Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
September 15, 2008, 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:
"ACQUIRING PERSON" shall have the meaning ascribed to such
term in Section 4.6.
"ACTION" shall have the meaning assigned to such term in
Section 3.1(j).
"ACTION BY SHAREHOLDERS" means action by the shareholders of
the Company approving the Authorized Share Approval in a manner that
complies with applicable Delaware General Corporation Law, as amended.
"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 Series D Preferred Stock, ignoring any
conversion or exercise limits set forth therein, and assuming that any
previously unconverted shares of Series D Preferred Stock are held
until the 5th anniversary of the Closing Date and all dividends are
paid in shares of Common Stock until such 5th 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 405 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.
"AMENDMENT" means the amendment to the Company's certificate
of incorporation, and a restatement thereof, that increases the number
of authorized shares of Common Stock from 150,000,000 shares to
200,000,000 shares.
"AUTHORIZED SHARE APPROVAL" means the vote by the shareholders
of the Company to approve the Amendment and the filing by the Company
of the Amendment with the Secretary of State the State of Delaware and
the acceptance of the Amendment by the Secretary of State the State of
Delaware.
"AUTHORIZED SHARE APPROVAL DATE" means the date when all of
the actions set forth in the definition of the Authorized Share
Approval have been completed.
"BOARD OF DIRECTORS" means the board of directors of the
Company.
"BUSHIDO" shall have the meaning ascribed to such term in
Section 5.2.
"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 of Preferences, Rights and Limitations of Series D 8%
Convertible Preferred Stock of the Company 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 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 United States Securities and Exchange
Commission.
"COMMON STOCK" means the common stock of the Company, par
value US$0.01 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
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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 assigned to such
term in the Certificate of Designation.
"DISCLOSURE SCHEDULES" shall have the meaning assigned to such
term in Section 3.1.
"DISCUSSION TIME" shall have the meaning assigned to such term
in Section 3.2 (f).
"EFFECTIVE DATE" means the earlier of (a) the effective date
of a Registration Statement registering the resale of all of the
Underlying Shares and (b) the date on which the Underlying Shares
issuable pursuant to the Transaction Documents may be sold under Rule
144 without (i) the requirements for the Company to be in compliance
with the current public information required under Rule 144 as to such
Underlying Shares and (ii) volume or manner-of-sale restrictions
(assuming for purposes of this clause (b) that all Warrant Shares will
be issued pursuant to the cashless exercise provision of Section 2(c)
of the Warrants), as determined by the counsel to the Company pursuant
to a written opinion letter to such effect, if such opinion letter is
required by the Transfer Agent, addressed and acceptable to the
Transfer Agent and the Purchasers.
"ESCROW AGENT" shall have the meaning ascribed to such term in
Section 2.1
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXCHANGE ELECTION NOTIFICATION" shall have the meaning
assigned to such term in Section 4.16.
"EXCHANGE RIGHT" shall have the meaning assigned to such term
in Section 4.16.
"EXCHANGE SHARES" shall have the meaning assigned to such term
in Section 4.16.
"EXCHANGE WARRANTS" shall have the meaning assigned to such
term in Section 4.16.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors 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
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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 a "STRATEGIC TRANSACTION"
defined as 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 (subject
to adjustment for reverse and forward splits and the like) 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.
"EXISTING PREFERRED STOCK" means the issued and outstanding
shares of Series B Preferred Stock and Series C Preferred Stock.
"EXISTING PREFERRED STOCKHOLDER CONSENT" means the written
consent of the holders of at least 70% of the outstanding Existing
Preferred Stock to (a) the transactions contemplated in the Transaction
Documents; (b) the exchange of the Existing Preferred Stock for Series
D Preferred Stock at a rate equal to one share of Series D Preferred
Stock for each share of Existing Preferred Stock held by the Qualifying
Purchasers; (c) the exchange of the Original Warrants for Exchange
Warrants, exercisable, in the aggregate, for the same number of shares
of Common Stock as the Original Warrants held by the Qualifying
Purchasers; (d) the waiver of the anti-dilution protection provisions
of the holders Existing Preferred Stock pursuant to the Series B
Certificate and Series C Certificate with respect to the exchange of
Existing Preferred for Series D Preferred Stock and Original Warrants
for Exchange Warrants; and (e) the amendment of the Series B
Certificate and the Series C Certificate, respectively, to (1) extend
the date upon which the dividend rate increases from 8% to 15% from
April 24, 2009 to the third anniversary of the Closing Date, (2)
provide that the Series D Preferred Stock shall rank as to distribution
of assets upon a Liquidation senior to the Company's outstanding
Existing Preferred Stock and Junior Securities, (3) to the extent that
the forced conversion price of the Existing Preferred Stock exceeds the
then applicable conversion price of the Existing Preferred Stock,
change the price at which the Company may force a conversion of shares
of the Series B Preferred Stock and Series C Preferred Stock to the
conversion
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price of the Series D Preferred Stock pursuant to Section 8(a) of the
Certificate of Designation, (4) change the price at which the Existing
Preferred Stock may be redeemed pursuant to an optional redemption
under each of the Series B Certificate and the Series C Certificate to
be consistent with the terms for an optional redemption of the Series D
Preferred Stock pursuant to Section 8(b) the Certificate of
Designation, (5) change the weighted average anti-dilution protection
of the Existing Preferred Stock from narrow-based anti-dilution
protection to broad-based anti-dilution protection, (6) delete the
automatic redemption of the Existing Preferred Stock upon the
occurrence of certain Triggering Events (as such term is defined in the
Series B Certificate and the Series C Certificate), (7) decease the
affirmative vote of the holders of the then outstanding shares of
Existing Preferred Stock, voting as a single class, required to take
certain actions delineated in Section 4 of each of the Series B
Certificate and the Series C Certificate from 70% to 50% of the then
outstanding shares of Series B Preferred Stock and Series C Preferred
Stock, and (8) decease the affirmative written consent of the holders
of the then outstanding shares of Existing Preferred Stock, voting as a
single class, required to take certain actions delineated in Section 10
of each of the Series B Certificate and the Series C Certificate from
70% to 50% of the then outstanding shares of Series B Preferred Stock
and Series C Preferred Stock.
"FDA" shall have the meaning ascribed to such term in Section
3.1(jj).
"FDCA" shall have the meaning ascribed to such term in Section
3.1(jj).
"FWS" means Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located
at 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning assigned to such term in Section
3.1(h).
"INITIAL CONVERSION PRICE" means US$0.20.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning assigned
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.
"LOST SECURITIES INDEMNITY" shall have the meaning assigned to
such term in Section 4.16.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
such term in Section 3.1(b).
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"MATERIAL PERMITS" shall have the meaning assigned to such
term in Section 3.1(m).
"MIDSUMMER" shall have the meaning ascribed to such term in
Section 5.2.
"ORIGINAL WARRANTS" shall have the meaning assigned to such
term in Section 4.16.
"OUTSTANDING PREFERRED STOCK" means the outstanding shares of
Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock collectively.
"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.
"PHARMACEUTICAL PRODUCT" shall have the meaning ascribed to
such term in Section 3.1(jj).
"PRE-NOTICE" shall have the meaning assigned to such term in
Section 4.11(b).
"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.
"PUBLIC INFORMATION FAILURE" shall have the meaning ascribed
to such term in Section 4.2(b).
"PUBLIC INFORMATION FAILURE PAYMENTS" shall have the meaning
ascribed to such term in Section 4.2(b).
"PURCHASER PARTY" shall have the meaning ascribed to such term
in Section 4.9.
"QUALIFYING PURCHASER" means any Purchaser who (a) holds
shares of Series B Preferred Stock and/or Series C Preferred Stock and
(b) purchases shares of Series D Preferred Stock pursuant to this
Agreement with a stated value of at least the lesser of (x) US$400,000
and (y) 20% of the aggregate stated value of the shares of Series B
Preferred Stock and/or Series C Preferred Stock then held by such
Purchaser.
"REGISTRATION STATEMENT" means a registration statement filed
pursuant to Section 4.19, registering the resale, by the Purchasers, of
all of the Underlying Shares.
"REQUIRED APPROVALS" shall have the meaning assigned 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 assigned to such term in
Section 3.1(h).
"SECURITIES" means the Series D Preferred Stock, the Warrants,
the Exchange 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 B CERTIFICATE" means the Certificate of Designation of
Preferences, Rights and Limitations of Series B 8% Convertible
Preferred Stock of the Company filed by the Company with the Secretary
of State of Delaware.
"SERIES B PREFERRED STOCK" means the issued and outstanding
shares of Series B Preferred Stock, par value $0.01 per share, of the
Company.
"SERIES B PURCHASE AGREEMENT" means the Securities Purchase
Agreement, dated March 16, 2006, by and between the Company and each of
the purchasers identified on the signature pages thereto.
"SERIES C CERTIFICATE" means the Certificate of Designation of
Preferences, Rights and Limitations of Series C 8% Convertible
Preferred Stock of the Company filed by the Company with the Secretary
of State of Delaware.
"SERIES C PREFERRED STOCK" means the issued and outstanding
shares of Series C Preferred Stock, par value $0.01 per share, of the
Company.
"SERIES C PURCHASE AGREEMENT" means the Securities Purchase
Agreement, dated April 24, 2007 or July 17, 2007, as applicable, by and
between the Company and each of the of the purchasers identified on the
signature pages thereto.
"SERIES D PREFERRED STOCK" means the up to 30,000 shares of
the Company's Series D 8% Convertible Preferred Stock issuable
hereunder including the shares of the Company's Series D 8% Convertible
Preferred Stock issuable pursuant to Section 4.16 hereof, having the
rights, preferences and privileges set forth in the Certificate of
Designation, in the form of EXHIBIT A hereto.
"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.
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"SHORT SALES" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
"STATED VALUE" means US$1,000 per share of Series D Preferred
Stock.
"SUBSCRIPTION AMOUNT" shall mean, as to each Purchaser, the
aggregate amount to be paid for the Securities 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 assigned to such
term in Section 4.11(a).
"SUBSEQUENT FINANCING NOTICE" shall have the meaning assigned
to such term in Section 4.11(b).
"SUBSIDIARY" means any entity in which the Company holds
greater than 50% of voting securities, each of which is set forth on
SCHEDULE 3.1(A) and shall, where applicable, also include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.
"SURRENDERED SECURITIES" shall have the meaning assigned to
such term in Section 4.16.
"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 American Stock Exchange, the Nasdaq Capital Market, the
New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Global
Select Market or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate
of Designation, the Warrants and the Voting Agreements.
"TRANSFER AGENT" means Jersey Transfer and Trust Company.
"UNDERLYING SHARES" means the shares of Common Stock issued
and issuable upon conversion of the Series D Preferred Stock, upon
exercise of the Warrants, upon exercise of the Exchange Warrants and
issued and issuable in lieu of the cash payment of dividends on the
Series D 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 4.18(b).
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"VOTING AGREEMENTS" means the written agreement, in the form
of EXHIBIT C attached hereto, of all of the officers, directors and
stockholders holding more than 10% of the issued and outstanding shares
of Common Stock on the date hereof to vote all Common Stock over which
such Persons have voting control as of the record date for the meeting
of stockholders of the Company in favor of Authorized Share Approval
and Shareholder Approval.
"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 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 OTC Markets, Inc. (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 the Common Stock purchase
warrants, in the form of EXHIBIT B, delivered to the Purchasers at the
Closing in accordance with Section 2.2(a)(v) (and Section 2.2(a)(vi),
if applicable) hereof along with the Exchange Warrants, which Exchange
Warrants shall be exercisable immediately and have a term of exercise
equal to 5 years with an exercise price equal to US$0.25 per share,
subject to adjustment therein.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants and the Exchange Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 CLOSING. 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 Purchasers agree to purchase, in the aggregate, severally and not jointly,
up to US$5,000,000 of shares of Series D Preferred Stock with an aggregate
Stated Value equal to such Purchaser's Subscription Amount and Warrants as
determined by pursuant to Section 2.2(a). The aggregate number of shares of
Series D Preferred Stock sold hereunder shall be up to 5,000. Each Purchaser
shall deliver to American Stock Transfer & Trust Company (the "ESCROW AGENT") as
escrow agent, via wire transfer or a certified
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check of immediately available funds equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective shares of Series D
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 the Company Counsel, or such other location as the parties shall
mutually agree.
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 form and
substance reasonably acceptable to such Purchaser;
(iii) a certificate evidencing a number of shares of
Series D Preferred Stock equal to such Purchaser's
Subscription Amount divided by the Stated Value, registered in
the name of such Purchaser;
(iv) a certificate evidencing a number of shares of
Series D Preferred Stock, if required pursuant to Section
4.16, registered in the name of such Purchaser;
(v) a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 200% of such Purchaser's Subscription Amount divided
by the initial Conversion Price;
(vi) a Warrant registered in the name of such
Purchaser, if required pursuant to Section 4.16;
(vii) the Voting Agreements;
(viii) a certificate, duly executed by its Chief
Executive Officer, certifying as to the satisfaction of the
conditions set forth in Section 2.3(b); and
(ix) a certificate executed by its Secretary having
attached thereto (i) the Company's Certificate of
Incorporation, certified by the Secretary of State of the
State of Delaware, as in effect at the Closing Date, (ii) the
Company's By-Laws as in effect at the Closing Date, (iii)
resolutions approved by the Board of Directors authorizing the
transactions contemplated hereby, and (iv) good standing
certificate with respect to the Company from the Secretary of
State of the State of Delaware.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
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(i) this Agreement duly executed by such Purchaser;
and
(ii) such Purchaser's Subscription Amount by wire
transfer to the Escrow Agent escrow account as specified in
writing by the Escrow Agent.
(c) On the Closing Date, the Company shall deliver or cause to
be delivered to each Qualifying Purchaser a certificate representing
the number of shares of Exchange Shares and the Exchange Warrants the
Company is required to deliver pursuant to Section 4.16.
(d) On the Closing Date, each Qualifying Purchaser shall
deliver or cause to be delivered to the Company the following:
(i) an Exchange Election Notification;
(ii) the Surrendered Securities or, to the extent
necessary, the Lost Securities Indemnity.
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, other than representation
and warranties that are qualified by "Material Adverse Affect"
or "materiality" which shall be true and correct in all
respects;
(ii) all obligations, covenants and agreements of the
Purchasers and Qualifying Purchasers required to be performed
at or prior to the Closing Date shall have been performed;
(iii) the delivery by the Purchasers of the items set
forth in Section 2.2(b) of this Agreement;
(iv) in the event that any Qualifying Purchaser
elects to exercise his, her or its Exchange Right, the
delivery by such Qualifying Purchasers of the items set forth
in Section 2.2(d) of this Agreement; and
(v) the delivery by the requisite holders of Existing
Preferred Stock of the Existing Preferred Stockholder Consent.
(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, other than
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representation and warranties that are qualified by "Material
Adverse Affect" or "materiality" which shall be true and
correct in all respects;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) in the event that any Qualifying Purchaser
elects to exercise his, her or its Exchange Right, the
delivery by the Company of the items set forth in Section
2.2(c) of this Agreement;
(v) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof;
(vi) the Company shall have obtained all requisite
governmental approval, if any, required to consummate the
transactions contemplated herein; and
(vii) 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
L.P. 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 Series D Preferred Stock at the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in 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
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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 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, the 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.
13
(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, subject to the
Authorized Share Approval, 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 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) the Existing
Preferred Stockholder Consent, (ii) the filings required pursuant to
Section 4.5, (iii) the filing with the Commission of the Registration
Statement, (iv) 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, (v) the filing of Form D with the Commission
and such filings as are required to be made under applicable state
securities laws, and (vi) 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. Subject to the Authorized Share Approval, 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.
After the Authorized Share Approval, the Company will reserve 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.
14
(g) CAPITALIZATION. The capitalization of the Company is as
set forth on SCHEDULE 3.1(g). Except as set forth in 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. Except as set forth on SCHEDULE 3.1(g), no Person has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the transaction 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. Except
as set forth in SCHEDULE 3.1(g), 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 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. Subject to the Authorized Share Approval, 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. Other than the Shareholder
Approval, Authorized Share Approval, and the Existing Preferred
Stockholder Consent, no further approval or authorization of any
stockholder, the Board of Directors or others is required for the
issuance and sale of the Securities. Except as set forth in SCHEDULE
3.1(g), 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
15
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 or as set forth in SCHEDULE 3.1(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 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.
(j) LITIGATION. Except as set forth in 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, to the knowledge of the Company, 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.
16
(k) LABOR RELATIONS. No 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 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
17
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 could have a Material Adverse
Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). 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. None of the Company's registered, or applied for, Intellectual
Property Rights have expired or terminated or have been abandoned, or
are expected to expire or terminate or expected to be abandoned within
three years of the date of this Agreement. There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company,
being threatened against the Company or its Subsidiaries regarding its
Intellectual Property Rights, except for any claim, action or
proceeding which, if determined against the Company, would not 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 US$60,000 per
annum other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf
18
of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
(r) CERTAIN FEES. Except as set forth on SCHEDULE 3.1(r), 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.
(s) 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.
(t) 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.
(u) 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.
(v) 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.
(w) 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.
19
(x) 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.
(y) 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.
(z) 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.
(aa) APPLICATION OF TAKEOVER PROTECTIONS. The Company's
certificate of incorporation and by-laws, copies of which have been
provided to you, contain no provision relating to any control share
acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover
provision. The Board of Directors has not taken any action 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 Delaware
General Corporation Law 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.
(bb) DISCLOSURE. Except as set forth on SCHEDULE 3.1(bb) and
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, non-public
information. The Company understands and confirms that the Purchasers
will rely on the foregoing representation in effecting transactions in
securities of the Company. All 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, is true and correct in all material
respects and does 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.
(cc) SOLVENCY. Except as set forth on SCHEDULE 3.1(cc), based
on the consolidated 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
20
hereunder 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. Except as set forth on SCHEDULE 3.1(cc), 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). Except as set forth on SCHEDULE
3.1(cc), 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(cc)
sets forth as of the date hereof 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" means (x) 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), (y) 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 (z) 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.
(dd) ACCOUNTANTS. The Company's accounting firm is set forth
on SCHEDULE 3.1(ee) of the Disclosure Schedules. To the knowledge and
belief of the Company, such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) has expressed
its opinion with respect to the financial statements to be included in
the Company's Annual Report for the year ended March 31, 2008.
(ee) SENIORITY. As of the Closing Date, except as set forth on
SCHEDULE 3.1(ee), no Indebtedness or other claim against 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).
(ff) 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(ff), the Company is current
with respect to any fees owed to its accountants and lawyers which
could affect the Company's ability to perform any of its obligations
under any of the Transaction Documents.
(gg) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the
21
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.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Notwithstanding anything in this Agreement or elsewhere herein to the
contrary (except for Sections 3.2(f) and 4.16 hereof), it is understood
and acknowledged by the Company that: (i) none of the Purchasers has
been asked to agree by the Company, 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) past or
future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities, (iii) any Purchaser, and
counter-parties in "derivative" transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a
"short" position in the Common Stock and (iv) 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 (y) 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 (z) 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.
(ii) REGULATION M COMPLIANCE. 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 clauses
(ii) and (iii), compensation paid to the Company's placement agent in
connection with the placement of the Securities.
22
(jj) FDA. For purposes of this SECTION 3.1(JJ), Pharmaceutical
Product shall mean each product subject to the jurisdiction of the U.S.
Food and Drug Administration ("FDA") under the Federal Food, Drug and
Cosmetic Act, as amended, and the regulations thereunder ("FDCA") that
is manufactured, packaged, labeled, tested, distributed, sold, and/or
marketed by the Company or any of its Subsidiaries. As of the Closing
Date, neither the Company nor any of its Subsidiaries, packages,
labels, tests, distributes, sells and/or markets any Pharmaceutical
Product. As of the Closing Date, the Company has two Pharmaceuticals
Products which it manufactures and such Pharmaceutical Products are
being manufactured by the Company in compliance with all applicable
requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance,
licensure, or application approval, good manufacturing practices, good
laboratory practices, good clinical practices, product listing, quotas,
labeling, advertising, record keeping and filing of reports, except
where the failure to be in compliance would not have a Material Adverse
Effect. There is no pending, completed or, to the Company's knowledge,
threatened, action (including any lawsuit, arbitration, or legal or
administrative or regulatory proceeding, charge, complaint, or
investigation) against the Company or any of its Subsidiaries, and none
of the Company or any of its Subsidiaries has received any notice,
warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the premarket clearance,
licensure, registration, or approval of, the uses of, the distribution
of, the manufacturing or packaging of, the testing of, the sale of, or
the labeling and promotion of any Pharmaceutical Product, (ii)
withdraws its approval of, requests the recall, suspension, or seizure
of, or withdraws or orders the withdrawal of advertising or sales
promotional materials relating to, any Pharmaceutical Product, (iii)
imposes a clinical hold on any clinical investigation by the Company or
any of its Subsidiaries, (iv) enjoins production at any facility of the
Company or any of its Subsidiaries, (v) enters or proposes to enter
into a consent decree of permanent injunction with the Company or any
of its Subsidiaries, or (vi) otherwise alleges any violation of any
laws, rules or regulations by the Company or any of its Subsidiaries,
and which, either individually or in the aggregate, would have a
Material Adverse Effect. The properties, business and operations of the
Company have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations of the FDA.
The Company has not been informed by the FDA that the FDA will prohibit
the marketing, sale, license or use in the United States of any product
proposed to be developed, produced or marketed by the Company.
(kk) STOCK OPTION PLANS. Each stock option granted by the
Company under the Company's stock option plan was granted (i) in
accordance with the terms of the Company's stock option plan and (ii)
with an exercise price at least equal to the fair market value of the
Common Stock on the date such stock option would be considered granted
under GAAP and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not
knowingly granted, and there is no and has been no Company policy or
practice to knowingly grant, stock options prior to, or otherwise
knowingly coordinate the grant of stock options with, the release or
other public announcement of material information regarding the Company
or its Subsidiaries or their financial results or prospects.
23
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 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 Series D 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.
24
(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. To the Purchaser's knowledge, 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 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 such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company as described in
Section 4.5 ("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).
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
25
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.
(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 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, 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.
(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, without
26
the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Underlying Shares
and without volume or manner-of-sale restrictions, 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
Series D Preferred Stock or any portion of a Warrant is converted or
exercised (as applicable) at a 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 without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and
without volume or manner-of-sale restrictions 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) 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 FURNISHING OF INFORMATION.
(a) Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants to
maintain the registration of the Common Stock under Section 12(b) or
12(g) of the Exchange Act and 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
27
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.
(b) At any time during the period commencing from the six (6)
month anniversary of the date hereof and ending at such time that all
of the Securities may be sold without the requirement for the Company
to be in compliance with Rule 144(c)(1) and otherwise without
restriction or limitation pursuant to Rule 144, if the Company shall
fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a "PUBLIC INFORMATION FAILURE") then, 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, by reason of any such delay in or reduction of its
ability to sell the Securities, an amount in cash equal to two percent
(2.0%) of the aggregate Subscription Amount of such Purchaser's
Securities on the day of a Public Information Failure and on every
thirtieth (30th) day (pro rated for periods totaling less than thirty
days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public
information is no longer required for the Purchasers to transfer the
Underlying Shares pursuant to Rule 144. The payments to which a
Purchaser shall be entitled pursuant to this Section 4.3(b) are
referred to herein as "PUBLIC INFORMATION FAILURE PAYMENTS." Public
Information Failure Payments shall be paid on the earlier of (i) the
last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day
after the event or failure giving rise to the Public Information
Failure Payments is cured. In the event the Company fails to make
Public Information Failure Payments in a timely manner, such Public
Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full. The Company
and each Purchaser agree that the maximum aggregate Public Information
Failure Payments payable to a Purchaser under this Section 4.2(b) shall
be 15% of the aggregate Subscription Amount paid by such Holder
pursuant to the Purchase Agreement. Nothing herein shall limit such
Purchaser's right to pursue actual damages for the Public Information
Failure, 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.
(c) The Company agrees to send the following to each Purchaser
for long so long as there is an effective Registration Statement
covering the Underlying Shares, unless the following are filed with the
SEC through the XXXXX system and are available to the public through
the EGDAR system within one (1) Business Day after the filing thereof
with the SEC, (i) a copy of its Annual and Quarterly Reports on Form
10-K, 10-KSB, 10-Q or 10-QSB, any interim report or any consolidated
balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) all press
releases issued by the Company or any of its Subsidiaries, and (iii)
copies of any notices
28
and other information made available or given to the stockholders of
the Company generally.
4.3 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.
4.4 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 Series D
Preferred Stock. No additional legal opinion or other information or
instructions shall be required of the Purchasers to exercise their Warrants or
convert their Series D Preferred Stock. The Company shall honor exercises of the
Warrants and conversions of the Series D Preferred Stock and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.5 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, no later
than twenty-four hours immediately following the date hereof, issue a press
release describing the material terms of the transactions contemplated hereby,
and 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 shall provide the Purchasers with a draft of such press
release prior to filing and provide an opportunity for comments. Each Purchaser
shall consult with the Company prior to issuing any press releases with respect
to the transactions contemplated hereby, and no Purchaser shall issue any such
press release or otherwise make any such public statement without the prior
consent 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 Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with 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).
4.6 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.
29
4.7 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
covenant in effecting transactions in securities of the Company.
4.8 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder to fund continuing research and development
activities on its lead pain products and for working capital and general
corporate 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.
4.9 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.9, 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, shareholders,
agents, members, 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 any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents. 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 one such separate counsel. The Company will not be
liable to any Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company's prior written consent, which
shall not be unreasonably withheld or delayed; or (z) 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 Party in this
30
Agreement or in the other Transaction Documents.
4.10 RESERVATION AND LISTING OF SECURITIES.
(a) Prior to the Authorized Share Approval Date, the Company
shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in an amount
equal to 87,059,562, subject to reverse and forward stock splits and
the like. On the business day immediately following the Authorized
Share Approval Date, 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, after the Authorized Share Approval Date, 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
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 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.
(d) In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders)
on or before January 31, 2009 for the purpose of obtaining Shareholder
Approval and Authorized Share Approval, with the recommendation of the
Board of Directors that such proposals 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 proposals. If the Company does not obtain
Shareholder Approval and Authorized Share Approval at the first
meeting, the Company shall call a meeting every four months thereafter
to seek both Shareholder Approval and Authorized Share Approval until
the earlier of the date that
31
both the Shareholder Approval and the Authorized Share Approval are
obtained or the Series D Preferred Stock and Warrants are no longer
outstanding.
4.11 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that the Series D
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 up to an amount of the Subsequent Financing equal to
its PRO RATA share of the Common Stock or Common Stock Equivalents
multiplied by the gross aggregate amount of the Subsequent Financing,
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 Series
D Preferred Stock and Existing Preferred Stock (ignoring any
limitations therein for such purposes) 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 Series D Preferred
Stock and Existing Preferred Stock, ignoring any limitations therein
for such purposes) 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. If requested by a Purchaser, the Company
shall provide a copy of the then current drafts of the documents
relating to such Subsequent Financing. This Section 4.11(b) shall not
restrict or limit the ability of the Company to provide information
regarding a Subsequent Financing if such delivery is in connection with
the solicitation of consents or waivers relating to such Subsequent
Financing.
(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
32
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, subject
to approval by the Purchaser, in its sole discretion, of the final
definitive documents and schedules thereto. 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 4.11, 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 4.11 shall not
apply in respect of an Exempt Issuance.
4.12 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.
4.13 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 4.5. 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 4.5, 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).
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 required under this Agreement.
4.14 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with
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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.
4.15 CONDUCT OF BUSINESS. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
4.16 EXCHANGE RIGHT. The Company shall offer to each Qualifying
Purchaser the right to exchange (the "EXCHANGE RIGHT") (a) all, but not less
than all, of the Series B Preferred Stock and Series C Preferred Stock held by
such Qualifying Purchaser for shares of Series D Preferred Stock at a rate equal
to one (1) share of Series D Preferred Stock for each share of Series B
Preferred Stock and Series C Preferred Stock so exchanged by such Qualifying
Purchaser, and (b) the warrants to purchase shares of Common Stock issued to
such Qualifying Purchaser in connection with the purchase of such exchanged
Series B Preferred Stock and/or Series C Preferred Stock (the "ORIGINAL
WARRANTS") for replacement warrants (the "EXCHANGE WARRANTS"), in the form of
the Warrants, which Exchange Warrants shall (i) be exercisable for the same
aggregate number of shares of Common Stock as the Original Warrants and (ii)
have a per share exercise price equal to US$0.25 (both (i) and (ii), subject to
adjustment for certain events, including dividends, stock splits, combinations
and the sale of Common Stock and/or Common Stock Equivalents at a price less
than the then applicable Conversion Price). Except as described in clause (b) of
the immediately preceding sentence, the Exchange Warrants issued to any
Qualifying Purchasers electing to exercise this Exchange Right shall be
identical to the Warrants. Any Qualifying Purchaser who elects to exercise this
Exchange Right under this Section 4.16 shall deliver (i) written notice to the
Company prior to the Closing Date (such written notice, the "EXCHANGE ELECTION
NOTIFICATION"), and (ii) the certificate or certificates representing his, her
or its (x) shares of Series B Preferred Stock and/or Series C Preferred Stock to
be exchanged for Series D Preferred Stock pursuant to the Exchange Right under
this Section 4.16, and/or (y) Original Warrants to be exchanged for Exchange
Warrants pursuant to the Exchange Right under this Section 4.16 (collectively
such surrendered certificates and Original Warrants, the "SURRENDERED
SECURITIES"), or execute and deliver to the Company, on or before the Closing
Date, an agreement reasonably satisfactory to the Company and its counsel to
indemnify the Company from any loss incurred by it in connection with any lost,
stolen or destroyed certificate or certificates representing such shares of
Series B Preferred Stock, Series C Preferred Stock and/or Original Warrants to
be exchanged for Series D Preferred Stock or Exchange Warrants, as the case may
be, pursuant to the Exchange Right under this Section 4.16 (such agreement, the
"LOST SECURITIES INDEMNITY"). The Company shall deliver, or cause to be
delivered, on the Closing Date, to each electing Qualifying Purchaser (1) a
certificate or certificates representing the number of shares of Series D
Preferred Stock required to be delivered to such Qualifying Purchaser by the
Company under this Section 4.16 (such shares, the "EXCHANGE SHARES") and (2) the
Exchange Warrants.
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4.17 CAPITAL CHANGES. Until the third year anniversary of the date
hereof, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
holders of at least 50.1% of the then outstanding shares of Series D Preferred
Stock, which such consent shall include the consent of Midsummer Investment,
Ltd. (together with its Affiliates, "MIDSUMMER") and Bushido Capital Master Fund
LP (together with its Affiliates, "Bushido") (so long as Midsummer or Bushido,
as the case may be, holds in excess of $2,000,000, in the aggregate, Stated
Value of Outstanding Preferred Stock).
4.18 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents.
(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. "VARIABLE RATE TRANSACTION"
means a transaction in which the Company (i) issues or sells 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 price, exercise price 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 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,
however, 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. 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.
(c) Unless Shareholder Approval and Authorized Share Approval
have been obtained and deemed effective, neither the Company nor any
Subsidiary shall make any issuance whatsoever of Common Stock or Common
Stock Equivalents which would cause any adjustment of the Conversion
Price of the Series D Preferred Stock or Exercise Price of the
Warrants, to the extent the holders of Series D Preferred Stock or
Warrants would not be permitted, pursuant to of the Certificate of
Designation and Warrants, to convert their respective outstanding
Series D Preferred Stock and exercise their respective Warrants in
full, ignoring for such purposes the conversion or exercise limitations
therein. 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.
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(d) Notwithstanding the foregoing, this Section 4.18 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.19 REGISTRATION RIGHTS. If at any time after the date hereof, the
Company shall determine to prepare and file with the Commission a Registration
Statement relating to an offering for its own account or the account of others
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act), or their then equivalents, relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, then the Company shall send a written notice of
such determination to each Purchaser and, if within ten calendar days after the
date of delivery of such notice, any such Purchaser shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Underlying Shares as the Purchaser requests to be registered so long as such
Underlying Shares are proposed to be disposed in the same manner as those
securities set forth in the Registration Statement; PROVIDED, HOWEVER, that such
Purchasers will not be entitled to such registration rights with respect to the
registration of Underlying Shares issuable upon exercise of the Warrants and/or
Exchange Warrants; PROVIDED FURTHER, HOWEVER, if the offering is an underwritten
offering and was initiated by the Company or at the request of a shareholder,
and if the managing underwriters advise the Company that the inclusion of
Underlying Shares requested to be included in the Registration Statement would
cause an adverse effect on the success of any such offering, based on market
conditions or otherwise (an "ADVERSE EFFECT"), then the Company shall be
required to include in such Registration Statement, to the extent of the amount
of securities that the managing underwriters advise may be sold without causing
such Adverse Effect, (a) first, the securities of the Company and (b) second,
the shares, including the Underlying Shares, of all shareholders, on a pro rata
basis, requesting registration and whose shares the Company is obligated by
contract to include in the Registration Statement; PROVIDED FURTHER, HOWEVER, to
the extent that all of the Underlying Shares are not included in the initial
Registration Statement, the Purchaser shall have the right to request the
inclusion of its Underlying Shares in subsequent Registration Statements until
all such Underlying Shares have been registered in accordance with the terms
hereof. If the offering in which the Underlying Shares is being included in a
Registration Statement is a firm commitment underwritten offering, unless
otherwise agreed by the Company, the Purchaser shall sell its Underlying Shares
in such offering using the same underwriters and, subject to the provisions
hereof, on the same terms and conditions as the other shares of Common Stock
that are included in such underwritten offering. The Company shall use its
commercially reasonable efforts to cause any Registration Statement to be
declared effective by the Commission as promptly as is possible following it
being filed with the Commission and to remain effective until all Underlying
Shares subject thereto have been sold. All fees and expenses incident to the
performance of or compliance with this Section 4.19 by the Company shall be
borne by the Company whether or not any Underlying Shares are sold pursuant to
the Registration Statement. The Company shall indemnify and hold harmless the
Purchaser, the officers, directors, members, partners, agents, brokers,
investment advisors and employees of each of them, each person who controls the
Purchaser (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act), and the officers, directors,
36
members, shareholders, partners, agents and employees of each such controlling
person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys' fees) and expenses (collectively, the
"LOSSES"), as incurred, arising out of or relating to (i) any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (ii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities law, or any rule or regulation thereunder, in connection
with the performance of its obligations under this Section 4.19, except to the
extent, but only to the extent, that such untrue statements or omissions
referred to in (i) above are based solely upon information regarding the
Purchaser furnished in writing to the Company by the Purchaser expressly for use
therein, or to the extent that such information relates to the Purchaser or the
Purchaser's proposed method of distribution of Underlying Shares and was
reviewed and expressly approved in writing by the Purchaser expressly for use in
the Registration Statement, such prospectus or such form of prospectus or in any
amendment or supplement thereto. The rights of the Purchaser under this Section
4.19 shall survive until all Underlying Shares have been either registered under
a Registration Statement or been sold pursuant to an exemption to the
registration requirements of the Securities Act. The Company shall not be
required to maintain the effectiveness, or file another Registration Statement
pursuant to this Section 4.19, with respect to any Underlying Shares that are
not subject to the current public information requirement under Rule 144 and
that are eligible for resale without volume or manner-of-sale restrictions
without current public information pursuant to Rule 144 promulgated by the
Commission pursuant to a written opinion letter to such effect, addressed,
delivered and acceptable to the Transfer Agent and the affected Holders.
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 September 30, 2008; 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 Midsummer the non-accountable sum of $40,000 for its legal fees and
expenses, $20,000 of which has been paid prior to the Closing. Except as set
forth above, 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.
37
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, including, but
not limited to, that certain letter agreement, dated April 2007, by and among
the Company, Midsummer and Bushido Capital Master Fund, LP, 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, Midsummer Investment and each Purchaser
then holding at least $250,000 Stated Value of Series D Preferred Stock 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.
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 US$250,000, 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 assign or transfer any of its Series D 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).
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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.
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.
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
39
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 Series D 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 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.
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5.17 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 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 FWS. FWS
does not represent all of the Purchasers but only Midsummer. 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.
5.18 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]
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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.
Name: Xxxxxxx X. Xxxx 000 Xxxxxx Xxxxxx
Title: Chief Executive Officer Northvale, New Jersey 07647
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]
42
[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 Series D Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
43
DISCLOSURE SCHEDULE
44
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
(see attached)
45
EXHIBIT B
FORM OF WARRANT
(see attached)
46
