EX-10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
March 15, 2006, among Elite Pharmaceuticals, Inc., a Delaware corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and shares of Preferred Stock, ignoring any conversion or
exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the fifth
anniversary of the Closing Date and all dividends are paid in shares of
Common Stock until such fifth anniversary.
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day on
which banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation
to be filed prior to the Closing by the Company with the Secretary of
State of Delaware, in the form of EXHIBIT A attached hereto.
"CLOSING" means the closing or closings of the purchase and sale
of the Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
$.01 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Reitler, Brown, & Xxxxxxxxxx LLC with
offices located at 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000.
"CONVERSION PRICE" shall have the meaning ascribed to such term in
the Certificate of Designation.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.
"DISCUSSION TIME" shall have the meaning ascribed to such term in
Section 3.2 (f).
"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"EVALUATION DATE" shall have the meaning ascribed to such term in
Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock
or options to employees, consultants, officers or directors of the
Company pursuant to any stock or
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option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, (c) securities issued pursuant
to acquisitions or strategic transactions approved by a majority of the
disinterested directors, provided any such issuance shall only be to a
Person which is, itself or through its subsidiaries, an operating company
in, or an individual that operates, a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in
securities, (d) up to a maximum of 1,500,000 shares of Common Stock or
Common Stock Equivalents in any rolling 12 month period issued to
consultants, vendors, financial institutions or lessors in connection
with services (including the provision of Permitted Indebtedness)
provided by such Persons referred to in this clause (d), but shall not
include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities, and provided that none of
such shares may be registered for sale or resale by any of such holders;
(e) securities issued as a dividend or distribution any of the Securities
pursuant to the terms of the Transaction Documents and (f) securities
issued in connection with any stock split, stock dividend or
recapitalization of the Common Stock.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"INDEBTEDNESS" shall have the meaning ascribed to such term in
Section 3.1(aa).
"INITIAL CONVERSION PRICE" means $2.25.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term
in Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
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"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in
Section 3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.
"MIDSUMMER" shall have the meaning ascribed to such term in
Section 2.1(b).
"PERMITTED DAY" shall have the meaning ascribed to such term in
Section 4.16.
"PERMITTED SHARE POSITION" shall have the meaning ascribed to such
term in Section 4.16.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means the up to 10,000 shares of the Company's
8% Series B Convertible Preferred Stock issued hereunder having the
rights, preferences and privileges set forth in the Certificate of
Designation, in the form of EXHIBIT A hereto.
"PRE-NOTICE" shall have the meaning ascribed to such term in
Section 4.13.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term in
Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term
in Section 3.1(e).
"RULE 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or
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regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Preferred Stock, the Warrants, the Warrant
Shares and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SERIES A WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT C delivered to the Purchasers at the
Closing in accordance with Section 2.2(a)(iv) hereof, which Warrants
shall be exercisable immediately and have a term of exercise equal to 5
years.
"SERIES B WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT C delivered to the Purchasers at the
Closing in accordance with Section 2.2(a)(v) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to 5 years.
"SHAREHOLDER APPROVAL" means such approval as may be required by
the applicable rules and regulations of the American Stock Exchange (or
any successor entity) from the shareholders of the Company with respect
to the transactions contemplated by the Transaction Documents, including
the issuance of all of the Underlying Shares in excess of 19.99% of the
issued and outstanding Common Stock on the Closing Date.
"SHORT SALES" shall include all "short sales" as defined in Rule
200 of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).
"STATED VALUE" means $1,000 per share of Preferred Stock.
"SUBSCRIPTION AMOUNT" shall mean, as to each Purchaser, the
aggregate amount to be paid for the Preferred Stock purchased hereunder
as specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount", in United States
Dollars and in immediately available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to
such term in Section 4.13.
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"SUBSIDIARY" means any subsidiary of the Company as set forth on
SCHEDULE 3.1(A).
"SUPPLEMENTAL CLOSING" shall have the meaning ascribed to such
term in Section 2.1 (b).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq Capital Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate of
Designation, the Warrants, the Voting Agreements and the Registration
Rights Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issued and
issuable upon conversion of the Preferred Stock, upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of dividends
on the Preferred Stock in accordance with the terms of the Certificate of
Designation.
"VARIABLE RATE TRANSACTION" shall have the meaning ascribed to
such term in Section 4.14(b).
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted
for trading as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not
then quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the "Pink Sheets" published by Pink
Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (d) in all other cases, the fair market
value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable
to the Company.
"WARRANTS" means collectively Series A Warrants and the Series B
Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
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ARTICLE II
PURCHASE AND SALE
2.1 CLOSING. (a) On the Closing Date, upon the terms and subject to
the conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally and not
jointly, up to $10,000,000 of shares of Preferred Stock with an aggregated
Stated Value equal to such Purchaser's Subscription Amount and Warrants as
determined by pursuant to Section 2.2(a), with a minimum aggregate Subscription
Amount of $5,000,000. The aggregate number of shares of Preferred Stock sold
hereunder shall be up to 10,000. Each Purchaser shall deliver to HSBC Bank as
escrow agent, via wire transfer or a certified check of immediately available
funds equal to their Subscription Amount and the Company shall deliver to each
Purchaser their respective shares of Preferred Stock and Warrants as determined
pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable
at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2
and 2.3, the Closing shall occur at the offices of FW, or such other location as
the parties shall mutually agree.
(b) In the event that on the Closing Date, the Company sells, and the
Purchasers purchase in the aggregate, shares of Preferred Stock with an
aggregate Stated Value of less than $10,000,000, the Company may, on or prior to
the second Trading Day after the Closing Date, sell to Midsummer Investment,
Ltd. (or its affiliate) (collectively, "MIDSUMMER"), and Midsummer may purchase
(the "SUPPLEMENTAL CLOSING"), shares of Preferred Stock with an aggregate Stated
Value up to the amount by which $10,000,000 exceeds the aggregate Stated Value
of the shares of Preferred Stock sold on the Closing Date; PROVIDED that the
price per share of Preferred Stock to be sold in the Supplemental Closing shall
equal the greater of $1,000 per share and (i) the sum of (x) closing bid price
of the Common Stock on the Trading Day immediately prior to the Supplemental
Closing and (y) the amount by which $2.25 exceeded the closing bid price of the
Common Stock on the Trading Day immediately prior to the Closing Date multiplied
by (ii) $444.44 (representing $1,000 divided by (iii) $2.25). Upon consummation
of the Supplemental Closing, Midsummer shall be deemed a "Purchaser" having the
same rights and obligations of all Purchasers that purchased shares of Preferred
Stock on the Closing Date.
2.2 DELIVERIES.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
EXHIBIT D attached hereto;
(iii) a certificate evidencing a number of shares of
Preferred Stock equal to such Purchaser's Subscription Amount
divided by the Stated Value, registered in the name of such
Purchaser;
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(iv) a Series A Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 25% of such Purchaser's Subscription Amount divided by
the Initial Conversion Price, with an exercise price equal to
$2.75 per share, subject to adjustment therein;
(v) a Series B Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 25% of such Purchaser's Subscription Amount divided by
the Initial Conversion Price, with an exercise price equal to
$3.25 per share, subject to adjustment therein; and
(vi) the Registration Rights Agreement duly executed by
the Company.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the HSBC Bank escrow account as specified in writing
by HSBC Bank; and
(iii) the Registration Rights Agreement duly executed by
such Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and
on the Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set
forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing
Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing Date
shall have been performed;
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(iii) the delivery by the Company of the items set forth
in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
or the Company's principal Trading Market (except for any
suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets
shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Preferred Stock at
the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) SUBSIDIARIES. All of the direct and indirect subsidiaries
of the Company are set forth on SCHEDULE 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then all other references in the Transaction
Documents to the Subsidiaries or any of them will be disregarded.
(b) ORGANIZATION AND QUALIFICATION. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of
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the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure
to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect
on the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets,
business, prospects or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i),
(ii) or (iii), a "MATERIAL ADVERSE EFFECT") and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or
qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the Company,
its board of directors or its stockholders in connection therewith other
than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do not
and will not: (i) conflict with or violate any provision of the Company's
or any Subsidiary's certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which
the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (iii)
subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any
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court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or
by which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required
pursuant to Section 4.6, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Securities and
the listing of the Underlying Shares for trading thereon in the time and
manner required thereby, (iv) the filing of Form D with the Commission
and such filings as are required to be made under applicable state
securities laws and (v) Shareholder Approval (collectively, the "REQUIRED
APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital stock
a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Actual Minimum on the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as set
forth on SCHEDULE 3.1(g). The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report
under the Exchange Act. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities
or as set forth on SCHEDULE 3.1(g), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock or Common Stock Equivalents. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the
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Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance
and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports, schedules, forms, statements and other documents required to
be filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC REPORTS") on a
timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
(i) MATERIAL CHANGES; UNDISCLOSED EVENTS, LIABILITIES OR
DEVELOPMENTS. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result
in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be
12
reflected in the Company's financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. Except as set forth on
SCHEDULE 3.1(i), the Company does not have pending before the Commission
any request for confidential treatment of information. SCHEDULE 3.1(i)
shall set forth the dates of any requests for confidential treatment and
whether or not the Commission has responded to such requests, but shall
not include the substance of any information subject to such confidential
treatment request(s). Except for the issuance of the Securities
contemplated by this Agreement or as set forth on SCHEDULE 3.1(i), no
event, liability or development has occurred or exists with respect to
the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed
by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least 1
Trading Day prior to the date that this representation is made.
(j) LITIGATION. Except as set forth on Schedule 3.1(j), there
is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result in
a Material Adverse Effect. None of the Company's or its Subsidiaries'
employees is a member of a union that relates to such employee's
relationship with the Company, and neither the Company or any of its
Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good. No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract
or agreement or any restrictive covenant, and the continued employment of
each such executive officer
13
does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except
where the failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result
in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and
local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not have
or reasonably be expected to result in a Material Adverse Effect
("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) TITLE TO ASSETS. Except as set forth on SCHEDULE 3.1(n),
the Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable
title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment
of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in connection
with their respective businesses as described in the SEC Reports and
which the failure to so have
14
could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that the Intellectual Property Rights used
by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights. The Company
and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage as set forth in
SCHEDULE 3.1(p). Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of
the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $60,000 other than (i) for payment
of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) XXXXXXXX-XXXXX; INTERNAL ACCOUNTING CONTROLS. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such
15
disclosure controls and procedures to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. The Company's
certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by
the Company's most recently filed periodic report under the Exchange Act
(such date, the "EVALUATION DATE"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the
Company's internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
(s) CERTAIN FEES. Except as set forth on SCHEDULE 3.1(s), no
brokerage or finder's fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The Purchasers
shall have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(v) REGISTRATION RIGHTS. Except as set forth on SCHEDULE
3.1(v), other than each of the Purchasers, no Person has any right to
cause the Company to effect the registration under the Securities Act of
any securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received
any notification that the Commission is contemplating terminating such
registration. Except as set forth on SCHEDULE 3.1(w), (a) the Company has
not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which
16
the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements
of such Trading Market and (b) the Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or
other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including
without limitation as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
(y) DISCLOSURE. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute
material, nonpublic information. The Company understands and confirms
that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company. All written
disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
The Company acknowledges and agrees that no Purchaser makes or has made
any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
(z) NO INTEGRATED OFFERING. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor any Person acting on
its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the Company
of the proceeds from the sale of the Securities hereunder, (i) the fair
saleable value of the Company's assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they
mature;
17
(ii) the Company's assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its liabilities when such amounts are
required to be paid. The Company does not intend to incur debts beyond
its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it
to believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date. SCHEDULE 3.1(aa) sets forth as of the dates
thereof all outstanding secured and unsecured Indebtedness of the Company
or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "INDEBTEDNESS" shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$50,000 (other than trade accounts payable incurred in the ordinary
course of business); (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or
not the same are or should be reflected in the Company's balance sheet
(or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be capitalized
in accordance with GAAP. Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(bb) TAX STATUS. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and
has paid or accrued all taxes shown as due thereon, and the Company has
no knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(cc) NO GENERAL SOLICITATION. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign
or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of
18
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ee) ACCOUNTANTS. The Company's accountants are set forth on
SCHEDULE 3.1(ee) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-K for the year ending March 31, 2006
are a registered public accounting firm as required by the Securities
Act.
(ff) SENIORITY. Except as set forth on SCHEDULE 3.1(ff), as of
the Closing Date, no Indebtedness or other equity of the Company is
senior to the Preferred Stock in right of payment, whether with respect
to interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company and except as set
forth on SCHEDULE 3.1(gg), the Company is current with respect to any
fees owed to its accountants and lawyers.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no Purchaser
is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser
or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's decision
to enter into this Agreement and the other Transaction Documents has been
based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives.
(ii) ACKNOWLEDGEMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is
understood and acknowledged by the Company (i) that none of the
Purchasers have been asked to agree, nor has any Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the
Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Purchaser, including
Short Sales, and specifically including, without limitation, Short Sales
or "derivative" transactions, before or after the closing of this or
future private placement
19
transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Purchaser, and counter-parties
in "derivative" transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a "short" position in the
Common Stock, and (iv) that each Purchaser shall not be deemed to have
any affiliation with or control over any arm's length counter-party in
any "derivative" transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the
value of the Underlying Shares deliverable with respect to Securities are
being determined and (b) such hedging activities (if any) could reduce
the value of the existing stockholders' equity interests in the Company
at and after the time that the hedging activities are being conducted.
The Company acknowledges that such aforementioned hedging activities do
not constitute a breach of any of the Transaction Documents.
(jj) MANIPULATION OF PRICE. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid
for, purchased, or, paid any compensation for soliciting purchases of,
any of the Securities, or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company, other than, in the case of each of clauses (ii) and (iii),
compensation paid to the Company's placement agent in connection with the
placement of the Securities.
(kk) FORM S-3 ELIGIBILITY. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form
S-3 promulgated under the Securities Act.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser, if an entity, is
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. Such Purchaser, if an
individual, has legal capacity and authority to enter into and consummate
the transactions contemplated by the Transaction Documents and otherwise
to carry out his or her obligations hereunder and thereunder. The
execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each
Transaction Document to which it is a party has been duly executed by
such Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and
20
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) OWN ACCOUNT. Such Purchaser understands that the Securities
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law
and has no direct or indirect arrangement or understandings with any
other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable
state securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date on
which it converts any shares of Preferred Stock or exercises any
Warrants, it will be either: (i) an "accredited investor" as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act
or (ii) a "qualified institutional buyer" as defined in Rule 144A(a)
under the Securities Act. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment. Such Purchaser has been given the opportunity to ask
questions of, and receive answers from, the Company concerning the terms
and conditions of the offer of the Securities and other matters
pertaining to such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF.
Other than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has
21
any Person acting on behalf of or pursuant to any understanding with such
Purchaser, executed any disposition, including Short Sales, in the
securities of the Company during the period commencing from the time that
such Purchaser first received a term sheet (written or oral) from the
Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof ("DISCUSSION
TIME"). Notwithstanding the foregoing, in the case of a Purchaser that is
a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets,
the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of
this transaction).
(g) MANIPULATION OF PRICE PRIOR TO CLOSING. Such Purchaser has
not, and to its knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
manipulation of the price of any security of the Company at or prior to
the Closing Date, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any security of the Company, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any securities of the Company.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or
Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in
the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE
22
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be
bound by the provisions of this Agreement and the Registration Rights
Agreement and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or
secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing
of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for
sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal opinion
to the Company's transfer agent promptly after the Effective Date if
required by the Company's transfer agent to effect the removal of the
legend hereunder. If all or any shares of Preferred Stock or any portion
of a Warrant is converted or exercised (as applicable) at a
23
time when there is an effective registration statement to cover the
resale of the Underlying Shares, or if such Underlying Shares may be sold
under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission)
then such Underlying Shares shall be issued free of all legends. The
Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 4.1(c), it will, no later
than three Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such
third Trading Day, the "LEGEND REMOVAL DATE"), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that
is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to any transfer agent of
the Company that enlarge the restrictions on transfer set forth in this
Section. Certificates for Underlying Shares subject to legend removal
hereunder shall be transmitted by the transfer agent of the Company to
the Purchasers by crediting the account of the Purchaser's prime broker
with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares (based
on the VWAP of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) delivered for removal of the restrictive
legend and subject to Section 4.1(c), $10 per Trading Day (increasing to
$20 per Trading Day 5 Trading Days after such damages have begun to
accrue) for each Trading Day commencing 3 Trading Days after the Legend
Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance
with the plan of distribution set forth therein.
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of
24
the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Certificate of Designation set forth the totality of the procedures required of
the Purchasers in order to exercise the Warrants or convert the Preferred Stock.
No additional legal opinion or other information or instructions shall be
required of the Purchasers to exercise their Warrants or convert their Preferred
Stock. The Company shall honor exercises of the Warrants and conversions of the
Preferred Stock and shall deliver Underlying Shares in accordance with the
terms, conditions and time periods set forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day immediately following the date hereof,
issue a press release describing the material terms of the transactions
contemplated hereby, and, by 8:30 a.m. Eastern time on the second Trading Day
following the date hereof, a Current Report on Form 8-K, disclosing the material
terms of the transactions contemplated hereby, and shall attach the Transaction
Documents thereto. The Company and each Purchaser shall consult with each other
in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, in which case the disclosing party
shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
25
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the filing
of final Transaction Documents (including signature pages thereto) with the
Commission and (ii) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this subclause (ii).
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 NON-PUBLIC INFORMATION. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem Common
Stock or Common Stock Equivalents or to settle any outstanding litigation.
4.10 [Intentionally Omitted].
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, shareholders, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"PURCHASER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of
26
them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser's representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than on such
separate counsel. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by such Purchaser
in this Agreement or in the other Transaction Documents.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 110% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common
Stock previously issued pursuant to the Transaction Documents, then the
Board of Directors of the Company shall use commercially reasonable
efforts to amend the Company's certificate or articles of incorporation
to increase the number of authorized but unissued shares of Common Stock
to at least the Actual Minimum at such time (minus the number of shares
of Common Stock previously issued pursuant to the Transaction Documents),
as soon as possible and in any event not later than the 75th day after
such date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could possibly be issued
after such time pursuant to the Transaction Documents.
(c) The Company shall, if applicable: (i) in the time and
manner required by the principal Trading Market, prepare and file with
such Trading Market an additional
27
shares listing application covering a number of shares of Common Stock at
least equal to the Actual Minimum on the date of such application, (ii)
take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing, and
(iv) maintain the listing of such Common Stock on any date at least equal
to the Actual Minimum on such date on such Trading Market or another
Trading Market. In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) on
or before June 30, 2006 for the purpose of obtaining Shareholder
Approval, with the recommendation of the Company's Board of Directors
that such proposal be approved, and the Company shall solicit proxies
from its shareholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of
such proposal. If the Company does not obtain Shareholder Approval at the
first meeting, the Company shall call a meeting every four months
thereafter to seek Shareholder Approval until the earlier of the date
Shareholder Approval is obtained or the Preferred Stock is no longer
outstanding.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that the Preferred
Stock is no longer outstanding, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"SUBSEQUENT FINANCING"), each Purchaser shall have the right to purchase
its pro rata share of the Common Stock or Common Stock Equivalents on the
same terms, conditions and price provided for in the Subsequent
Financing. Each Purchaser's pro rata share is equal to the ratio of (a)
the number of shares of the Company's Common Stock (including all shares
of Common Stock issued or issuable upon conversion of the Preferred
Stock) which such Purchaser is deemed to hold immediately prior to the
issuance of such Common Stock or Common Stock Equivalents to (b) the
total number of shares of the Company's outstanding Common Stock
(including all shares of Common Stock issued or issuable upon conversion
of the Preferred Stock) immediately prior to the issuance of the Common
Stock or Common Stock Equivalents.
(b) At least 5 Trading Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing
("PRE-NOTICE"), which Pre-Notice shall ask such Purchaser if it wants to
review the details of such financing (such additional notice, a
"SUBSEQUENT FINANCING NOTICE"). Upon the request of a Purchaser, and only
upon a request by such Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than 2 Trading Days after such
request, deliver a Subsequent Financing Notice to such Purchaser. The
Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder, the Person or Persons through or with
whom such Subsequent Financing is proposed to be effected, and attached
to which shall be a term sheet or similar document relating thereto.
28
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
purchase its pro rata share of the Common Stock or Common Stock
Equivalents for the price and upon the terms and conditions specified in
the Subsequent Financing Notice and stating the quantity of Common Stock
or Common Stock Equivalents to be purchased, and that the Purchaser has
such funds ready, willing, and available for investment. Such written
notice to the Company shall be a binding obligation of such Purchaser to
participate in such Subsequent Financing upon terms substantially similar
to those set forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not
elect to participate.
(d) The Company may effect the remaining portion of such
Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.
(e) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the right
of participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(f) Notwithstanding the foregoing, this Section 4.13 shall not
apply in respect of an Exempt Issuance.
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 180 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of Common
Stock or Common Stock Equivalents; provided, however, the 180 day period
set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock
is suspended by any Trading Market, or (ii) following the Effective Date,
the Registration Statement is not effective or the prospectus included in
the Registration Statement may not be used by the Purchasers for the
resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds
any of the Securities, the Company shall be prohibited from effecting or
entering into an agreement to effect any Subsequent Financing involving a
"Variable Rate Transaction". The term "VARIABLE RATE TRANSACTION" shall
mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable
for, or include the right to receive additional shares of Common Stock
either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for
the shares of Common Stock at any
29
time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including,
but not limited to, an equity line of credit, whereby the Company may
sell securities at a future determined price, provided, that any
transaction involving a Common Stock Equivalent shall not be deemed a
"Variable Rate Transaction" solely as a result of any anti-dilution
adjustment provisions.
(c) Unless Shareholder Approval has been obtained and deemed
effective, neither the Company nor any Subsidiary shall make any issuance
whatsoever of Common Stock or Common Stock Equivalents at an effective
price per share less than $2.15 (other than any Exempt Issuance) subject
to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement. Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any
such issuance, which remedy shall be in addition to any right to collect
damages.
(d) Notwithstanding the foregoing, this Section 4.14 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.15 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending on the public announcement of the transactions
contemplated hereby in accordance with Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of
30
Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6 except that, so long as
a Purchaser continues to hold any Preferred Stock, such Purchaser severally and
not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it, shall
knowingly engage in any Short Sales, except on those days (each a "PERMITTED
DAY") on which the aggregate short position with respect to the Common Stock of
such Purchaser prior to giving effect to any Short Sales by such Purchaser on
such Permitted Day does not exceed such Purchaser's Permitted Share Position (as
defined below) on such Permitted Day; provided, however, that a Purchaser will
only be entitled to engage in transactions that constitute Short Sales on a
Permitted Day to the extent that following such transaction, the aggregate short
position with respect to the Common Stock of such Purchaser does not exceed such
Purchaser's Permitted Share Position. For purposes of this Section 4.16, a
Purchaser's "PERMITTED SHARE POSITION" means, with respect to any date of
determination, the number of shares of Common Stock owned by such Purchaser
(including Conversion Shares, Warrant Shares and shares purchased in the open
market or otherwise) plus the sum of (i) the maximum number of Conversion Shares
then issuable (including as to portions of the Preferred Stock not yet converted
and without regard to any exercise caps or other exercise restrictions
applicable to the Preferred Stock) to such Purchaser and (ii) the maximum number
of Warrants Shares then issuable (including as to portions of the Warrants not
yet exercised and without regard to any exercise caps or other exercise
restrictions applicable to the Warrants) to such Purchaser. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.17 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 CAPITAL CHANGE. Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock.
31
ARTICLE V
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before March 17, 2006; provided, however, that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to
reimburse Bushido Capital Master Fund L.P. ("Bushido") the non-accountable sum
of $50,000, for its legal fees and expenses, none which has been paid prior to
the Closing. Accordingly, in lieu of the foregoing payments, the aggregate
amount that Bushido is to pay for the Securities at the Closing shall be reduced
by $50,000 in lieu thereof. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
32
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities in the minimum Stated
Value of $500,000, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the "Purchasers" (provided, however, a Purchaser shall
not knowingly (without independent investigation or verification) assign or
transfer any of its Preferred Stock or Warrants to an entity whose primary
business operations are in direct competition with the primary business
operations of the Company, without the prior written consent of the Company).
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
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5.10 SURVIVAL. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5.12 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Preferred Stock or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that
34
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described and hereby agrees to waive and not
to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to
35
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation of
the Transaction Documents. For reasons of administrative convenience only,
Purchasers and their respective counsel have chosen to communicate with the
Company through FW. FW does not represent all of the Purchasers but only
Bushido. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
[SIGNATURE PAGE FOLLOWS]
36
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ELITE PHARMACEUTICALS, INC. ADDRESS FOR NOTICE:
-------------------
By: Elite Pharmaceuticals, Inc.
------------------------------------ 000 Xxxxxx Xxxxxx
Name: Xxxxxxx X. Xxxx Northvale, New Jersey 07647
Title: Chief Executive Officer Attention: Chief Executive Officer
With a copy to (which shall not constitute notice):
Reitler Xxxxx & Xxxxxxxxxx LLC
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxxxx
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
37
[PURCHASER SIGNATURE PAGES TO XXX SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: __________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Purchaser: ________________________________
Fax Number of Purchaser: ______________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
38
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $10,000,000 of Preferred Stock and
Warrants from Elite Pharmaceuticals, Inc., a Delaware corporation (the
"COMPANY"). All funds will be wired into a trust account maintained by Reitler,
Brown, & Xxxxxxxxxx, counsel to the Company. All funds will be disbursed in
accordance with this Closing Statement.
DISBURSEMENT DATE: March ___, 2006
--------------------------------------------------------------------------------
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
$
$
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
39
