(a)(i) applies), any consolidation of the Company with,
or merger of the Company into, any other entity, any merger of another entity
into the Company (other than a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), any sale or transfer of all or substantially all
of the assets of the Company or any compulsory share exchange, pursuant to
which share exchange the Common Stock is converted into other securities, cash
or other property, then lawful provision shall be made as part of the terms of
such transaction whereby the Holder of a Warrant then outstanding shall have
the right thereafter, during the period such Warrant shall be exercisable, to
exercise such Warrant only for the kind and amount of securities, cash and
other property receivable upon the reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of Common
Stock of the Company into which a Warrant might have been able to exercise for
immediately prior to the reclassification, consolidation, merger, sale,
transfer or share exchange assuming that such holder of Common Stock failed to
exercise rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon consummation of such transaction subject
to adjustment as provided in Section 6(a) above following the date of
consummation of such transaction. The provisions of this Section 6(b)
shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.

 

(c)                                  If:

 

(i)                                     the
Company shall take any action which would require an adjustment in the Exercise
Price pursuant to Section 6(a); or

 

(ii)                                  the
Company shall authorize the granting to the holders of its Common Stock
generally of rights, warrants or options to subscribe for or purchase any
shares of any class or any other rights, warrants or options; or

 

(iii)                               there shall be any
reclassification or change of the Common Stock (other than a subdivision or
combination of its outstanding Common Stock or a change in par value) or any
consolidation, merger or statutory share exchange to which the Company is a
party and for which approval of any stockholders of the Company is required, or
the sale or transfer of all or substantially all of the assets of the Company;
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 cause to be filed with the transfer agent for the
Warrants and shall cause to be mailed to each Holder at such Holder’s address
as shown on the books of the transfer agent for the Warrants, as promptly as
possible, but at least 30 days prior

 

7

 

to the applicable
date hereinafter specified, a notice stating (A) the date on which a record is
to be taken for the purpose of such dividend, distribution or granting of
rights, warrants or options, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution or rights, warrants or options are to be determined, or (B) the
date on which such reclassification, change, consolidation, merger, statutory
share exchange, sale, transfer, dissolution, liquidation or winding-up is expected
to become effective or occur, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding up.  Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 6(c).

 

(d)                                 Whenever
the Exercise Price is adjusted as herein provided, the Company shall promptly
file with the transfer agent for the Warrants a certificate of an officer of
the Company setting forth the Exercise Price after the adjustment and setting
forth a brief statement of the facts requiring such adjustment and a
computation thereof.  The Company shall
promptly cause a notice of the adjusted Exercise Price to be mailed to each
Holder.

 

(e)                                  In
any case in which Section 6(a) provides that an adjustment shall become
effective immediately after a record date for an event and the date fixed for
such adjustment pursuant to Section 6(a) occurs after such record date but
before the occurrence of such event, the Company may defer until the actual
occurrence of such event (i) issuing to the Holder of any Warrants exercised
after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Stock issuable upon
such exercise before giving effect to such adjustment, and (ii) paying to such
holder any amount in cash in lieu of any fraction pursuant to Section 6(i).

 

(f)                                    In
case the Company shall take any action affecting the Common Stock, other than
actions described in this Section 6, which in the opinion of the Board of
Directors would materially adversely affect the exercise right of the Holders,
the Exercise Price may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances; provided, however,
that in no event shall the Board of Directors be required to take any such
action.

 

(g)                                 For
the purpose of any computation under Section 2(b) or this Section 6,
the “Current Market Price” per share of Common Stock on any day shall
mean: (i) if the principal trading
market for such securities is a national or regional securities exchange, the
closing price on such exchange on such day; or (ii) if sales prices for
shares of Common Stock are reported by the NASDAQ National Market System (or a
similar system then in use), the last reported sales price (regular way) so
reported on such day; or (iii) if neither (i) nor (ii) above are applicable,
and if bid and ask prices for shares of Common Stock are reported in the
over-the-counter market by NASDAQ (or, if not so reported, by the National
Quotation

 

8

 

Bureau),
the average of the high bid and low ask prices so reported on such day.
Notwithstanding the foregoing, if there is no reported closing price, last
reported sales price, or bid and ask prices, as the case may be, for the day in
question, then the Current Market Price shall be determined as of the latest
date prior to such day for which such closing price, last reported sales price,
or bid and ask prices, as the case may be, are available, unless such
securities have not been traded on an exchange or in the over-the-counter
market for 30 or more days immediately prior to the day in question, in which
case the Current Market Price shall be determined in good faith by, and
reflected in a formal resolution of, the Board of Directors of the Company.

 

(h)                                 The
Company shall not be required to issue fractions of shares of Common Stock or
other capital stock of the Company upon the exercise of this Warrant.  If any fraction of a share would be issuable
on the exercise of this Warrant (or specified portions thereof), the Company
shall purchase such fraction for an amount in cash equal to the same fraction
of the Current Market Price of such share of Common Stock on the date of
exercise of this Warrant.

 

7.               Transfer Taxes.
The issuance of any shares or other securities upon the exercise of this
Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance.  The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.

 

8.               Loss or
Mutilation of Warrant. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company’s reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor, and denomination.

 

9.               No Rights as a
Stockholder. The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.

 

10.         Governing Law.  This Warrant shall be construed in accordance
with the laws of the State of Massachusetts applicable to contracts made and
performed within such State, without regard to principles of conflicts of law.

 

9

 

Dated: December 22,
2004

 

	
   

  	
  CARDIOTECH INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Michael Szycher, Ph.D.,

  
	
   

  	
   

  	
  Chairman & Chief Executive
  Officer

  
					

 

10

 

FORM OF ASSIGNMENT

 

(To be executed by the
registered holder if such holder desires to transfer the attached Warrant.)

 

FOR VALUE RECEIVED,                                                                                                   hereby
sells, assigns, and transfers unto                                       
a Warrant to purchase                          
shares of Common Stock, par value $0.01 per share, of CardioTech International,
Inc. (the “Company”), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint                                                                 attorney
to transfer such Warrant on the books of the Company, with full power of
substitution.

 

	
   

  	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Signature

  
						

 

The signature on the
foregoing Assignment must correspond to the name as written upon the face of
this Warrant in every particular, without alteration or enlargement or any
change whatsoever.

 

 

To:                              CardioTech
International, Inc.

229
Andover Street

Wilmington,
Massachusetts  01887

Attention:  Chief Financial Officer

 

NOTICE OF EXERCISE

 

The undersigned hereby
exercises his or its rights to purchase                   
Warrant Shares covered by the within Warrant and tenders payment herewith in
the amount of $                     
by tendering cash or
delivering a certified check or bank cashier’s check, payable to the order of
the Company or surrendering                       
shares of Common Stock received upon exercise of the attached Warrant, which
shares have a Current Market Price equal to such payment] in accordance
with the terms thereof, and requests that certificates for such securities be
issued in the name of, and delivered to:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  (Print Name, Address
  and Social Security

  or Tax Identification Number)

  

 

and, if such number of
Warrant Shares shall not be all the Warrant Shares covered by the within
Warrant, that a new Warrant for the balance of the Warrant Shares covered by
the within Warrant be registered in the name of, and delivered to, the
undersigned at the address stated below.

 

	
   

  	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Print
  Name

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  	
   

  
	
   

  	
   

  
						

 

	
  Address:

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