Document:

Exhibit 10.5

 

Execution
Copy

 

SECURITY AGREEMENT

 

This Security Agreement (“Agreement”) is made
this 17th day of January, 2002 (the “Effective Date”), by and between Chaparral
Network Storage, Inc., a Delaware corporation (“Borrower”), and Xyratex
Technology Limited, a company organized under the laws of England and Wales
(“Lender”). Capitalized terms used herein without definition have the meaning
given to them in the Securities Purchase Agreement dated as of the Effective
Date, by and between Borrower and Lender (the “Securities Purchase Agreement”).

 

RECITALS

 

A.                                   This Agreement is entered into in connection
with Lender’s loan to Borrower of US$6,000,000 (the “Loan”) pursuant to a
Secured Convertible Promissory Note dated the Effective Date (the “Note”) and
the execution and delivery of the Securities Purchase Agreement and the
Commercial Agreements, dated as of the Effective Date, between Borrower and
Lender.

 

B.                                     Borrower and Lender intend to secure all of
the payment obligations of Borrower to Lender under the Transaction Documents
as provided in Section A.10.

 

Lender and Borrower agree as follows:

 

A.                                 Definitions.

 

1.                                       “Affiliate.” Affiliate means, as applied to
any Person, any other Person directly or indirectly controlling, controlled by,
or under common control with, that Person. 
For purposes of this definition, “control” as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
the ownership of voting securities, by contract, or otherwise. 

 

2.                                       “Assignment Agreement.” Assignment Agreement means the Assignment
Agreement between Borrower and Lender, a form of which is attached as Exhibit
XI to the Master Alliance Agreement. 

 

3.                                       “Bankruptcy Code.” Bankruptcy Code means the United States
Bankruptcy Code, as amended and in effect at any relevant time.

 

4.                                       “Business Day.” Business Day means any day other than
Saturday, Sunday or a day on which banks are required to be closed in the State
of Colorado and/or London, England.

 

 

5.                                       “Collateral.” The Collateral shall consist of:

 

(i)                                     All Intellectual Property now (or hereafter
at any time during the term of this Security Agreement) owned by Borrower and
which relates to or is used in (x) any member of the Family of FC-FC Integrated
Controllers (as defined in the Joint Development Agreement) developed pursuant
to the Joint Development Agreement between Borrower and Lender dated as of the
Effective Date, (y) any RIO Product (as defined in the Securities Purchase
Agreement) and (z) any Successor Products, excluding in each case any Adaptec
IP (as defined in the Master Alliance Agreement). The Collateral includes, but
is not limited to, the related Chaparral IP (as defined in the Master Alliance Agreement)
as the same may exist from time to time; and

 

(ii)                                  All such right, title and interest as
Borrower may now (or hereafter at any time during the term of this Security
Agreement) have in the Intellectual Property of third parties which relates to
or is used in (x) any member of the Family of FC-FC Integrated Controllers (as
defined in the Joint Development Agreement) developed pursuant to the Joint
Development Agreement between Borrower and Lender dated as of the Effective
Date, (y) any RIO Product (as defined in the Securities Purchase Agreement) and
(z) any Successor Products (excluding in each case any Adaptec IP (as defined
in the Master Alliance Agreement)) and which is capable of being secured,
encumbered or to which a security interest may attach without breach of any
obligation upon Borrower, including but not limited to all of Borrower’s right,
title and interest in and under the Technology Cross License Agreement.

 

6.                                       “Insolvency Event.”  “Insolvency
Event” means any of the following: (1) Borrower (a) commences a
voluntary case under Title 11 of the United States Code (“Bankruptcy Code”) or any other
applicable bankruptcy, insolvency or other similar law, (b) consents to the
entry of an order for relief in an involuntary case under any such law, (c)
consents to the appointment of with respect to, or taking possession of, the
Borrower, or any substantial part of its assets, by a receiver, liquidator,
assignee, trustee, custodian, or similar party, or (d) makes a general
assignment for the benefit of creditors, or (e) takes any action in furtherance
of any of the foregoing; (2) a proceeding shall have been instituted against
the Borrower (a) seeking an order for relief under the Bankruptcy Code or any
other applicable bankruptcy, insolvency or other similar law, (b) seeking the
appointment of with respect to, or taking possession of, the Borrower or any

 

2

 

substantial
part of its assets a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar party), or (c) seeking the winding-up or liquidation
of the Borrower’s affairs, and such proceeding remains undismissed or unstayed
and in effect for a period of 30 days; or (3) the Borrower is adjudicated
pursuant to a judgment by any court of competent jurisdiction to be insolvent
or admits in writing its inability to generally pay its debts as they come due.

 

7.                                       “Intellectual Property.” Intellectual Property means (1) all patents
and patent applications, domestic or foreign, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses
(including such patents and patent applications as described in Schedule A),
all rights to sue for past, present or future infringement thereof, all rights
arising therefrom and pertaining thereto and all reissues, divisions,
continuations, certificates of invention, renewals, reexaminations, extensions
and continuations-in-part thereof; (2) trademarks, service marks, logos, mask
works, trade names, and corporate names and applications for registration
thereof, whether domestic or foreign; (3) computer software (in both source
code and object code form), data, database rights and documentation, other than
“off-the-shelf,” click to accept and/or shrink-wrap software generally
available to the public; (4) trade secrets and information, whether or not
patentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques; and (5) any other proprietary rights and
processes.

 

8.                                       “License Agreement.” License Agreement means the Manufacturing
and Chaparral IP License Agreement dated as of the Effective Date, between
Borrower and Lender.

 

9.                                       “Master Alliance Agreement.” Master Alliance Agreement means the Master
Alliance Agreement dated as of the Effective Date, between Borrower and Lender.

 

10.                                 “Obligations.” This Agreement secures the following:

 

(i)                                     Borrower’s obligations under the Note;

 

(ii)                                  Borrower’s obligations to make payments to
Lender pursuant to the Transaction Documents;

 

(iii)                               any other or future advances or extensions of
credit that Lender may make to Borrower after the Effective Date, whether or
not the instrument evidencing such advance or extension of credit expressly
refers to this Agreement;

 

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(iv)                              any other amount that Borrower may become
obligated to pay to Lender whether for payment of goods or services or
otherwise;

 

(v)                                 the repayment of (a) any amounts that Lender
may advance or spend for the maintenance or preservation of the Collateral, and
(b) any other expenditures that Lender may make under the provisions of this
Agreement or for the benefit of Borrower; and

 

(vi)                              all amounts owed under any modifications,
renewals or extensions of any of the foregoing obligations;

 

in all instances whether before or after any Insolvency Event of
Borrower.  For avoidance of doubt,
Borrower’s failure to make payments, if any, under those of the Transaction
Documents which are Commercial Agreements (except to the extent such failure is
an Event of Default as defined in Section 9.1.7 and 9.1.8 of the Securities
Purchase Agreement) and under Section 10 (iii) or (iv) above shall not be
deemed to be an Event of Default under the Securities Purchase Agreement.

 

11.                                 “Person.” Person means and includes natural persons,
corporations, limited liability companies, limited partnerships, general
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.

 

12.                                 “PTO.” PTO means the United States Patent and
Trademark Office

 

13.                                 “Successor Product” shall mean and include any product developed
by the Borrower (either alone or with others) that uses or incorporates any
Intellectual Property used or incorporated in any Family of the FC-FC
Integrated Controllers (as defined in the Joint Development Agreement)
developed pursuant to the Joint Development Agreement and/or any RIO Product
(as defined in the Securities Purchase Agreement) which existed at any time
during the term of the Joint Development Agreement.

 

14.                                 “Technology Cross License
Agreement.” Technology Cross
License Agreement means the Technology Cross License Agreement between Adaptec,
Inc. and Borrower dated November 25, 1998, as amended, and specifically without
limitation, Amendment No. 2 to the Technology Cross License Agreement dated
December 5, 2001.

 

15.                                 “UCC.” Any term used in the California Uniform
Commercial Code (“UCC”) and not defined in this Agreement has the meaning given
to the term in the UCC.

 

4

 

B.                                     Grant and Continuation of
Security Interest.

 

1.                                       Grant of Security
Interest.  As security for the payment and performance
of the Obligations, Borrower hereby assigns, transfers and conveys to Lender,
and grants to Lender a security interest in and mortgage to, all of Borrower’s
right, title and interest in, to and under the Collateral.

 

2.                                       Continuing Security
Interest. Borrower agrees
that this Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section D.1.

 

C.                                     Perfection of Security
Interests and Further Acts.

 

1.                                       Filing of Financing
Statement.  On a continuing basis, Borrower shall make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording places, all such instruments and documents, and take all such action
as may be necessary or advisable or may be requested by Lender to carry out the
intent and purposes of this Agreement, or for assuring, confirming or
protecting the grant or perfection of the security interest granted or
purported to be granted hereby, to ensure Borrower’s compliance with this
Agreement or to enable Lender to exercise and enforce its rights and remedies
hereunder with respect to the Collateral, including any documents for filing
with the PTO or any applicable state office. 
Lender may record this Agreement, an abstract thereof, or any other
document describing Lender’s interest in the Collateral with the PTO, at the
expense of Borrower. In addition, Borrower authorizes Lender to file financing
statements describing the Collateral in any UCC filing office deemed
appropriate by Lender. If Borrower shall at any time hold or acquire a
commercial tort claim arising with respect to the Collateral, the Borrower
shall immediately notify Lender in a writing signed by the Borrower of the
brief details thereof and Borrower acknowledges that the proceeds of such tort claim
(net of reasonable attorney’s fees and costs) are proceeds of the Collateral
and as such are subject to the security interest granted to Lender herein.

 

D.                                    Term of Agreement.

 

1.                                       Term.  This Agreement shall become effective upon the Effective Date, and
shall continue in full force and effect until the full payment, conversion or
other satisfaction of all Principal and Interest under the Note, each in
accordance with the terms of the Securities Purchase Agreement.

 

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2.                                       Effect of Termination. Upon payment in full of all Principal and
Interest under the Note, the security interests created by this Agreement shall
terminate and Lender (at Borrower’s expense) shall promptly execute and deliver
to Borrower such documents and instruments reasonably requested by Borrower as
shall be necessary to evidence termination of all such security interests given
by Borrower to Lender hereunder, including cancellation of this Agreement by
written notice from Lender to the PTO.

 

E.                                      Covenants and Rights
Concerning the Collateral.

 

1.                                       Personal Property. The Collateral shall remain personal property
at all times.

 

2.                                       Limitations on Obligations
Concerning Maintenance of Collateral. 

 

(i)                                     Risk of Loss. Borrower has the risk of loss of the
Collateral.

 

(ii)                                  No Collection Obligation. Lender has no duty to collect any income
accruing on the Collateral or to preserve any rights relating to the
Collateral.

 

3.                                       No Disposition of
Collateral. Lender does not
authorize, and Borrower may not:

 

(i)                                     sell any of the Collateral other than a sale
to the Lender;

 

(ii)                                  transfer or grant any rights in the
Collateral other than to the Lender except in connection with arms-length
commercial transactions (including joint development agreements) occurring in
the Borrower’s normal course of business consistent with past practice of which
Lender has been notified; or

 

(iii)                               grant a security interest in any of the
Collateral to any party other than Lender other than a security interest which
is subordinated to Lender’s security interest, subject to prior written
approval by Lender of any subordination, inter-creditor or similar agreement
that the Lender may deem desirable and/or necessary, in its sole and absolute
discretion.

 

F.                                      Borrower’s Representations and
Warranties.

 

Borrower
warrants and represents that except as set forth in the Disclosure Schedule:

 

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1.                                       Title to and transfer of
Collateral. It has rights in
or the power to transfer the Collateral and its title to the Collateral is free
of all adverse claims, liens, security interests and restrictions on transfer
or pledge except as created by this Agreement. 

 

2.                                       Patents and Patent
Applications. A true and
correct list of all of the existing Collateral consisting of patents and patent
applications or registrations owned by Borrower, in whole or in part, is set
forth in Schedule A.

 

3.                                       Location and Name of
Borrower. Borrower’s:

 

(i)                                     state of incorporation is the state of
Delaware; and

 

(ii)                                  exact legal name is as set forth in the first
paragraph of this Agreement.

 

4.                                       Authority. Borrower has the authority to enter into and
perform the Transaction Documents and to execute all documents and perform all
other acts as may be necessary to perform all of Borrower’s obligations under
the Transaction Documents.

 

5.                                       Valid and Binding
Obligation. Each of the
Transaction Documents is a valid and binding obligation of Borrower enforceable
in accordance with its respective terms.

 

6.                                       No Approvals or Consents. No approval or consent by any Person or
entity is necessary in connection with the execution of the Transaction
Documents by Borrower or the performance of Borrower’s obligations under the
Transaction Documents. The consummation of the transactions contemplated by the
Transaction Documents does not and will not violate any statute, law, ordinance
or regulation.

 

7.                                       No Violation of Other
Obligations. Neither the
Transaction Documents nor anything provided to be done under the Transaction
Documents violates or shall violate, or shall cause the acceleration of any
debt or obligation of Borrower under, any contract, document, understanding,
agreement or instrument to which Borrower is a party or by which it may be
bound.

 

G.                                     Events of Default.

 

The
occurrence of any of the events of default set forth in Section 9.1 of the
Securities Purchase Agreement shall constitute an event of default (each, an
“Event of Default”) under this Agreement.

 

7

 

H.                                Default Costs.

 

Should
an Event of Default occur, Borrower will pay to Lender all costs reasonably
incurred by the Lender for the purpose of enforcing its rights hereunder,
including:

 

1.                                       costs of foreclosure;

 

2.                                       costs of obtaining money damages; and

 

3.                                       a reasonable fee for the services of an
attorney employed by Lender for any purpose related to this Agreement or the
Obligations, including consultation, drafting documents, sending notices or
instituting, prosecuting or defending litigation or arbitration and including,
without limitation, such costs and expenses incurred by Lender in pursuing
recovery and protecting any of its rights or interests, in any bankruptcy or
other insolvency proceeding in which Borrower is the debtor.

 

I.                                         Remedies Upon Default.

 

1.                                       General. Upon any Event of Default, all Obligations
shall immediately become due and payable without notice or demand. In addition,
Lender may pursue any remedy available at law (including those available under
the provisions of the UCC), or in equity to collect, enforce, or satisfy any
Obligations then owing, whether by acceleration or otherwise.

 

2.                                       Exceptions for Loan
Collection.  If Borrower fails to repay the Principal and
Interest when due pursuant to Section 9.2.1 of the Securities Purchase
Agreement, then Lender may, at its sole election, with at least 30 Business
Days’ written notice elect as a remedy that (a) the license granted by Borrower
to Lender under Section 4 of the License Agreement shall come into full force
and effect, (b) the Assignment Agreement shall come into full force and effect
so that in particular but without limitation Lender shall enjoy the full
benefit of the license of the Chaparral IP (as defined in the Master Alliance
Agreement) in accordance with the terms set forth in Section 4 of the License Agreement
and the full benefit of the Technology Cross License Agreement and the Adaptec IP
(as  defined in the Master Alliance Agreement) in
accordance with the terms thereof and (c) Lender shall sub-license, and shall
be deemed to have sub-licensed in accordance with the Assignment Agreement, to
Borrower the rights provided in the Technology Cross License Agreement solely
for the purpose of enabling Borrower to continue with its business operations.
So long as the License

 

8

 

Agreement
and the Assignment Agreement come into full force and effect as contemplated by
Section 4 of the License Agreement and at that time Borrower is not in
“liquidation” (as that expression is defined in the Master Alliance Agreement)
and for so long as each of the License Agreement and the Assignment Agreement
remain in full force and effect as aforesaid, Lender shall not seek to recover
the Principal and accrued Interest thereon due and payable pursuant to Section
9.2.1 of the Securities Purchase Agreement and Interest shall not continue to
accrue on the Principal; provided, however that if Lender has not
received a claim that the License Agreement and/or the Assignment Agreement is
not in full force and effect within 12 months of the Principal and Interest
becoming due as aforesaid or if Lender has received such claim then when such
claim has been withdrawn or adjudicated by a court of final appeal and the
result of that adjudication is that the aforesaid full benefit of the license of
the Chaparral IP (as defined in the Master Alliance Agreement) and the
Technology Cross License Agreement and Adaptec IP (as defined in the Master
Alliance Agreement) remains available to Lender, then Borrower shall no longer
be obligated to repay the Principal and Interest nor shall the Lender seek
damages solely with respect to the Borrower’s failure to repay Principal and
Interest as aforesaid, except for an amount equal to the reasonable costs and
expenses of litigating, arbitrating and/or settling such claim, all of which
shall be recoverable from Borrower by Lender and, upon such recovery, the
Lender shall return the Note to the Borrower in accordance with Section 7.3.3
of the Securities Purchase Agreement.

 

3.                                       Concurrent Remedies. Upon an Event of Default, subject to the
election of remedies by Lender set forth in Section I.2 above, Lender shall
have the right to pursue any of the following remedies separately,
successively, or simultaneously:

 

(i)                                     File suit and obtain judgment, and, in
conjunction with any action, Lender may seek any ancillary remedies provided by
law, including levy of attachment and garnishment.

 

(ii)                                  Take possession of and use any Collateral if
not already in its possession without demand and without legal process.

 

(iii)                               Sell or otherwise dispose of the Collateral
at public or private sale in accordance with the UCC.

 

9

 

J.                                        Foreclosure Procedures.

 

1.                                       No Waiver. No delay or omission by the Lender to
exercise any right or remedy accruing upon any Event of Default shall (a)
impair any right or remedy, (b) waive any default or operate as an acquiescence
to the Event of Default, or (c) affect any subsequent default of the same or of
a different nature.

 

2.                                       Notices. Lender shall give Borrower such notice of any
private or public sale as may be required by the UCC.

 

3.                                       No Obligation to Pursue
Others. Lender has no
obligation to attempt to satisfy the Obligations by collecting them from any
other Person liable for them and Lender may release, modify or waive any
collateral provided by any other Person to secure any of the Obligations, all
without affecting Lender’s rights against Borrower. Borrower waives any right
it may have to require Lender to pursue any third person for any of the Obligations.

 

4.                                       Compliance With Laws. Lender may comply with any applicable state
or federal law requirements in connection with a disposition of the Collateral
and compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

 

5.                                       Warranties. Lender may sell the Collateral without giving
any warranties as to the Collateral. Lender may specifically disclaim any
warranties of title or the like. This procedure will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral.

 

6.                                       No Marshaling. Lender has no obligation to marshal any
assets in favor of Borrower, or against or in payment of:

 

(i)                                     the Note,

 

(ii)                                  any of the other Obligations, or

 

(iii)                               any other obligation owed to Lender by
Borrower or any other Person.

 

K.                                    Miscellaneous.

 

1.                                       Assignment.

 

(i)                                     Binds Assignees. This Agreement shall bind and shall inure to
the benefit of the heirs, legatees, executors, administrators, successors, and
assigns of Lender and shall bind all Persons who become bound as a Borrower to
this Agreement.

 

10

 

 

(ii)                                  Assignments. Except as otherwise set forth herein, no
party hereto shall transfer or assign any of its rights or obligations
hereunder without the prior written consent of each of the other parties
hereto, except (A) in the event of an assignment by operation of law, or (B) by
the Lender in connection with (X) a reorganization of its business, (Y)
transfer of the Lender’s RAID Controller or storage business in a sale or in
demerger, a “spin-off” or similar transaction or (Z) in a capital financing
transaction or providing security to a financing source for the Lender’s
business or the business of another member of the same group as the Lender.

 

2.                                       Severability. Should any provision of this Agreement be
found to be void, invalid or unenforceable by a court or panel of arbitrators
of competent jurisdiction, that finding shall only affect the provisions found
to be void, invalid or unenforceable and shall not affect the remaining
provisions of this Agreement.

 

3.                                       Notices. Any notices required by this Agreement
and/or the Note shall be deemed to be delivered when (a) if to Lender,
deposited in any United States postal box and if to Borrower, deposited in any
United Kingdom post box, airmail postage prepaid, and the notice properly
addressed to the appropriate recipient, three Business Days after such deposit,
(b) received by telecopy if received during the recipient’s normal business
hours or other wise at the opening of the next Business Day after such receipt,
(c) received through the Internet and such receipt is confirmed by the
recipient, and (d) when personally delivered.

 

If
to Borrower:

 

Chaparral
Network Storage, Inc.

7420 East Dry Creek Parkway

Longmont, Colorado 80503

Attn: Victor Perez, President

Telephone: (303) 845-3200

Facsimile: (303) 845-3636

 

with
a copy to (which copy shall not constitute notice):

 

Davis
Graham & Stubbs LLP

Suite 500

1550 Seventeenth Street

Denver, Colorado 80202

 

11

 

Attn:
Ron Levine, Esq.

Telephone: (303) 892-9400

Facsimile: (303) 893-1379

 

If
to Lender:

 

Xyratex
Technology Limited

Langstone Road

Havant

PO9 1SA

United Kingdom

Attn: David Bradley

Telephone: 023 92 496000

Facsimile: 023 92 453654

 

with
a copy to (which copy shall not constitute notice):

 

Heller
Ehrman White & McAuliffe LLP

601 S. Figueroa St., 40th Floor

Los Angeles, California 90017

Attn: Stephen E. Newton, Esq.

Telephone: (213) 689-0200

Facsimile: (213) 614-1868

 

4.                                       Headings. Section headings used in this Agreement are
for convenience only. They are not a part of this Agreement and shall not be
used in construing it.

 

5.                                       Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of California except to the extent that
the UCC provides for the application of the law of any other state.

 

6.                                       Venue, Jurisdiction; Waiver
of Trial by Jury. EXCEPT TO
THE EXTENT THAT THE UCC PROVIDES OTHERWISE, THE PARTIES AGREE THAT ALL ACTIONS
OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA. EACH OF BORROWER AND LENDER WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO

 

12

 

OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
K.6. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE
AGREEMENT OR THE NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

 

7.                                       Rules of Construction.

 

a.                                       Except as otherwise expressly provided in
this Agreement, no reference to “proceeds” in this Agreement authorizes any
sale, transfer, or other disposition of the Collateral by the Borrower.

 

b.                                      “Includes” and “including” are not limiting.

 

c.                                       “Or” is not exclusive.

 

d.                                      “All” includes “any” and “any” includes
“all.”

 

8.                                       Integration and
Modifications.

 

(i)                                     The Transaction Documents, together with the
Exhibits and Schedules hereto and thereto, constitutes the entire agreement of
the Borrower and Lender concerning the subject matter hereof and supersedes all
prior drafts and communications relating to such subject matter.

 

(ii)                                  Any modification to this Agreement must be
made in writing and signed by the party adversely affected.

 

9.                                       Waiver. Any party to this Agreement may waive in a
signed writing the enforcement of any provision to the extent the provision is
for its benefit.

 

10.                                 Further Assurances. Borrower agrees to execute any further
documents, and to take any further actions, reasonably requested by Lender to
evidence or perfect the security interest granted herein, to maintain the first
priority of the security interests, or to effectuate the rights granted to
Lender herein

 

13

 

11.                                 Attorneys’ Fees. In any dispute, contest, suit, action, or
proceeding by a party to this Agreement to enforce its rights under this
Agreement (whether arising in contract, tort, or both), or seeking a
declaration of any rights or obligations under this Agreement, against any
other party to this Agreement, including any litigation, arbitration,
mediation, contested matter, dispute, suit, action, or adversary proceeding,
and any appeal or review thereof, in connection with a case, action, or
proceeding commenced in any state or federal court or agency, or before an
arbitration panel or mediator, or under the Bankruptcy Code, or any other
applicable federal, state, or foreign bankruptcy or other similar law, the
prevailing party shall be awarded its reasonable attorneys’ fees, together with
any costs and expenses (including the cost of employing expert witnesses). The
Borrower and Lender intend that the preceding sentence be severable from the
other provisions of this Agreement, survive any judgment and, to the maximum
extent permitted by law, not be deemed merged into such judgment.

 

12.                                 Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one instrument.

 

[Remainder of page intentionally left blank]

 

14

 

IN
WITNESS WHEREOF, the Borrower and Lender have executed this
Agreement as of the date first above written.

 

 

	
   

  	
  Borrower:

  	
   

  
	
   

  	
   

  	
  CHAPARRAL NETWORK STORAGE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Victor M. Perez

  
	
   

  	
  Name:

  	
  Victor M. Perez

  
	
   

  	
  Title:

  	
  Chief Executive Officer and President

  
	
   

  
	
   

  
	
   

  	
  Lender:

  	
   

  
	
   

  	
  XYRATEX TECHNOLOGY LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul W Hannah

  
	
   

  	
  Name:

  	
  PAUL W HANNAH

  
	
   

  	
  Title:

  	
  EXEC VP OPERATIONS

  
					

 

 

[SIGNATURE
PAGE TO SECURITY AGREEMENT]

 

 

 

SCHEDULE A (1 of 3)

to the Security Agreement

 

Issued U.S. Patents owned
by Borrower

 

 

	
  Patent No.

  	
   

  	
  Issue Date

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  None.

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE A (2 of 3)

 

Pending U.S. Patent
Applications or Registrations of Borrower

 

 

	
  Docket No.

  	
   

  	
  Serial No.

  	
   

  	
  Filing

  Date

  	
   

  	
  Title

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-22

  	
   

  	
  09751090

  	
   

  	
  12/31/00

  	
   

  	
  Recovering Data from
  Arrays of Storage Devices after certain failures

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-23

  	
   

  	
  09799480

  	
   

  	
  3/5/01

  	
   

  	
  Utilizing Parity Caching
  and Parity Logging while closing the RAID 5 Write Hole

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-24

  	
   

  	
  09852858

  	
   

  	
  5/9/01

  	
   

  	
  Mirroring between
  Controllers in an Active-Active Controller pair

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-26

  	
   

  	
  09942391

  	
   

  	
  8/29/01

  	
   

  	
  Initialization of a
  Storage System

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-27

  	
   

  	
  09861308

  	
   

  	
  5/17/01

  	
   

  	
  Method for Automatically
  detecting and correcting duplicate controller SCSI Ids

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-28

  	
   

  	
  09967027

  	
   

  	
  9/28/01

  	
   

  	
  Bus Zoning in a Channel
  Independent Controller Architecture

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-29

  	
   

  	
  09967126

  	
   

  	
  9/28/01

  	
   

  	
  Controller Data Sharing
  using a Modular DMA Architecture

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-30

  	
   

  	
  —

  	
   

  	
  11/8/01

  	
   

  	
  Obtaining Information to
  facilitate System Usage

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-32

  	
   

  	
  09967194

  	
   

  	
  9/28/01

  	
   

  	
  Modular Architecture for a
  Network Storage Controller

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-34

  	
   

  	
  —

  	
   

  	
  10/29/01

  	
   

  	
  Data Mirroring between
  Controllers in an Active-Active Controller pair

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-35

  	
   

  	
  —

  	
   

  	
  11/8/01

  	
   

  	
  Data Mirroring using
  Shared Buses

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USA 4430-38

  	
   

  	
  —

  	
   

  	
  11/9/01

  	
   

  	
  Method and Apparatus for
  transferring data using Direct Memory Access

  	
   

  

 

 

SCHEDULE A (3 of 3)

 

Patent Cooperation Treaty
Application

 

Title of invention:  Recovering
Data From Arrays of Storage Devices After

Certain Failures.

Priority Date Claim-12-29-2000

Number us application-9/751.090

Date of filing international-12-21-01Exhibit 10.23

 

THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR UNDER ANY STATE SECURITIES
LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.

 

	
  No.  W-3

  	
   

  	
  Issue Date:  March 15, 2004

  

 

WARRANT
TO PURCHASE

 

COMMON
STOCK

 

OF

 

ALBANY
MOLECULAR RESEARCH, INC.

 

THIS CERTIFIES that, in order to induce Bristol-Myers Squibb Company to
enter into a strategic alliance with Albany Molecular Research, Inc., BRISTOL-MYERS
SQUIBB COMPANY, or registered assigns (the “Warrantholder”), is
entitled to purchase from ALBANY MOLECULAR RESEARCH, INC., a
Delaware corporation  (the “Company”), subject to the provisions
of this Warrant, at any time during the Exercise Period (as hereinafter
defined) 246,369
shares, subject to adjustment as set forth in this Warrant (the “Warrant
Shares”), of the Company’s Common Stock, par value $0.01 per share (the “Common
Stock”).  The purchase price payable
upon the exercise of this Warrant shall, subject to the provisions of this
Warrant, be $30.24 per Warrant Share (the “Exercise Price”).  This Warrant is one of a series of Warrants
issued pursuant to that certain Warrant Issue Agreement, dated as of
March 15, 2002, between the Company and the Warrantholder (the “Warrant
Agreement”).

 

This Warrant is
subject to the following terms and conditions:

 

1.                                       Exercise of Warrant.

 

1.1                                 Exercise Procedures.  This Warrant may be
exercised in whole or in part at any time during the period commencing on the
Issue Date of this Warrant and terminating as of 5:00 p.m., Eastern time, on
the fifth anniversary of the Issue Date (the “Exercise Period”), provided,
however, that this Warrant may not be exercised until any waiting period
applicable to such exercise under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall have expired or early termination shall have
been granted.  Upon delivery of this
Warrant at the offices of the Company or at such other address as the Company
may designate by notice in writing to the registered holder hereof with the
Subscription Form annexed hereto duly completed and executed, accompanied by
payment of the Exercise Price for the number of Warrant Shares purchased (in
cash, by certified, cashier’s or other check acceptable to the Company), the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased.  Such certificate or certificates shall be promptly delivered to
the Warrantholder.

 

1.2                                 Cashless Exercise.  Notwithstanding any
provisions herein to the contrary, in lieu of exercising this Warrant pursuant
to Section 1.1, the Warrantholder may elect to instruct the Company to
withhold from the Warrant Shares to be issued upon exercise of the Warrant a
number of Warrant Shares equal to the number of Warrant Shares for which the
Warrant is exercised multiplied by a fraction, the numerator of which is the
Exercise Price at the time of exercise, and the denominator of which is the
Fair Market Value (as hereinafter defined) of a Warrant Share (each such
exercise pursuant to this Section 1.2 referred to as a “Cashless
Exercise”).  Upon such exercise, the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased.  Such certificate or certificates shall be promptly delivered to
the Warrantholder.  For purposes of this
Section 1.2, the “Fair Market Value” of a Warrant Share means the average
closing price of one such share of Common Stock for the preceding ten (10)
trading days on the securities exchange on which the

 

1

 

Common Stock is listed (the “Exchange”) or the automated quotation
system on which the Common Stock is quoted (the “Quotation System”), or if the
Common Stock is not listed on an Exchange or quoted on a Quotation System, the
average of the bid and asked prices of the Common Stock in the over-the-counter
market at the close of trading during such ten (10) day period, or, if the
Common Stock is not traded in the over-the-counter market, the fair market
value of a share of Common Stock during such period as determined in good faith
by the Board of Directors of the Company.

 

1.3                                 Reservation of Shares.  The Warrant Shares
deliverable hereunder shall, upon issuance, be validly issued, fully paid and
non-assessable.  The Company shall cause
to be reserved for issuance such number of shares of its Common Stock as shall
be required for issuance and delivery upon exercise of this Warrant.   The Company shall cause all Warrant Shares
to be listed on each Exchange or quoted on each Quotation System on which
securities of the same class of the Company are listed or quoted.  Upon any partial exercise of this Warrant,
the Company shall execute and deliver a new Warrant of like tenor for the
balance of the Warrant Shares purchasable hereunder.

 

1.4                                 No
Fractional Shares.  No fractional shares or scrip representing
fractional shares will be issued upon the exercise of the Warrants.  In lieu of such fractional shares, the
Company shall, with respect to any fraction of a share called for upon any
exercise of this Warrant, pay to the holder hereof an amount in cash equal to
such fraction multiplied by the greater of (i) the then effective Exercise
Price or (ii) the Fair Market Value of a Warrant Share.

 

2.                                       Assignment or Transfer of Warrant.

 

2.1                                 Transfer Procedures.  Any assignment or transfer
of this Warrant shall be made by surrender of this Warrant at the offices of
the Company or at such other address as the Company may designate in writing to
the registered holder hereof with the form of Assignment annexed hereto duly
executed and accompanied by payment of any requisite transfer taxes, and the
Company shall, without charge, execute and deliver a new Warrant of like tenor
in the name of the assignee for the portion so assigned, in case of only a
partial assignment, with a new Warrant of like tenor to the assignor for the
balance of the Warrant Shares purchasable.

 

2.2                                 Opinion of Counsel.  Prior to any assignment or
transfer of this Warrant, the holder thereof shall, if requested by the
Company, deliver an opinion of counsel to the Company, or other counsel
reasonably acceptable to the Company, to the effect that the proposed transfer
may be effected without registration under the Securities Act of 1933, as
amended (the “Act”).  Each Warrant
issued upon or in connection with such transfer shall bear the restrictive
legend set forth on the front of the Warrant unless, in the opinion of the
Company’s counsel, or other counsel reasonably acceptable to the Company, such
legend is no longer required to insure compliance with the Act.

 

3.                                       Charges, Taxes and Expenses.  The issuance of certificates
for Warrant Shares upon any exercise of this Warrant shall be made without
charge to the holder of this Warrant for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued only in the name of
the holder of this Warrant.  Any taxes
on the transfer of this Warrant or the Warrant Shares are the sole
responsibility of the Warrantholder.

 

4.                                       Adjustments.  In order to prevent dilution
of the exercise right granted under this Warrant, and in addition to any
adjustments to the Exercise Price made under Section 7, this Warrant shall
be subject to adjustment from time to time as follows:

 

4.1                                 Stock Dividends, Subdivisions, etc.  In the event that the
Company shall at any time: (i) declare or pay to the holders of the Common
Stock a dividend payable in any kind of shares of capital stock, or rights to
purchase capital stock, of the Company; or (ii) combine or subdivide or
otherwise reclassify its Common Stock into the same or a different number of
shares, with or without par value, or into shares of any other class or
classes; or (iii) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of return of
capital; then, upon the subsequent exercise of this Warrant, the holder thereof
shall receive, in addition to or in substitution for the shares of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or rights of the Company, or such reclassified shares of stock
of the Company, or such assets of the Company, which it would have been
entitled to receive had it exercised these rights prior to the happening of any
of the foregoing events.  In any such
case appropriate provisions shall be made with respect to the rights and
interests of each holder to the end that the provisions of this Warrant shall
thereafter be applicable, as nearly as may be, in relation to any Warrant
Shares, other securities or assets obtainable upon exercise of this Warrant
after any of the foregoing events.

 

2

 

4.2                                 Mergers, Consolidations, etc.  If the Company shall, at any
time, consolidate with or merge into another corporation (where the Company is
not the continuing corporation in such merger or consolidation), the holder of
this Warrant shall thereafter be entitled to receive, upon the exercise
thereof, in whole or in part, the securities or other property to which a
holder of the number of shares of Common Stock then deliverable upon the
exercise thereof would have been entitled upon such consolidation or merger,
and the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of this
Warrant shall thereafter be applicable in relation to any securities or
property thereafter deliverable upon the exercise of this Warrant, including,
but not limited to, obtaining a written acknowledgement from the continuing
corporation of its obligation to supply such securities or property upon such
exercise.  A sale, transfer or lease of
all or substantially all of the assets of the Company to another entity shall
be deemed a consolidation or merger for the foregoing purposes.

 

4.3                                 Notice of Certain Events.  If at any time while this Warrant
is outstanding, (i) the Company shall pay any dividend payable in cash or in
Common Stock, (ii) the Company shall offer to the holders of its Common Stock
for subscription or purchase by them any shares of stock of any class or any
other rights, (iii) the Company shall enter into an agreement to merge or
consolidate with another corporation, (iv) the Company shall propose any
capital reorganization or classification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock, or (v) there shall be contemplated a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall cause
notice thereof to be mailed to the registered holder of this Warrant at its address
appearing on the registration books of the Company at least ten (10) days prior
to the record date as of which holders of Common Stock shall participate in
such dividend, distribution or subscription or other rights or at least ten
(10) days prior to the effective date of the merger, consolidation,
reorganization, reclassification or dissolution.

 

5.                                       Securities Act Compliance.

 

5.1                                 Investment Representations.  The Warrantholder, by
acceptance of this Warrant (including, without limitation, upon a transfer from
the original Warrantholder), hereby confirms that it has acquired this Warrant,
and will acquire any Warrant Shares, for its own account, for investment and
not with a view to the distribution thereof within the meaning of the Act and
that it is an “accredited investor” as that term is defined in Regulation D
promulgated under the Act.  The
Warrantholder acknowledges that it has had an opportunity to ask questions of
and receive answers from principal officers and representatives of the Company,
which questions were answered to its reasonable satisfaction, and to obtain any
additional information necessary or advisable to permit it to make an
evaluation of the benefits and risks associated with the investment in this
Warrant.  The Warrantholder confirms and
acknowledges that it has received and read the Company’s reports and other
filings with the Securities and Exchange Commission (the “Commission”),
including, without limitation, the Company’s Annual Report on Form 10-K for the
fiscal year ending December 31, 2003, the Company’s proxy statement dated
April 30, 2003, and the Company’s Current Report on Form 8-K dated
February 10, 2004,  (collectively,
the “Informational Materials”), and the Warrantholder specifically confirms
that it fully understands the information contained in the Informational
Materials.  The Warrantholder agrees
that it will not transfer this Warrant or any of the Warrant Shares acquired by
it upon exercise of this Warrant, except pursuant to an effective registration
statement filed pursuant to the Act or an exemption from registration
thereunder.

 

5.2                                 Legend.  If appropriate, in order to assure
compliance with the restrictions upon transfer contained in this Warrant, the
certificates representing the Warrant Shares when issued, and each certificate
issued in exchange for or upon transfer of this Warrant or any of the Warrant
Shares, shall, unless and until the transfer of this Warrant or the Warrant
Shares, as applicable, shall have been registered under the Act or their transfer
shall be exempt from registration thereunder, be stamped or otherwise imprinted
with a legend in substantially the following form (in addition to any legend
required by applicable state securities law):

 

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER
COUNSEL TO THE HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH WARRANT AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS.

 

3

 

6.                                       Registration Rights.

 

6.1                                 Definitions.  As used in this
Section 6, the following terms shall have the following respective
meanings:

 

“Registrable
Securities” shall mean (i) any shares of the Company’s Common Stock issued or
issuable upon exercise of this Warrant, (ii) any shares of the Company’s Common
Stock issued or issuable upon exercise of any other warrant or warrants issued
to the Warrantholder pursuant to the Warrant Agreement (collectively, the
“Other Warrants”)  or (iii) in the
event of any stock split, stock dividend, recapitalization or similar event,
any other securities of the Company issued or issuable upon exercise of this
Warrant or the Other Warrants; provided, however, that in the
event any holder may sell all of such shares held by such holder within the
volume limitations of Rule 144 under the Act and applicable interpretations, or
any successor rule or regulation, assuming the cashless exercise of this
Warrant, such shares shall not be considered Registrable Securities; and provided,
further, however, that any such shares that may be sold without
restriction as to volume or otherwise pursuant to the provisions of Rule 144(k)
under the Act and applicable interpretations, or any successor rule or
regulation, assuming the cashless exercise of this Warrant, shall not be
considered Registrable Securities.

 

The term
“register,” “registered” and “registration” shall refer to a registration
effected by preparing and filing a registration statement in compliance with
the Act and applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.

 

“Registration
Expenses” shall mean all expenses incurred by the Company in compliance with
this Section 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, the
Company’s internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit or quarterly review, the expense of any
liability insurance and blue sky fees and expenses, exclusive of Selling
Expenses.

 

“Restricted
Securities” shall mean securities of the Company required to bear or bearing
the legend set forth in Section 5.2 hereof.

 

“Selling Expenses”
shall mean all underwriting discounts and selling commissions applicable to the
sale of Registrable Securities and all fees and disbursements of counsel and
accountants and other expenses for any holder.

 

6.2                                 Demand Registrations.

 

(a)                                  Demand Registration.  If, at any
time during the Exercise Period, the holders of Registrable Securities notify
the Company in writing that such holders intend to offer or cause to be offered
for public sale not less than 100,000 shares of  Registrable Securities (or such lesser amount representing all of
the Registrable Securities then held by the holders giving such notice), the
holders of the Registrable Securities shall be entitled to request by such
notice to the Company, the registration under the Act of the amount of
Registrable Securities set forth in such notice (the “Demand Registrations”),
in which the Company shall pay all Registration Expenses; provided, however,
that the holders of the Registrable Securities shall not be entitled to request
more than two (2) Demand Registrations during any single calendar year,
including any Demand Registrations provided for pursuant to the Other Warrants,
and shall not be entitled to more than three (3) Demand Registrations in toto,
including any Demand Registrations provided for pursuant to the Other
Warrants.  A registration shall not
count as one of the permitted Demand Registrations if it does not become
effective, and the Company shall pay all Registration Expenses in connection
with any registration of Registrable Securities initiated as a Demand
Registration whether or not it has become effective.

 

(b)                                 Postponement  of  Demand  Registrations.  The Company
shall not be obligated to effect any Demand Registration within 90 days after
the effective date of a previous registration in which the Company has sold
shares pursuant to an underwritten offering. 
The Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company’s Board of Directors determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, business combination, tender
offer, joint venture, reorganization or similar transaction; provided that in
such event,

 

4

 

the holders of the Registrable
Securities initially requesting such Demand Registration shall be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as the Demand Registration permitted by Sections
6.2(a) above, and the Company shall pay all Registration Expenses in connection
with such registration.

 

6.3                                 Piggyback Registrations.

 

(a)                                  Right to Piggyback. 
Whenever the Company proposes to register any of its securities (whether
for itself or for its other security holders) under the Act (other than a
Demand Registration or pursuant to a registration on Forms S-4 or S-8 or any
successors to such forms) (a “Piggyback Registration”), the Company will give
prompt written notice to all holders of Registrable Securities of its intention
to effect such registration.  The
Company will include in such registration all Registrable Securities with
respect to which the Company has received requests for inclusion therein within
ten (10) days after the receipt of the Company’s notice.

 

(b)                                 Priority on Primary Registrations. 
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that, in their opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold without
adversely affecting such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, and (ii)
second, any other securities requested to be included in such registration,
including the Registrable Securities, pro rata in accordance with the amounts
of such securities requested to be so included by the respective holders of
such securities of the Company.

 

(c)                                  Priority on Secondary Registrations. 
If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company’s securities and the managing underwriters
advise the Company in writing that, in their opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold without adversely affecting such offering, the Company will include in
such registration (i) first, the securities requested to be included therein by
the holders requesting such registration, and (ii) second, any other securities
requested to be included in such registration, including the Registrable
Securities, pro rata in accordance with the amounts of such securities
requested to be so included by the respective holders of such securities of the
Company.

 

6.4                                 Holdback Agreements. 
Each holder of Registrable Securities agrees not to effect any public
sale or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven (7) days prior to and the 90-day period beginning on the effective date
or pricing, as applicable, of any underwritten registered public offering in
which the Company has sold shares of Common Stock unless the underwriters
managing the registered public offering otherwise agree.

 

6.5                                 Registration Procedures.  Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Section 6, the Company will use commercially
reasonable efforts to effect the registration and the sale of the Registrable
Securities in accordance with the intended method of disposition thereof and
pursuant thereto the Company will:

 

(a)                                  prepare and file, within forty-five (45)
days after notice is delivered to the Company pursuant to Section 6.2(a),
with the Commission a registration statement with respect to such Registrable
Securities, which registration statement will state that the holders of
Registrable Securities covered thereby may sell such Registrable Securities
either under such registration statement or at any holder’s proper request,
pursuant to Rule 144 (or any similar rule then in effect), and use commercially
reasonable efforts to cause such registration statement to become effective
(provided that a reasonable time before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
to the counsel selected by the holders of a majority of the Registrable
Securities covered by such registration statement for review and comment copies
of all such documents proposed to be filed;

 

(b)                                 promptly notify each holder of
Registrable Securities of the effectiveness of each registration statement
filed hereunder and prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statements
effective for the period set forth in Section 6.5(g) hereof and comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;

 

5

 

(c)                                  furnish to each seller of Registrable
Securities such number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;

 

(d)                                 use commercially reasonable efforts to
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as any seller reasonably requests and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdiction of the Registrable Securities owned by such seller (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subsection, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);

 

(e)                                  notify
each seller of such Registrable Securities at any time (i) when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state any
fact necessary to make the statements therein not misleading, and, at the
request of any such seller and subject to Section 6.5(l), the Company will
prepare a post-effective amendment to such registration statement, a supplement
or amendment to such prospectus or file any other required document so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading, (ii) of
any request by the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of proceedings for that purpose and
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any of the Registrable Securities for sale
in any jurisdiction or of the initiation or threatening of any proceeding for
such purpose;

 

(f)                                    make available for inspection at
reasonable times and upon reasonable prior notice by a seller of Registrable
Securities, and any attorney, accountant or other agent retained by any such seller,
all reasonably relevant financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors, employees and independent accountants to supply all such information
reasonably requested by any such seller, attorney, accountant or agent in
connection with such registration statement;

 

(g)                                 keep each registration statement
effective until the earlier to occur of (i) the date on which the holders have
completed the distribution described in the registration statement relating
thereto and (ii) ninety (90) days (subject to extension pursuant to
Section 6.5(l);

 

(h)                                 cause all such Registrable Securities to
be listed on each Exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be quoted on the National Association
of Securities Dealers’ Automated Quotation System (“NASDAQ”) and, if listed on
NASDAQ, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ “national market
system security” within the meaning of Rule 11Aa2-1 promulgated by the
Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities;

 

(i)                                     provide a transfer agent
and registrar for all such Registrable Securities not later than the effective
date of such registration statement;

 

(j)                                     in
the event of the issuance of any stop order suspending the effectiveness of a
registration statement, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any equity securities
included in such registration statement for sale in any jurisdiction, the
Company shall use commercially reasonable efforts to promptly obtain the
withdrawal of such order or the lifting of any suspension of the qualification
of any of the Registrable Securities for sale in any jurisdiction; and

 

(k)                                  otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission.

 

(l)                                     Each
holder of Registrable Securities, by its acceptance of such Registrable
Securities, agrees that upon receipt of any notice from the Company of the
happening of any event of the kind described in subsection (e) above, such
holder will forthwith discontinue such holder’s distribution of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder’s receipt of the copies of the supplemented or

 

6

 

amended prospectus contemplated by subsection (e) above or until
he is advised in writing by the Company that the use of the applicable
prospectus may be resumed.  In the event
the Company shall give any such notice, the applicable time period mentioned in
subsection (g) above during which a Registration Statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to subsection (e)
above, to and including the date when each seller of a Registrable Security
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by subsection (e) above.

 

6.6                                 Expense  of  Registration.  All Registration Expenses
incurred in connection with a registration, qualification or compliance
pursuant to this Section 6 shall be borne by the Company, and all Selling
Expenses shall be borne by the holders of the Registrable Securities so
registered pro rata on the basis of the number of their Registrable Securities
so registered.

 

6.7                                 Indemnification.

 

(a)                                  The Company will indemnify each holder of
Registrable Securities, such holder’s officers, directors and partners and each
person or entity, if any, that controls such holder within the meaning of the
Act, and each other person or entity, if any, subject to liability because of
his, her or its connection with such holder (an “Indemnitee”), against any and
all losses, claims, damages, actions, liabilities, costs and expenses, joint or
several, arising out of or based upon any untrue or alleged untrue statement of
material fact contained in a registration statement or any prospectus contained
therein (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as and to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement arose out of or
was based upon information regarding the Indemnitee or its plan of distribution
which was furnished to the Company in writing by the Indemnitee for use
therein, provided further that the Company shall not be liable to any
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon such Indemnitee’s failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action
is required by the Act to the person claiming an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such final prospectus.

 

(b)                                 In connection with a registration of
Registrable Securities pursuant to Section 6, each participating holder
hereby agrees to (i) cooperate with the Company and to furnish to the Company
all such information required to be furnished by the Act in connection with the
preparation of any registration statement and any filings with any state
securities commissions as the Company may reasonably request, (ii) deliver or
cause delivery of any prospectus contained in any registration statement to any
purchaser of the shares covered by such registration statement from such
holder, (iii) notify the Company of any sale of Registrable Securities by such
holder, and (iv) indemnify the Company, its officers, directors, employees,
agents, representatives and affiliates, and each person, if any, who controls
the Company within the meaning of the Act, and each other person, if any,
subject to liability because of his, her or its connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (A) any untrue statement or alleged
untrue statement of material fact contained in either any registration
statement or any prospectus, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if and to the extent that such statement or omission arose out
of or was based upon information regarding such holder or its plan of
distribution which was furnished in writing to the Company by such holder expressly
for use therein, or (B) the failure by such holder or any broker, dealer or
agent acting for or on behalf of such holder to deliver or cause to be
delivered the prospectus contained in any registration statement (as amended or
supplemented, if applicable) furnished by the Company to such holder to any
purchaser of the shares covered by such registration statement; provided,
however, no holder shall be required to indemnify any person pursuant to
this Section 6.7(b) in an amount in excess of the amount of the aggregate
net proceeds received by such holder from the sale of Registrable Securities in
connection with any such registration under the Act.

 

(c)                                  Each party entitled to indemnification
under this Section 6.7 (the “Indemnified Party”) shall give notice to the
party required to provide indemnification (the “Indemnifying Party”) promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and will permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, and the
Indemnified Party may participate in such defense at such party’s expense,
provided that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 6.7 unless such failure has had a material adverse effect on such
claim.  An Indemnifying Party who elects
not to assume the defense of a claim shall not be

 

7

 

obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such Indemnifying Party with respect to such claim,
unless in the reasonable judgment of any Indemnified Party a conflict of
interest may exist between such Indemnified Party and any other of such
Indemnified Parties with respect to such claim.  No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of judgment or enter into any settlement which does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense
of such request and any litigation resulting therefrom.

 

6.8                                 Information by Holders.  Each holder of Registrable
Securities shall furnish to the Company such information regarding such holder
and the distribution proposed by such holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 6.

 

6.9                                 Rule 144 Reporting.  With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of the Restricted Securities to the public without
registration, the Company agrees to use commercially reasonable efforts to:

 

(a)                                  make and keep public information
available as those terms are understood and defined and interpreted in and
under Rule 144 under the Act;

 

(b)                                 file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Exchange Act of 1934, as amended; and

 

(c)                                  so long as the holder owns any Restricted
Securities, furnish to the holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of Rule 144, a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed as the holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the holder
to sell any such securities without registration.

 

7.                                       Issuance
of Shares Below Fair Market Value.

 

7.1                                 Anti-Dilution.                      The initial
Exercise Price shall be $30.24. 
In order to prevent dilution of the Warrant Shares, the Exercise Price
shall be subject to adjustment from time to time pursuant to this Section.

 

7.2                                 Adjustment.

 

(a)                                  Except
as provided in Section 7.4, if the Company at any time issues or transfers
any share of its Common Stock in a Specified Dilutive Transaction (as
hereinafter defined) at a price per share less than the Specified Fair Market
Value (as hereinafter defined), or is deemed to have issued any shares of
Common Stock pursuant to Section 7.3 below, then simultaneously with any
such transaction: (i) the Exercise Price shall be adjusted by multiplying the
Exercise Price immediately prior to such transaction by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Deemed
Outstanding (as hereinafter defined) immediately prior to such transaction plus
the number of full shares which could have been purchased, at the Specified
Fair Market Value, for the value of the aggregate consideration received by the
Company in such transaction, and (B) the denominator of which shall be the
number of shares of Common Stock Deemed Outstanding immediately after such
transaction; and (ii) the number of Warrant Shares shall be adjusted by
multiplying the number of Warrant Shares immediately prior to such transaction
by a fraction (i) the numerator of which shall be the Exercise Price in effect
immediately prior to such transaction and (ii) the denominator of which shall
be the Exercise Price immediately after such transaction (as calculated
pursuant to clause (i) above).

 

(b)                                 For
purposes of this Section 7.2, a “Specified Dilutive Transaction” means:
(x) any transaction in which the issuance of any Common Stock, Convertible
Securities or Options is greater than 15% of the outstanding shares of Common
Stock immediately prior to the closing of

 

8

 

such transaction, (y) any transaction that, on a
cumulative basis during the Exercise Period, would result in the outstanding
shares of Common Stock (excluding shares of Common Stock issued in transactions
exempt pursuant to Section 7.4) immediately after the closing of such
transaction being greater than 130% of the outstanding shares of Common Stock
as of the date hereof; or (z) any transaction in which the issuance of any
Common Stock, Convertible Securities or Options is at a price per share less
than 80% of the Fair Market Value.

 

(c)                                  For
purposes of this Section 7.2, “Specified Fair Market Value” of a Warrant
Share or of a share of Common Stock means (i) the price of a share of Common
Stock as determined in the relevant transaction, provided that such price is
determined based on the closing price or the average of the high and low sales
prices for the trading day of a share of Common Stock on the Exchange or the
Quotation System for a specified period not to exceed thirty (30) days and
ending no earlier than five (5) days prior to the closing of such transaction,
or (ii) if clause (i) is not applicable, the closing price on the day of the
closing of such transaction of one such share of Common Stock on the Exchange
or the Quotation System, or if the Common Stock is not listed on an Exchange or
quoted on a Quotation System, the average of the bid and asked prices of the
Common Stock in the over-the-counter market at the close of such trading day,
or, if the Common Stock is not traded in the over-the-counter market, the fair
market value of a share of Common Stock as determined in good faith by the
Board of Directors of the Company.

 

(d)                                 For
purposes of this Section 7.2, “Common Stock Deemed Outstanding,” means, at
any time, the sum of the number of shares of Common Stock outstanding as of the
date of measurement (including for this purpose all shares of Common Stock
issuable upon exercise or conversion of any Options or Convertible Securities
outstanding as of such date).

 

7.3                                 Effect
on Exercise Price of Certain Events. 
For purposes of determining the adjusted Exercise Price under
Section 7.2, the following shall be applicable:

 

(a)                                  Issuance
of Rights or Options.  If the Company
in any manner grants any rights or options to subscribe for or to purchase
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock (such rights or options being called “Options” and such
convertible or exchangeable stock or securities being called “Convertible
Securities”) and the price per share for which Common Stock is issuable upon
the exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Specified Fair Market Value immediately prior to
the time of the granting of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the granting of
such Options for such price per share. 
For purposes of this Section, the “price per share for which Common
Stock is issuable” shall be determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Options, plus in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
of such Convertible Securities, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options.  No further adjustment of
the Exercise Price shall be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually
issued upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

 

(b)                                 Issuance
of Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the price
per share for which Common Stock is issuable upon such conversion or exchange
is less than the Fair Market Value immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section, the “price
per share for which Common Stock is issuable” shall be determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of such Convertible Securities, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities.  No
further adjustment of the Exercise

 

9

 

Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Exercise Price had been or are to be made pursuant to
other provisions of this Section 7, no further adjustment of the Exercise
Price shall be made by reason of such issue or sale.

 

(c)                                  Change
in Option Price or Conversion Rate; Expiration of Option or Convertible Security.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock change at any
time, the Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold.  If any Option expires unexercised or any
right to convert or exchange Convertible Securities terminates not converted or
exchanged (including the repayment of convertible debt prior to any conversion
thereof) and there has been an adjustment to the Exercise Price as a result of
the grant of such Option or the issuance of such Convertible Securities, the
Exercise Price then in effect hereunder shall be increased to the Exercise
Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities never been issued; provided,
however, that the Exercise Price shall not be increased to an amount
greater than the initial Exercise Price set forth in Section 7.1.

 

(d)                                 Calculation
of Consideration Received.  If any
Common Stock, Option or Convertible Security is issued or sold or deemed to
have been issued or sold for cash, the consideration received upon such
issuance or sale shall be deemed to be the net amount received by the
Company.  In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Fair Market Value of such securities as of
the date of receipt.  The fair value of
any consideration other than cash and securities shall be reasonably determined
in good faith by the Board of Directors of the Company (irrespective of
accounting treatment thereof); provided, however, that if the
Company has received the written opinion of a nationally recognized investment
banking firm as to the fair value of any consideration other than cash and
securities, then such opinion shall be final and binding on the Company and the
Warrantholders.

 

(e)                                  Integrated
Transactions.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties to such transaction,
the Option shall be deemed to have been issued for a consideration of $.01.

 

7.4                                 Exempt
Transactions.  Notwithstanding
anything in this Warrant to the contrary, the provisions of Section 7.2
shall not apply to (i) the grant, issuance or exercise of any Common Stock,
Convertible Securities or Options to any officer, director, key employee,
consultant or advisor of the Company pursuant to the Company’s qualified or
non-qualified employee and non-employee director compensatory stock option
plans or any other employee benefit plan or incentive arrangement or otherwise,
adopted or approved by the Company’s Board of Directors, as may be amended from
time to time, or under any other employee benefit plan hereafter adopted by the
Company’s Board of Directors; (ii) the grant, issuance or exercise of any
Common Stock, Convertible Securities or Options existing on the date hereof;
(iii) the issuance of any Common Stock, Convertible Securities or Options in
connection with the acquisition of all or substantially all of the assets or
equity of any corporation, partnership, limited liability company or other
business entity; (iv) the issuance of any Common Stock, Convertible Securities
or Options in a technology development, distribution, marketing or similar
joint venture transaction; (v) the issuance of any Common Stock, Convertible
Securities or Options in any bona fide public offering that is underwritten;
(vi) any issuance of Common Stock, Convertible Securities or Options that is
approved by the Company’s shareholders; or (vii) the grant, issuance or
exercise of any Common Stock, Convertible Securities or Options issued pursuant
to this Warrant.

 

7.5                                 Officer’s
Certificate.  Whenever the Exercise
Price or the kind of securities or property issuable upon the exercise of this
Warrant, or both, shall be adjusted pursuant to this Section 7 or
Section 4 of this Warrant, the Company shall prepare an officer’s
certificate setting forth, in reasonable detail, the event requiring such
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and the kind of securities or property
issuable upon the exercise of this Warrant after giving effect to such
adjustment.  The Company shall cause
copies of such certificate to be mailed (by first class mail postage prepaid)
to the holder or holders of this Warrant promptly after each adjustment.

 

10

 

8.                                       Miscellaneous.

 

8.1                                 Replacement of Lost, Stolen or Mutilated
Warrant.  In
case this Warrant shall be mutilated, lost, stolen or destroyed, the Company
shall at the request of the holder of such Warrant, issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant, lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or interest; but
only upon receipt of evidence satisfactory to the Company of such loss, theft
or destruction of such Warrant and indemnity, if requested, also satisfactory
to the Company.  An applicant for such a
substitute Warrant shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.

 

8.2                                 Successors and Assigns.  The terms of this Warrant
shall be binding upon and shall inure to the benefit of any successors or
assigns of the Company and of the holder hereof and of the Warrant Shares
issued or issuable upon the exercise hereof.

 

8.3                                 No  Rights  as  Shareholder.  Nothing contained in this
Warrant shall be construed to confer upon the holder of this Warrant, as such,
any of the rights of a shareholder of the Company.

 

8.4                                 Acceptance of Terms by Warrantholder.  Receipt of this Warrant by
the holder hereof shall constitute acceptance of an agreement to the foregoing
terms and conditions.

 

8.5                                 Governing Law.  This Warrant and the
performance of the parties hereunder shall be construed and interpreted in
accordance with the laws of the State of Delaware, without giving effect to its
conflict of laws provisions.  The state
and federal courts in Delaware shall have exclusive jurisdiction over any
litigation arising under this Agreement.

 

[Signature Page Follows]

 

11

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be signed in its name as of the
date first above written.

 

	
   

  	
  ALBANY MOLECULAR RESEARCH, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David P. Waldek

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  David P. Waldek

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
								

 

12

 

THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR UNDER ANY STATE SECURITIES
LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.

 

	
  No.  W-4

  	
   

  	
  Issue Date:  March 15, 2004

  

 

WARRANT
TO PURCHASE

 

COMMON
STOCK

 

OF

 

ALBANY
MOLECULAR RESEARCH, INC.

 

THIS CERTIFIES that, in order to induce Bristol-Myers Squibb Company to
enter into a strategic alliance with Albany Molecular Research, Inc., BRISTOL-MYERS
SQUIBB COMPANY, or registered assigns (the “Warrantholder”), is
entitled to purchase from ALBANY MOLECULAR RESEARCH, INC., a
Delaware corporation  (the “Company”), subject to the provisions
of this Warrant, at any time during the Exercise Period (as hereinafter
defined) 269,863
shares, subject to adjustment as set forth in this Warrant (the “Warrant
Shares”), of the Company’s Common Stock, par value $0.01 per share (the “Common
Stock”).  The purchase price payable
upon the exercise of this Warrant shall, subject to the provisions of this
Warrant, be $35.24 per Warrant Share (the “Exercise Price”).  This Warrant is one of a series of Warrants
issued pursuant to that certain Warrant Issue Agreement, dated as of
March 15, 2002, between the Company and the Warrantholder (the “Warrant
Agreement”).

 

This Warrant is
subject to the following terms and conditions:

 

1.                                       Exercise of Warrant.

 

1.1                                 Exercise Procedures.  This Warrant may be
exercised in whole or in part at any time during the period commencing on the
Issue Date of this Warrant and terminating as of 5:00 p.m., Eastern time, on
the fifth anniversary of the Issue Date (the “Exercise Period”), provided,
however, that this Warrant may not be exercised until any waiting period
applicable to such exercise under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall have expired or early termination shall have
been granted.  Upon delivery of this
Warrant at the offices of the Company or at such other address as the Company
may designate by notice in writing to the registered holder hereof with the
Subscription Form annexed hereto duly completed and executed, accompanied by
payment of the Exercise Price for the number of Warrant Shares purchased (in
cash, by certified, cashier’s or other check acceptable to the Company), the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased.  Such certificate or certificates shall be promptly delivered to
the Warrantholder.

 

1.2                                 Cashless Exercise.  Notwithstanding any
provisions herein to the contrary, in lieu of exercising this Warrant pursuant
to Section 1.1, the Warrantholder may elect to instruct the Company to
withhold from the Warrant Shares to be issued upon exercise of the Warrant a
number of Warrant Shares equal to the number of Warrant Shares for which the
Warrant is exercised multiplied by a fraction, the numerator of which is the
Exercise Price at the time of exercise, and the denominator of which is the
Fair Market Value (as hereinafter defined) of a Warrant Share (each such
exercise pursuant to this Section 1.2 referred to as a “Cashless
Exercise”).  Upon such exercise, the
registered holder of this Warrant shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased.  Such certificate or certificates shall be promptly delivered to
the Warrantholder.  For purposes of this
Section 1.2, the “Fair Market Value” of a Warrant Share means the average
closing price of one such share of Common Stock for the preceding ten (10)
trading days on the securities exchange on which the Common Stock is listed
(the “Exchange”) or the automated quotation system on which the Common Stock is
quoted (the “Quotation System”), or if the Common Stock is not listed on an
Exchange or quoted on a Quotation System, the average of the bid and asked
prices of the Common Stock in the over-the-counter market at the close

 

13

 

of trading during such ten (10) day period, or, if the Common Stock is
not traded in the over-the-counter market, the fair market value of a share of
Common Stock during such period as determined in good faith by the Board of
Directors of the Company.

 

1.3                                 Reservation of Shares.  The Warrant Shares
deliverable hereunder shall, upon issuance, be validly issued, fully paid and
non-assessable.  The Company shall cause
to be reserved for issuance such number of shares of its Common Stock as shall
be required for issuance and delivery upon exercise of this Warrant.   The Company shall cause all Warrant Shares
to be listed on each Exchange or quoted on each Quotation System on which
securities of the same class of the Company are listed or quoted.  Upon any partial exercise of this Warrant,
the Company shall execute and deliver a new Warrant of like tenor for the
balance of the Warrant Shares purchasable hereunder.

 

1.4                                 No
Fractional Shares.  No fractional shares or scrip representing
fractional shares will be issued upon the exercise of the Warrants.  In lieu of such fractional shares, the
Company shall, with respect to any fraction of a share called for upon any
exercise of this Warrant, pay to the holder hereof an amount in cash equal to
such fraction multiplied by the greater of (i) the then effective Exercise
Price or (ii) the Fair Market Value of a Warrant Share.

 

2.                                       Assignment or Transfer of Warrant.

 

2.1                                 Transfer Procedures.  Any assignment or transfer
of this Warrant shall be made by surrender of this Warrant at the offices of
the Company or at such other address as the Company may designate in writing to
the registered holder hereof with the form of Assignment annexed hereto duly
executed and accompanied by payment of any requisite transfer taxes, and the
Company shall, without charge, execute and deliver a new Warrant of like tenor
in the name of the assignee for the portion so assigned, in case of only a
partial assignment, with a new Warrant of like tenor to the assignor for the
balance of the Warrant Shares purchasable.

 

2.2                                 Opinion of Counsel.  Prior to any assignment or
transfer of this Warrant, the holder thereof shall, if requested by the
Company, deliver an opinion of counsel to the Company, or other counsel
reasonably acceptable to the Company, to the effect that the proposed transfer
may be effected without registration under the Securities Act of 1933, as
amended (the “Act”).  Each Warrant
issued upon or in connection with such transfer shall bear the restrictive
legend set forth on the front of the Warrant unless, in the opinion of the
Company’s counsel, or other counsel reasonably acceptable to the Company, such
legend is no longer required to insure compliance with the Act.

 

3.                                       Charges, Taxes and Expenses.  The issuance of certificates
for Warrant Shares upon any exercise of this Warrant shall be made without
charge to the holder of this Warrant for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued only in the name of
the holder of this Warrant.  Any taxes
on the transfer of this Warrant or the Warrant Shares are the sole
responsibility of the Warrantholder.

 

4.                                       Adjustments.  In order to prevent dilution
of the exercise right granted under this Warrant, and in addition to any
adjustments to the Exercise Price made under Section 7, this Warrant shall
be subject to adjustment from time to time as follows:

 

4.1                                 Stock Dividends, Subdivisions, etc.  In the event that the
Company shall at any time: (i) declare or pay to the holders of the Common
Stock a dividend payable in any kind of shares of capital stock, or rights to
purchase capital stock, of the Company; or (ii) combine or subdivide or
otherwise reclassify its Common Stock into the same or a different number of
shares, with or without par value, or into shares of any other class or
classes; or (iii) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of return of
capital; then, upon the subsequent exercise of this Warrant, the holder thereof
shall receive, in addition to or in substitution for the shares of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or rights of the Company, or such reclassified shares of stock
of the Company, or such assets of the Company, which it would have been
entitled to receive had it exercised these rights prior to the happening of any
of the foregoing events.  In any such
case appropriate provisions shall be made with respect to the rights and
interests of each holder to the end that the provisions of this Warrant shall
thereafter be applicable, as nearly as may be, in relation to any Warrant
Shares, other securities or assets obtainable upon exercise of this Warrant
after any of the foregoing events.

 

4.2                                 Mergers, Consolidations, etc.  If the Company shall, at any
time, consolidate with or merge into another corporation (where the Company is
not the continuing corporation in such merger or consolidation), the holder of

 

14

 

this Warrant shall thereafter be entitled to receive, upon the exercise
thereof, in whole or in part, the securities or other property to which a
holder of the number of shares of Common Stock then deliverable upon the
exercise thereof would have been entitled upon such consolidation or merger,
and the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of this
Warrant shall thereafter be applicable in relation to any securities or
property thereafter deliverable upon the exercise of this Warrant, including,
but not limited to, obtaining a written acknowledgement from the continuing
corporation of its obligation to supply such securities or property upon such
exercise.  A sale, transfer or lease of
all or substantially all of the assets of the Company to another entity shall
be deemed a consolidation or merger for the foregoing purposes.

 

4.3                                 Notice of Certain Events.  If at any time while this
Warrant is outstanding, (i) the Company shall pay any dividend payable in cash
or in Common Stock, (ii) the Company shall offer to the holders of its Common
Stock for subscription or purchase by them any shares of stock of any class or
any other rights, (iii) the Company shall enter into an agreement to merge or
consolidate with another corporation, (iv) the Company shall propose any
capital reorganization or classification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock, or (v) there shall be contemplated a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall cause
notice thereof to be mailed to the registered holder of this Warrant at its
address appearing on the registration books of the Company at least ten (10)
days prior to the record date as of which holders of Common Stock shall
participate in such dividend, distribution or subscription or other rights or
at least ten (10) days prior to the effective date of the merger,
consolidation, reorganization, reclassification or dissolution.

 

5.                                       Securities Act Compliance.

 

5.1                                 Investment Representations.  The Warrantholder, by
acceptance of this Warrant (including, without limitation, upon a transfer from
the original Warrantholder), hereby confirms that it has acquired this Warrant,
and will acquire any Warrant Shares, for its own account, for investment and
not with a view to the distribution thereof within the meaning of the Act and
that it is an “accredited investor” as that term is defined in Regulation D
promulgated under the Act.  The
Warrantholder acknowledges that it has had an opportunity to ask questions of
and receive answers from principal officers and representatives of the Company,
which questions were answered to its reasonable satisfaction, and to obtain any
additional information necessary or advisable to permit it to make an
evaluation of the benefits and risks associated with the investment in this
Warrant.  The Warrantholder confirms and
acknowledges that it has received and read the Company’s reports and other
filings with the Securities and Exchange Commission (the “Commission”),
including, without limitation, the Company’s Annual Report on Form 10-K for the
fiscal year ending December 31, 2003, the Company’s proxy statement dated
April 30, 2003, and the Company’s Current Report on Form 8-K dated
February 10, 2004,  (collectively, the
“Informational Materials”), and the Warrantholder specifically confirms that it
fully understands the information contained in the Informational
Materials.  The Warrantholder agrees
that it will not transfer this Warrant or any of the Warrant Shares acquired by
it upon exercise of this Warrant, except pursuant to an effective registration
statement filed pursuant to the Act or an exemption from registration
thereunder.

 

5.2                                 Legend.  If appropriate, in order to assure
compliance with the restrictions upon transfer contained in this Warrant, the
certificates representing the Warrant Shares when issued, and each certificate
issued in exchange for or upon transfer of this Warrant or any of the Warrant
Shares, shall, unless and until the transfer of this Warrant or the Warrant
Shares, as applicable, shall have been registered under the Act or their
transfer shall be exempt from registration thereunder, be stamped or otherwise
imprinted with a legend in substantially the following form (in addition to any
legend required by applicable state securities law):

 

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER
COUNSEL TO THE HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH WARRANT AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS.

 

15

 

6.                                       Registration Rights.

 

6.1                                 Definitions.  As used in this
Section 6, the following terms shall have the following respective
meanings:

 

“Registrable
Securities” shall mean (i) any shares of the Company’s Common Stock issued or issuable
upon exercise of this Warrant, (ii) any shares of the Company’s Common Stock
issued or issuable upon exercise of any other warrant or warrants issued to the
Warrantholder pursuant to the Warrant Agreement (collectively, the “Other
Warrants”)  or (iii) in the
event of any stock split, stock dividend, recapitalization or similar event,
any other securities of the Company issued or issuable upon exercise of this
Warrant or the Other Warrants; provided, however, that in the
event any holder may sell all of such shares held by such holder within the
volume limitations of Rule 144 under the Act and applicable interpretations, or
any successor rule or regulation, assuming the cashless exercise of this
Warrant, such shares shall not be considered Registrable Securities; and provided,
further, however, that any such shares that may be sold without
restriction as to volume or otherwise pursuant to the provisions of Rule 144(k)
under the Act and applicable interpretations, or any successor rule or
regulation, assuming the cashless exercise of this Warrant, shall not be
considered Registrable Securities.

 

The term
“register,” “registered” and “registration” shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Act and applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.

 

“Registration
Expenses” shall mean all expenses incurred by the Company in compliance with
this Section 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, the
Company’s internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit or quarterly review, the expense of any
liability insurance and blue sky fees and expenses, exclusive of Selling
Expenses.

 

“Restricted
Securities” shall mean securities of the Company required to bear or bearing
the legend set forth in Section 5.2 hereof.

 

“Selling Expenses”
shall mean all underwriting discounts and selling commissions applicable to the
sale of Registrable Securities and all fees and disbursements of counsel and
accountants and other expenses for any holder.

 

6.3                                 Demand Registrations.

 

(a)                                  Demand Registration.  If, at any
time during the Exercise Period, the holders of Registrable Securities notify
the Company in writing that such holders intend to offer or cause to be offered
for public sale not less than 100,000 shares of  Registrable Securities (or such lesser amount representing all of
the Registrable Securities then held by the holders giving such notice), the
holders of the Registrable Securities shall be entitled to request by such
notice to the Company, the registration under the Act of the amount of
Registrable Securities set forth in such notice (the “Demand Registrations”),
in which the Company shall pay all Registration Expenses; provided, however,
that the holders of the Registrable Securities shall not be entitled to request
more than two (2) Demand Registrations during any single calendar year,
including any Demand Registrations provided for pursuant to the Other Warrants,
and shall not be entitled to more than three (3) Demand Registrations in toto,
including any Demand Registrations provided for pursuant to the Other
Warrants.  A registration shall not
count as one of the permitted Demand Registrations if it does not become
effective, and the Company shall pay all Registration Expenses in connection
with any registration of Registrable Securities initiated as a Demand
Registration whether or not it has become effective.

 

(b)                                 Postponement  of  Demand  Registrations.  The Company
shall not be obligated to effect any Demand Registration within 90 days after
the effective date of a previous registration in which the Company has sold
shares pursuant to an underwritten offering. 
The Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company’s Board of Directors determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, business combination, tender
offer, joint venture, reorganization or similar transaction; provided that in such
event, the holders of the Registrable Securities initially requesting such
Demand Registration shall be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration shall not count as the Demand

 

16

 

Registration permitted by
Sections 6.2(a) above, and the Company shall pay all Registration Expenses in
connection with such registration.

 

6.3                                 Piggyback Registrations.

 

(a)                                  Right to Piggyback. 
Whenever the Company proposes to register any of its securities (whether
for itself or for its other security holders) under the Act (other than a
Demand Registration or pursuant to a registration on Forms S-4 or S-8 or any
successors to such forms) (a “Piggyback Registration”), the Company will give
prompt written notice to all holders of Registrable Securities of its intention
to effect such registration.  The
Company will include in such registration all Registrable Securities with
respect to which the Company has received requests for inclusion therein within
ten (10) days after the receipt of the Company’s notice.

 

(b)                                 Priority on Primary Registrations. 
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that, in their opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold without
adversely affecting such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, and (ii)
second, any other securities requested to be included in such registration,
including the Registrable Securities, pro rata in accordance with the amounts
of such securities requested to be so included by the respective holders of
such securities of the Company.

 

(c)                                  Priority on Secondary Registrations. 
If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company’s securities and the managing underwriters
advise the Company in writing that, in their opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold without adversely affecting such offering, the Company will include in
such registration (i) first, the securities requested to be included therein by
the holders requesting such registration, and (ii) second, any other securities
requested to be included in such registration, including the Registrable
Securities, pro rata in accordance with the amounts of such securities
requested to be so included by the respective holders of such securities of the
Company.

 

6.4                                 Holdback Agreements. 
Each holder of Registrable Securities agrees not to effect any public
sale or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven (7) days prior to and the 90-day period beginning on the effective date
or pricing, as applicable, of any underwritten registered public offering in
which the Company has sold shares of Common Stock unless the underwriters
managing the registered public offering otherwise agree.

 

6.5                                 Registration Procedures.  Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Section 6, the Company will use commercially
reasonable efforts to effect the registration and the sale of the Registrable
Securities in accordance with the intended method of disposition thereof and
pursuant thereto the Company will:

 

(a)                                  prepare and file, within forty-five (45)
days after notice is delivered to the Company pursuant to Section 6.2(a),
with the Commission a registration statement with respect to such Registrable
Securities, which registration statement will state that the holders of
Registrable Securities covered thereby may sell such Registrable Securities
either under such registration statement or at any holder’s proper request,
pursuant to Rule 144 (or any similar rule then in effect), and use commercially
reasonable efforts to cause such registration statement to become effective
(provided that a reasonable time before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
to the counsel selected by the holders of a majority of the Registrable
Securities covered by such registration statement for review and comment copies
of all such documents proposed to be filed;

 

(b)                                 promptly notify each holder of
Registrable Securities of the effectiveness of each registration statement
filed hereunder and prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statements
effective for the period set forth in Section 6.5(g) hereof and comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;

 

(c)                                  furnish to each seller of Registrable
Securities such number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement

 

17

 

(including each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such seller;

 

(d)                                 use commercially reasonable efforts to
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as any seller reasonably requests and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdiction of the Registrable Securities owned by such seller (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subsection, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);

 

(e)                                  notify
each seller of such Registrable Securities at any time (i) when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state any
fact necessary to make the statements therein not misleading, and, at the
request of any such seller and subject to Section 6.5(l), the Company will
prepare a post-effective amendment to such registration statement, a supplement
or amendment to such prospectus or file any other required document so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading, (ii) of
any request by the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of proceedings for that purpose and
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any of the Registrable Securities for sale
in any jurisdiction or of the initiation or threatening of any proceeding for
such purpose;

 

(f)                                    make available for inspection at
reasonable times and upon reasonable prior notice by a seller of Registrable
Securities, and any attorney, accountant or other agent retained by any such
seller, all reasonably relevant financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors, employees and independent accountants to supply all such
information reasonably requested by any such seller, attorney, accountant or
agent in connection with such registration statement;

 

(g)                                 keep each registration statement
effective until the earlier to occur of (i) the date on which the holders have
completed the distribution described in the registration statement relating
thereto and (ii) ninety (90) days (subject to extension pursuant to
Section 6.5(l);

 

(h)                                 cause all such Registrable Securities to
be listed on each Exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be quoted on the National Association
of Securities Dealers’ Automated Quotation System (“NASDAQ”) and, if listed on
NASDAQ, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ “national market
system security” within the meaning of Rule 11Aa2-1 promulgated by the
Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities;

 

(i)                                     provide a transfer agent
and registrar for all such Registrable Securities not later than the effective
date of such registration statement;

 

(j)                                     in the event of the issuance of any stop
order suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any equity securities included in such registration statement
for sale in any jurisdiction, the Company shall use commercially reasonable
efforts to promptly obtain the withdrawal of such order or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale
in any jurisdiction; and

 

(k)                                  otherwise use commercially reasonable efforts
to comply with all applicable rules and regulations of the Commission.

 

(l)                                     Each holder of Registrable Securities, by its
acceptance of such Registrable Securities, agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
subsection (e) above, such holder will forthwith discontinue such holder’s
distribution of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder’s receipt of the
copies of the supplemented or amended prospectus contemplated by
subsection (e) above or until he is advised in writing by the Company that
the use of the applicable prospectus may be resumed.  In the event the Company shall give any such notice, the applicable
time period

 

18

 

mentioned in subsection (g) above during
which a Registration Statement is to remain effective shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to subsection (e) above, to and including the date
when each seller of a Registrable Security covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by subsection (e) above.

 

6.6                                 Expense  of  Registration.  All
Registration Expenses incurred in connection with a registration, qualification
or compliance pursuant to this Section 6 shall be borne by the Company,
and all Selling Expenses shall be borne by the holders of the Registrable
Securities so registered pro rata on the basis of the number of their
Registrable Securities so registered.

 

6.7                                 Indemnification.

 

(a)                                  The Company
will indemnify each holder of Registrable Securities, such holder’s officers,
directors and partners and each person or entity, if any, that controls such
holder within the meaning of the Act, and each other person or entity, if any,
subject to liability because of his, her or its connection with such holder (an
“Indemnitee”), against any and all losses, claims, damages, actions, liabilities, costs and expenses, joint or
several, arising out of or based upon any untrue or alleged untrue statement of
material fact contained in a registration statement or any prospectus contained
therein (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as and to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement arose out of or
was based upon information regarding the Indemnitee or its plan of distribution
which was furnished to the Company in writing by the Indemnitee for use
therein, provided further that the Company shall not be liable to any
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon such Indemnitee’s failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action
is required by the Act to the person claiming an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such final prospectus.

 

(b)                                 In connection with a registration of
Registrable Securities pursuant to Section 6, each participating holder
hereby agrees to (i) cooperate with the Company and to furnish to the Company
all such information required to be furnished by the Act in connection with the
preparation of any registration statement and any filings with any state
securities commissions as the Company may reasonably request, (ii) deliver or
cause delivery of any prospectus contained in any registration statement to any
purchaser of the shares covered by such registration statement from such
holder, (iii) notify the Company of any sale of Registrable Securities by such
holder, and (iv) indemnify the Company, its officers, directors, employees,
agents, representatives and affiliates, and each person, if any, who controls
the Company within the meaning of the Act, and each other person, if any,
subject to liability because of his, her or its connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (A) any untrue statement or alleged
untrue statement of material fact contained in either any registration
statement or any prospectus, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if and to the extent that such statement or omission arose out
of or was based upon information regarding such holder or its plan of
distribution which was furnished in writing to the Company by such holder
expressly for use therein, or (B) the failure by such holder or any broker,
dealer or agent acting for or on behalf of such holder to deliver or cause to
be delivered the prospectus contained in any registration statement (as amended
or supplemented, if applicable) furnished by the Company to such holder to any
purchaser of the shares covered by such registration statement; provided,
however, no holder shall be required to indemnify any person pursuant to
this Section 6.7(b) in an amount in excess of the amount of the aggregate
net proceeds received by such holder from the sale of Registrable Securities in
connection with any such registration under the Act.

 

(c)                                  Each party entitled to indemnification
under this Section 6.7 (the “Indemnified Party”) shall give notice to the
party required to provide indemnification (the “Indemnifying Party”) promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and will permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, and the
Indemnified Party may participate in such defense at such party’s expense,
provided that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 6.7 unless such failure has had a material adverse effect on such
claim.  An Indemnifying Party who elects
not to assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
Indemnifying Party with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between

 

19

 

such Indemnified Party and any other of such Indemnified Parties with
respect to such claim.  No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of judgment or enter into
any settlement which does not include as an unconditional term thereof, the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such request and any litigation resulting
therefrom.

 

6.8                                 Information by Holders.  Each holder of Registrable
Securities shall furnish to the Company such information regarding such holder
and the distribution proposed by such holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 6.

 

6.9                                 Rule 144 Reporting.  With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of the Restricted Securities to the public without
registration, the Company agrees to use commercially reasonable efforts to:

 

(a)                                  make and keep public information
available as those terms are understood and defined and interpreted in and
under Rule 144 under the Act;

 

(b)                                 file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Exchange Act of 1934, as amended; and

 

(c)                                  so long as the holder owns any Restricted
Securities, furnish to the holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of Rule 144, a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed as the holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the holder
to sell any such securities without registration.

 

7.                                       Issuance
of Shares Below Fair Market Value.

 

7.1                                 Anti-Dilution.                      The initial
Exercise Price shall be $35.24. 
In order to prevent dilution of the Warrant Shares, the Exercise Price
shall be subject to adjustment from time to time pursuant to this Section.

 

7.2                                 Adjustment.

 

(a)                                  Except
as provided in Section 7.4, if the Company at any time issues or transfers
any share of its Common Stock in a Specified Dilutive Transaction (as
hereinafter defined) at a price per share less than the Specified Fair Market
Value (as hereinafter defined), or is deemed to have issued any shares of
Common Stock pursuant to Section 7.3 below, then simultaneously with any
such transaction: (i) the Exercise Price shall be adjusted by multiplying the
Exercise Price immediately prior to such transaction by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Deemed
Outstanding (as hereinafter defined) immediately prior to such transaction plus
the number of full shares which could have been purchased, at the Specified
Fair Market Value, for the value of the aggregate consideration received by the
Company in such transaction, and (B) the denominator of which shall be the
number of shares of Common Stock Deemed Outstanding immediately after such
transaction; and (ii) the number of Warrant Shares shall be adjusted by
multiplying the number of Warrant Shares immediately prior to such transaction
by a fraction (i) the numerator of which shall be the Exercise Price in effect
immediately prior to such transaction and (ii) the denominator of which shall
be the Exercise Price immediately after such transaction (as calculated
pursuant to clause (i) above).

 

(b)                                 For
purposes of this Section 7.2, a “Specified Dilutive Transaction” means:
(x) any transaction in which the issuance of any Common Stock, Convertible
Securities or Options is greater than 15% of the outstanding shares of Common
Stock immediately prior to the closing of such transaction, (y) any transaction
that, on a cumulative basis during the Exercise Period, would result in the
outstanding shares of Common Stock (excluding shares of Common Stock

 

20

 

issued in transactions exempt pursuant to
Section 7.4) immediately after the closing of such transaction being
greater than 130% of the outstanding shares of Common Stock as of the date
hereof; or (z) any transaction in which the issuance of any Common Stock,
Convertible Securities or Options is at a price per share less than 80% of the
Fair Market Value.

 

(c)                                  For
purposes of this Section 7.2, “Specified Fair Market Value” of a Warrant
Share or of a share of Common Stock means (i) the price of a share of Common
Stock as determined in the relevant transaction, provided that such price is
determined based on the closing price or the average of the high and low sales
prices for the trading day of a share of Common Stock on the Exchange or the
Quotation System for a specified period not to exceed thirty (30) days and
ending no earlier than five (5) days prior to the closing of such transaction,
or (ii) if clause (i) is not applicable, the closing price on the day of the
closing of such transaction of one such share of Common Stock on the Exchange
or the Quotation System, or if the Common Stock is not listed on an Exchange or
quoted on a Quotation System, the average of the bid and asked prices of the Common
Stock in the over-the-counter market at the close of such trading day, or, if
the Common Stock is not traded in the over-the-counter market, the fair market
value of a share of Common Stock as determined in good faith by the Board of
Directors of the Company.

 

(d)                                 For
purposes of this Section 7.2, “Common Stock Deemed Outstanding,” means, at
any time, the sum of the number of shares of Common Stock outstanding as of the
date of measurement (including for this purpose all shares of Common Stock
issuable upon exercise or conversion of any Options or Convertible Securities
outstanding as of such date).

 

7.3                                 Effect
on Exercise Price of Certain Events. 
For purposes of determining the adjusted Exercise Price under
Section 7.2, the following shall be applicable:

 

(a)                                  Issuance
of Rights or Options.  If the
Company in any manner grants any rights or options to subscribe for or to
purchase Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being called “Options”
and such convertible or exchangeable stock or securities being called
“Convertible Securities”) and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities is less than the Specified Fair Market Value
immediately prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting of such Options for such price per share.  For purposes of this Section, the “price per
share for which Common Stock is issuable” shall be determined by dividing (A)
the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon exercise of all
such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange of such Convertible Securities, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. 
No further adjustment of the Exercise Price shall be made when
Convertible Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.

 

(b)                                 Issuance
of Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the price
per share for which Common Stock is issuable upon such conversion or exchange
is less than the Fair Market Value immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section, the “price
per share for which Common Stock is issuable” shall be determined by dividing
(A) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange of such Convertible Securities, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities.  No
further adjustment of the Exercise Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of

 

21

 

the Exercise Price had been or are to be made pursuant to other
provisions of this Section 7, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale.

 

(c)                                  Change
in Option Price or Conversion Rate; Expiration of Option or Convertible
Security.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Exercise Price in effect at the time of such
change shall be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.  If any Option expires
unexercised or any right to convert or exchange Convertible Securities
terminates not converted or exchanged (including the repayment of convertible
debt prior to any conversion thereof) and there has been an adjustment to the
Exercise Price as a result of the grant of such Option or the issuance of such
Convertible Securities, the Exercise Price then in effect hereunder shall be
increased to the Exercise Price that would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities never
been issued; provided, however, that the Exercise Price shall not
be increased to an amount greater than the initial Exercise Price set forth in
Section 7.1.

 

(d)                                 Calculation
of Consideration Received.  If any
Common Stock, Option or Convertible Security is issued or sold or deemed to
have been issued or sold for cash, the consideration received upon such
issuance or sale shall be deemed to be the net amount received by the
Company.  In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Fair Market Value of such securities as of
the date of receipt.  The fair value of
any consideration other than cash and securities shall be reasonably determined
in good faith by the Board of Directors of the Company (irrespective of
accounting treatment thereof); provided, however, that if the
Company has received the written opinion of a nationally recognized investment
banking firm as to the fair value of any consideration other than cash and
securities, then such opinion shall be final and binding on the Company and the
Warrantholders.

 

(e)                                  Integrated
Transactions.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties to such transaction,
the Option shall be deemed to have been issued for a consideration of $.01.

 

7.4                                 Exempt
Transactions.  Notwithstanding
anything in this Warrant to the contrary, the provisions of Section 7.2
shall not apply to (i) the grant, issuance or exercise of any Common Stock,
Convertible Securities or Options to any officer, director, key employee,
consultant or advisor of the Company pursuant to the Company’s qualified or
non-qualified employee and non-employee director compensatory stock option
plans or any other employee benefit plan or incentive arrangement or otherwise,
adopted or approved by the Company’s Board of Directors, as may be amended from
time to time, or under any other employee benefit plan hereafter adopted by the
Company’s Board of Directors; (ii) the grant, issuance or exercise of any
Common Stock, Convertible Securities or Options existing on the date hereof;
(iii) the issuance of any Common Stock, Convertible Securities or Options in
connection with the acquisition of all or substantially all of the assets or
equity of any corporation, partnership, limited liability company or other
business entity; (iv) the issuance of any Common Stock, Convertible Securities
or Options in a technology development, distribution, marketing or similar
joint venture transaction; (v) the issuance of any Common Stock, Convertible
Securities or Options in any bona fide public offering that is underwritten;
(vi) any issuance of Common Stock, Convertible Securities or Options that is
approved by the Company’s shareholders; or (vii) the grant, issuance or
exercise of any Common Stock, Convertible Securities or Options issued pursuant
to this Warrant.

 

7.5                                 Officer’s
Certificate.  Whenever the Exercise
Price or the kind of securities or property issuable upon the exercise of this
Warrant, or both, shall be adjusted pursuant to this Section 7 or
Section 4 of this Warrant, the Company shall prepare an officer’s
certificate setting forth, in reasonable detail, the event requiring such
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and the kind of securities or property
issuable upon the exercise of this Warrant after giving effect to such
adjustment.  The Company shall cause
copies of such certificate to be mailed (by first class mail postage prepaid)
to the holder or holders of this Warrant promptly after each adjustment.

 

22

 

8.                                       Miscellaneous.

 

8.1                                 Replacement of Lost, Stolen or Mutilated
Warrant.  In
case this Warrant shall be mutilated, lost, stolen or destroyed, the Company
shall at the request of the holder of such Warrant, issue and deliver, in
exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant, lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or interest; but
only upon receipt of evidence satisfactory to the Company of such loss, theft
or destruction of such Warrant and indemnity, if requested, also satisfactory
to the Company.  An applicant for such a
substitute Warrant shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.

 

8.2                                 Successors and Assigns.  The terms of this Warrant
shall be binding upon and shall inure to the benefit of any successors or
assigns of the Company and of the holder hereof and of the Warrant Shares
issued or issuable upon the exercise hereof.

 

8.3                                 No  Rights  as  Shareholder.  Nothing contained in this
Warrant shall be construed to confer upon the holder of this Warrant, as such,
any of the rights of a shareholder of the Company.

 

8.4                                 Acceptance of Terms by Warrantholder.  Receipt of this Warrant by
the holder hereof shall constitute acceptance of an agreement to the foregoing
terms and conditions.

 

8.5                                 Governing Law.  This Warrant and the
performance of the parties hereunder shall be construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to its conflict
of laws provisions.  The state and
federal courts in Delaware shall have exclusive jurisdiction over any
litigation arising under this Agreement.

 

[Signature Page Follows]

 

23

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be signed in its name as of the
date first above written.

 

 

	
   

  	
  ALBANY MOLECULAR RESEARCH, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David P. Waldek

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  David P. Waldek

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
									

 

24

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