EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
July 17, 2007, 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, the Company has previously entered into an agreement to issue
and sell up to 20,000 shares of Series C Preferred Stock, together with warrants
to purchase shares of Common Stock and on April 24, 2007, the Company closed on
the issuance and sale of 15,000 shares of Series C Preferred Stock and warrants
to purchase Common Stock (the "April Closing"); and
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, the remaining 5,000 authorized
shares of the Series C Preferred Stock, together with warrants to purchase
Common Stock as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"ACTUAL MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and shares of Series C Preferred Stock, ignoring any
conversion or exercise limits set forth therein, and assuming that any
previously unconverted shares of Series C Preferred Stock are held
until the fifth anniversary of the Closing Date and all dividends are
paid in shares of Common Stock until such fifth anniversary.
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as
such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
"BUSINESS DAY" means any day except Saturday, Sunday, any day
which shall be a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized
or required by law or other governmental action to close.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation
of the Series C Preferred Stock filed by the Company with the Secretary
of State of Delaware on April 24, 2007, as corrected by the Certificate
of Correction filed with the Secretary of State of Delaware on April
25, 2007, a certified copy of each of which is attached hereto as
EXHIBIT A.
"CLOSING" means the closing or closings of the purchase and sale
of the Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers'
obligations to pay the Subscription Amount and (ii) the Company's
obligations to deliver the Securities have been satisfied or waived.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
US$.01 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means Reitler, Brown, & Rosenblatt LLC with
offices located at 800 Third Avenue, New York, NY 10022.
"CONVERSION PRICE" shall have the meaning ascribed to such term in
the Certificate of Designation.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.
"DISCUSSION TIME" shall have the meaning ascribed to such term in
Section 3.2 (f).
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"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock
or options to employees, consultants, officers or directors of the
Company pursuant to any stock or option plan duly adopted by a majority
of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since
the date of this Agreement to increase the number of such securities or
to decrease the exercise, exchange or conversion price of any such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors,
provided any such issuance shall only be to a Person which is, itself
or through its subsidiaries, an operating company in, or an individual
that operates, a business synergistic with the business of the Company
and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities, (d) up to a maximum of 1,500,000 shares of Common Stock or
Common Stock Equivalents in any rolling 12 month period issued to
consultants, vendors, financial institutions or lessors in connection
with services (including the provision of Permitted Indebtedness (as
defined in the Certificate of Designations)) 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.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"INDEBTEDNESS" shall have the meaning ascribed to such term in
Section 3.1(aa).
"INITIAL CONVERSION PRICE" means US$2.32.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
"LIENS" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
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"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in
Section 3.1(m).
"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.
"SERIES C PREFERRED STOCK" means the up to 5,000 shares of the
Company's 8% Series C Convertible Preferred Stock issued hereunder
having the rights, preferences and privileges set forth in the
Certificate of Designation.
"PRE-NOTICE" shall have the meaning ascribed to such term in
Section 4.8(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.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term
in Section 3.1(e).
"RULE 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Series C Preferred Stock, the Warrants, the
Warrant Shares and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
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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 C Preferred
Stock.
"SUBSCRIPTION AMOUNT" shall mean, as to each Purchaser, the
aggregate amount to be paid for the Series C Preferred Stock purchased
hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading "Subscription Amount",
in United States Dollars and in immediately available funds.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.8(a).
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to
such term in Section 4.8(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).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market.
"TRANSACTION DOCUMENTS" means this Agreement, the Certificate of
Designation, the Warrants and the Registration Rights Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issued and
issuable upon conversion of the Series C Preferred Stock, upon exercise
of the Warrants and issued and issuable in lieu of the cash payment of
dividends on the Series C Preferred Stock in accordance with the terms
of the Certificate of Designation.
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted for trading as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York
City time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then quoted for trading on the OTC Bulletin Board and if
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prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company.
"WARRANTS" means collectively the Common Stock purchase warrants,
in the form of EXHIBIT C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a)(iii) hereof, which Warrants shall be
exercisable immediately and have a term of exercise equal to 5 years.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the 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 each Purchaser agrees to purchase in the aggregate, severally and not
jointly, up to US$5,000,000 of shares of Series C Preferred Stock with an
aggregated Stated Value equal to such Purchaser's Subscription Amount and
Warrants as determined by pursuant to Section 2.2(a). The aggregate number of
shares of Series C Preferred Stock sold hereunder shall be up to 5,000. Each
Purchaser shall deliver to Reitler Brown & Rosenblatt LLC (the "Escrow Agent"),
as escrow agent, via wire transfer or a certified check of immediately available
funds equal to their Subscription Amount and the Company shall deliver to each
Purchaser their respective shares of Series C 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 certificate evidencing a number of shares of Series C
Preferred Stock equal to such Purchaser's Subscription Amount
divided by the Stated Value, registered in the name of such
Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 30% of
such Purchaser's
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Subscription Amount divided by the Initial Conversion Price, with
an exercise price equal to US$3.00 per share, subject to
adjustment therein;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) a certificate, duly executed by its Chief Executive
Officer, certifying as to the satisfaction of the conditions set
forth in Section 2.3(b);
(vi) 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 of the Company authorizing the transactions contemplated
hereby, and (iv) good standing certificates 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:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the Escrow Agent escrow account as specified in writing by the
Escrow Agent; and
(iii) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the
Purchasers contained herein, 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 required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions
being met:
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(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company 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 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) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) the Company shall have obtained all requisite governmental
approval, if any, required to consummate the transactions
contemplated herein; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or
the Company's principal Trading Market (except for any suspension
of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in
the reasonable judgment of each Purchaser, makes it impracticable
or inadvisable to purchase the Series C 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 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
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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, its board of directors or its stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally, (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies
and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or
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violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights
of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company
or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other
restriction of any 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 filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Securities and the listing of the Underlying Shares for trading thereon
in the time and manner required thereby, and (iv) the filing of Form D
with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the "REQUIRED
APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction
Documents. The Underlying Shares, when issued in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company.
The Company has reserved from its duly authorized capital stock a
number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Actual Minimum on the date hereof.
(g) CAPITALIZATION. The capitalization of the Company is as set
forth on SCHEDULE 3.1(G). 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
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report under the Exchange Act. 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. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. 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
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
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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. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No 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
12
not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect
("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) TITLE TO ASSETS. Except as set forth on SCHEDULE 3.1(N), the
Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable
title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the
value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases with which the Company and the Subsidiaries are
in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights
and similar rights necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which
the failure to so have
13
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
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.
14
(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. Other than the April Closing, 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.
(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.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for
15
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 C 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.
16
(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 4.6 ("DISCUSSION TIME"). Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such
Purchaser's assets and the portfolio managers have no direct knowledge
of the investment decisions made by the portfolio managers managing
other portions of such Purchaser's assets, the representation set forth
above shall only apply with respect to the portion of assets managed by
the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons party
to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction
(including the existence and terms of this transaction).
(g) MANIPULATION OF PRICE PRIOR TO CLOSING. Such Purchaser has
not, and to its knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in
the manipulation of the price of any security of the Company at or
prior to the Closing Date, (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any security of the Company,
or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any securities of the Company.
17
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the
following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE 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.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
18
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 C 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(k) or if such legend is not otherwise
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section
4.1(c), it will, 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,
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) As long as any Purchaser owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange
Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare
and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that
it will take such further action as any holder of Securities may
reasonably request, to the extent required from time to time to enable
such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by
Rule 144.
(b) The Company agrees to send the following to each Purchaser
during the Reporting Period (as defined in the Registration Rights
Agreement), unless the following are filed with the SEC through the
EDGAR system and are available to the public
19
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 and other information made available
or given to the stockholders of the Company generally.
4.3 INTEGRATION. Other than as related to the April Closing, 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 C
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 C Preferred Stock. The Company shall honor exercises of the
Warrants and conversions of the Series C 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 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 (A) any
registration statement contemplated by the Registration Rights Agreement and (B)
the filing of final Transaction Documents (including signature pages thereto)
with the Commission and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this subclause
(ii).
20
4.6 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.7 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations
in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 110% of (i)
the Actual Minimum on such date, minus (ii) the number of shares of
Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares
of Common Stock to at least the Actual Minimum at such time (minus the
number of shares of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event not later
than the 75th day after such date; provided that the Company will not
be required at any time to authorize a number of shares of Common Stock
greater than the maximum remaining number of shares of Common Stock
that could possibly be issued after such time pursuant to the
Transaction Documents.
4.8 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that the Series C
Preferred Stock is no longer outstanding, upon any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a "SUBSEQUENT FINANCING"), each Purchaser shall have the
right to purchase its PRO RATA share of the Common Stock or Common
Stock Equivalents on the same terms, conditions and price provided for
in the Subsequent Financing. Each Purchaser's PRO RATA share is equal
to the ratio of (a) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon
conversion of the Series C Preferred Stock) which such Purchaser is
deemed to hold immediately prior to the issuance of such Common Stock
or Common Stock Equivalents to (b) the total number of shares of the
Company's outstanding Common Stock (including all shares of Common
Stock issued or issuable upon conversion of the Series C Preferred
Stock) immediately prior to the issuance of the Common Stock or Common
Stock Equivalents.
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice
of its intention to effect a Subsequent Financing ("PRE-NOTICE"), which
Pre-Notice shall ask such Purchaser if it wants to review the details
of such financing (such additional notice, a "SUBSEQUENT FINANCING
NOTICE"). Upon the request of a Purchaser, and only upon a request by
such
21
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 4.8(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 Stock Equivalents to be purchased, and that the
Purchaser has such funds ready, willing, and available for investment.
Such written notice to the Company shall be a binding obligation of
such Purchaser to participate in such Subsequent Financing upon terms
substantially similar to those set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
5th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) The Company may effect the remaining portion of such
Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.
(e) The Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the
right of participation set forth above in this Section 4.8, 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 4.8 shall not
apply in respect of an Exempt Issuance.
4.9 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
22
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.10 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending on the public announcement of the transactions
contemplated hereby in accordance with Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
4.11 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.12 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.
4.13 VARIABLE RATE SECURITIES. For so long as any Series C Preferred
Stock or Warrants remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Certificate of Designation) with respect to the Common Stock into which any
Warrant is exercisable.
4.14 ACKNOWLEDGEMENT OF PURCHASERS. Each Purchaser hereby acknowledges
and agrees that the dividends accruing upon the Series C Preferred Stock issued
and sold under this Agreement shall commence accruing upon the Closing Date and
not as of the Original Issue Date (as defined in the Certificate of
Designations).
23
4.15 LIMITED WAIVER OF CERTAIN SERIES C REDEMPTION RIGHT. Each
Purchaser hereby agrees that it shall not exercise the right, pursuant to
Section 9(b) of the Certificate of Designations, to require the Company to
redeem any or all shares of Series C Preferred Stock purchased under this
Agreement upon the occurrence of the Triggering Event (as defined in the
Certificate of Designations) set forth in clause 9(a)(i) of the Certificate of
Designation if such Triggering Event shall occur prior to the 275th day after
the Closing Date; provided that if such Triggering Event remains uncured as of
the 275th day after the Closing Date, each Purchaser shall have the rights
provided under Article 9 of the Certificate of Designations.
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 July 31, 2007; PROVIDED, HOWEVER, that no such termination will affect
the right of any party to sue for any breach by the other party (or parties).
5.2 FEES AND EXPENSES. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with
24
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$500,000, provided such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the "Purchasers" (provided, however, a Purchaser shall
not knowingly assign or transfer any of its Series C Preferred Stock or Warrants
to an entity whose primary business operations are in direct competition with
the primary business operations of the Company, without the prior written
consent of the Company).
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
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
25
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 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 C 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.
26
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.
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.
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]
27
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: Bernard J. Berk 165 Ludlow Avenue
Title: Chief Executive Officer Northvale, New Jersey 07647
Attention: Chief Executive Officer
With a copy to (which shall not constitute notice):
Reitler Brown & Rosenblatt LLC
800 Third Avenue
21st Floor
New York, New York 10022
Attention: Scott H. Rosenblatt
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
28
[PURCHASER SIGNATURE PAGES TO ELI 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 C Preferred Stock:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
29
DISCLOSURE SCHEDULE
This Disclosure Schedule (this "DISCLOSURE SCHEDULE") is arranged in
schedules corresponding to the numbered and lettered sections and subparagraphs
contained in the Securities Purchase Agreement (the "AGREEMENT").
No representation or warranty contained in the Agreement shall be
deemed to be inaccurate if the actual situation is explicitly disclosed in any
section in this Disclosure Schedule and would reasonably relate to another
section of this Disclosure Schedule where the context of such disclosure in a
section reasonably relates to such other section.
30
SCHEDULE 3.1(a)
SUBSIDIARIES
Elan Laboratories, Inc., a Delaware corporation
Elan Research, Inc., a Delaware corporation
31
SCHEDULE 3.1(g)
CAPITALIZATION
21,335,846 shares of Common Stock outstanding.
9,032 shares of Series B Preferred Stock outstanding, currently convertible into
4,014,222 shares of Common Stock.
14,768 shares of Series C Preferred Stock outstanding, currently convertible
into 6,365,517 shares of Common Stock.
3,776,500 options to purchase shares of Common Stock, under the Company's stock
option plan.
2,805,000 options to purchase shares of Common Stock outside the Company's stock
option plan.
8,682,445 warrants to purchase shares of Common Stock outstanding with exercise
prices ranging from $1.50 to $4.20, subject to applicable vesting.
Contingent with the closing of the transactions contemplated hereby, the
expiration date of the warrants purchased by the holders of the Company's Series
B Preferred Stock was extended from the fifth anniversary of the grant date to
the sixth anniversary of the grant date of such warrants.
Commitment to issue options during the term of a current employment agreement
upon the following milestones (which commitments terminate at the end of the
initial term of such employment agreement):
(a) 50,000 options upon the closing of each product license or product
sales transaction in which the Company receives an aggregate of at
least $5,000,000 in net cash;
(b) 10,000 options upon filing with FDA of either an abbreviated new drug
application (an "ANDA") or new drug application (an "NDA"); and
(c) 40,000 options upon approval by the FDA of any ANDA or NDA for a
product not previously approved by the FDA.
Commitment to issue options during the term of a current employment agreement
upon the following milestones (which commitments terminate at the end of the
initial term of such employment agreement):
(a) 125,000 options upon commencement of Phase III clinical trials relating
to the Company first non-generic opioid drug, to the extent previously
granted options have
32
not vested upon the occurrence of such event;
(b) 125,000 options upon commencement of Phase III clinical trials relating
to the Company second first non-generic opioid drug, to the extent
previously granted options have not vested upon the occurrence of such
event;
(c) 50,000 options upon the closing of each exclusive product license for
the US market or product sales transaction, excluding certain specific
non-generic opioid drugs;
(d) 10,000 options upon filing with FDA of either an abbreviated new drug
application (an "ANDA") or new drug application (an "NDA");
(e) 40,000 options upon approval by the FDA of any ANDA or NDA for a
product not previously approved by the FDA;
(f) 25,000 options upon filing of an application for a new US patent; and
(g) 25,000 upon granting of a new US patent by the US Patent and Trademark
Office.
Commitment to issue options during the term of a current employment agreement
upon the following milestones (which commitments terminate at the end of the
initial term of such employment agreement):
(a) 125,000 options upon commencement of Phase III clinical trials relating
to the Company first non-generic opioid drug, to the extent previously
granted options have not vested upon the occurrence of such event;
(b) 125,000 options upon commencement of Phase III clinical trials relating
to the Company second first non-generic opioid drug, to the extent
previously granted options have not vested upon the occurrence of such
event;
(c) 50,000 options upon the closing of each exclusive product license for
the US market or product sales transaction, excluding certain specific
non-generic opioid drugs;
(d) 10,000 options upon filing with FDA of either an abbreviated new drug
application (an "ANDA") or new drug application (an "NDA");
(e) 40,000 options upon approval by the FDA of any ANDA or NDA for a
product not previously approved by the FDA;
(f) 25,000 options upon filing of an application for a new US patent; and
(g) 25,000 upon granting of a new US patent by the US Patent and Trademark
Office.
33
VOTING AGREEMENTS:
Pursuant to Section 3.1 of the Strategic Alliance Agreement, dated as of
December 6, 2006, between the Company, Veerappan S. Subramanian ("VS"), and VGS
Pharma, LLC, so long as the Company holders at least forty percent (40%) of the
outstanding capital stock of Novel Laboratories, Inc., the Company has agreed to
use its best efforts to include VS in each slate of directors to be presented by
the Company's board of directors to the Company's stockholders of Elite at each
annual and special stockholder meeting for the election of the Company's
directors.
So long as Midsummer Investment, Ltd. ("MIDSUMMER") and Bushido Capital Master
Fund, LP ("BUSHIDO" and collectively with Midsummer, the "PRINCIPAL SERIES B
INVESTORS"), continue to hold as least 25% of the Company's then outstanding
shares of the Series B Preferred Stock, in the event that the Company intends to
take an action, pursuant to Section 4 or Section 10 of the Certificate of
Designation of the Series B Preferred Stock, as amended, which would require the
affirmative vote or written consent of the Holders of at least 70% of the then
outstanding shares of the Series B and Series C Preferred Stock, then the
Company shall not take such action unless both Principal Series B Investors vote
in favor of, or consent to, such action.
34
SCHEDULE 3.1(i)
MATERIAL CHANGES; UNDISCLOSED EVENTS, LIABILITIES OR DEVELOPMENTS
35
SCHEDULE 3.1(n)
TITLE TO ASSETS
New Jersey Economic Development Authority ("NJEDA"), and The Bank of
New York, as Indenture Trustee have security interests in the following assets
of Elite Pharmaceuticals, Inc. and Elite Laboratories, Inc.:
o Elite Pharmaceuticals, Inc.: The premises located at 150 Ludlow
Avenue, New Jersey and all fixtures and equipment acquired, or to
be acquired, with the proceeds of the bond issued by NJEDA; and
o Elite Laboratories, Inc.: Certain laboratory equipment acquired by
Elite Laboratories, Inc., with the proceeds of the bond issued by
NJEDA.
36
SCHEDULE 3.1(p)
INSURANCE
The Company has Director's and Officer's liability coverage of $5,000,000 from
The Hartford Insurance.
37
SCHEDULE 3.1(q)
TRANSACTIONS WITH AFFILIATES AND EMPLOYEES
38
SCHEDULE 3.1(r)
CERTAIN FEES
Oppenheimer & Co., Inc., the placement agent, is entitled to:
(i) Cash commissions equal to 7.0% of the gross proceeds resulting
from the sale of the Series C Preferred Stock in the offering; and
(ii) A five year non-callable warrant to purchase shares of Common
Stock equal to 3.0% of the number of shares of Common Stock into
which the Series C Preferred Stock sold in the offering may be
converted.
Additionally, Oppenheimer & Co., Inc., may engage one or more
sub-placement agents.
39
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
(see attached)
40
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
(see attached)
41
EXHIBIT C
FORM OF WARRANT
(see attached)
42