UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware 333-45241 22-3542636
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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On October 6, 2004, Registrant sold in a private placement through Indigo Securities LLC, the Placement Agent, 379,121 shares of its Series A Preferred Stock, par value $0.01 per share (the "PREFERRED SHARES") at a price of $12.30 per share, each share convertible into ten shares of Common Stock, or an aggregate of 3,791,210 shares of Common Stock. Purchasers of the Preferred Shares (the "INVESTORS") received for each Preferred Share acquired two Common Stock purchase warrants, one exercisable on or prior to December 31, 2005 and the other exercisable on or prior to the fifth anniversary of the date upon which the registration statement described below is declared effective. Each warrant represents the right to purchase five shares of Common Stock, or an aggregate of 3,791,210 shares of Common Stock for both warrants at an exercise price of $1.54 per share. The private placement of the Preferred Shares and the warrants was made pursuant to Subscription Agreements between the Registrant and each purchaser of Preferred Shares. Pursuant to the Subscription Agreements, the Placement Agent may place up to an additional $1,936,804.70 of Preferred Shares until October 26, 2004.
The gross proceeds of the sale was $4,663,195.30 before payment of $439,719.53 in commissions to the Placement Agent and selected dealers. Registrant is also to bear the legal fees and expenses of the Agent's counsel not to exceed $75,000 and legal fees and expenses of one counsel for the Investors of $25,000. Pursuant to the Placement Agent Agreement, the Company issued to the Placement Agent and its designees Common Stock purchase warrants to purchase 357,495 shares of Common Stock at an exercise price of $1.23 per share exercisable on or prior to the fifth anniversary of the date upon which the registration statement described below is declared effective.
See Item 5.03 for information as to the terms of the Preferred Shares.
Holders of the Preferred Shares are provided demand and piggy-back registration rights at Registrant's expense. Registrant also has agreed to register under the Securities Act of 1933 (the "ACT") for resale the shares of Common Stock issuable upon conversion of the Preferred Shares, upon exercise of the warrants (including the Placement Agent's warrants) and as payment of dividends on the Preferred Shares within 90 days of the closing of the private placement, with a penalty of 2% of the purchase price for each 30 day period during which the registration statement has not been declared effective after such 90 day period (PRO RATA for a partial month), but not to exceed an aggregate of 16% of the purchase price.
Each of the purchasers of the Preferred Shares has represented that the purchaser is an "accredited investor" and has agreed that the securities issued in the private placement are to bear a restrictive legend against resale without registration under the Act. The Preferred Shares and warrants were sold by Registrant pursuant to the exemption from registration afforded by Section 4(2) of the Act and Registration D thereunder.
See Item 5.03 for the filing by Registrant of the Certificate of Designation, Preferences and Rights of Series A Preferred Stock which provides among other things for preferential rights of the Series A Preferred Stock as to dividends and liquidation over those of the Common Stock and the prohibition of the payment of dividends on the Common Stock without the consent of the holders of a majority of the then outstanding shares of Series A Preferred.
On October 6, 2004, pursuant to the authority of its Board of
Directors, Registrant filed with the Secretary of State of Delaware the
Certificate of Designations, Preferences and Rights of Series A Preferred Stock
(the "PREFERRED CERTIFICATE").
The Preferred Shares are to accrue dividends at the rate of 8% per annum on their purchase price of $12.30 per share payable, at the Registrant's option, in cash or shares of Common Stock with each share of Common Stock so issued to be valued at its Current Market Price as defined in the Preferred Certificate. No payment or dividends may be payable on Common Stock or any other capital stock ranked junior to the Preferred Shares prior to the satisfaction of the dividend obligation on the Preferred Shares.
Each Preferred Share will be entitled to a preference equal to the per share purchase price ($12.30 subject to adjustment) plus accrued but unpaid dividends upon the liquidation, dissolution or winding-up of the Registrant, or a Change of Control Event, which preference is senior to the Common Stock. In addition, each Preferred Share participates on an as converted basis with the Common Stock with respect to any remaining assets after the distribution on the Preferred Shares as described in the preceding sentence. A "Change in Control Event" is defined to mean the first to occur of (i) a sale of all or substantially all of the assets of the Registrant, (ii) an acquisition, reorganization, merger, consolidation of the Registrant or a similar transaction (except for a consolidation or merger where the holders of capital stock prior to the merger or consolidation possess more than 50% of the voting power immediately after the merger or consolidation), or (iii) a transaction or series of transactions in which a person or group of person as a group acquire 50% or more of the Common Stock on a fully diluted basis or of the voting power of the Registrant, unless the consideration paid for the Preferred Shares (on an as converted basis) in any such transactions is more than $3.69 per share (subject to adjustment) or the event is approved by the holders of a majority of the outstanding Preferred Shares.
The Preferred Shares as a class will have the right to elect one Director with the Placement Agent (see Item 3.02) to make the first designation. The holders of Preferred Shares will vote with the holders of shares of Common Stock as one class with each Preferred Share entitled to such number of votes equal to the number of shares of Common Stock into which the Preferred Share is then convertible.
So long as at least 20% of the Preferred Shares issued by the Registrant are outstanding certain actions may not be effected by the Registrant without the prior consent of the holders of a majority of the then outstanding Preferred Shares including a change in the terms of the Preferred Shares, issuance of equity security having a preference senior or pari passu with the Preferred Shares, certain changes to the Registrant's Certificate of Incorporation or By-laws, incurrence of indebtedness for borrowed money with certain exceptions, redemption of shares of Common Stock with certain exceptions, loans other than in the ordinary course of business with certain exceptions, certain insider transactions, and declaration or payment of dividends other than (i) upon the Preferred Shares, or (ii) connection with a split of the Common Stock.
Each Preferred Share is convertible into ten shares of Common Stock. The conversion rate is subject to adjustment for certain events including, dividends, stock splits, combinations and the sale of Common Stock or securities convertible into or exercisable for Common Stock at a price less than $1.23 (subject to adjustment). The Preferred Shares are to be automatically converted into shares of Common Stock in the event of (i) notice from holders of a majority of the Preferred Shares, or (ii) the Registrant provides written notice to the holder that
the Current Market Price, as defined, of Common Stock for the immediate prior 30 consecutive trading days as defined, exceeded $3.69 (subject to adjustment) at an average daily trading volume of at least 50,000 shares per day on each such trading day, or (iii) the occurrence of a transaction which values Preferred Shares (on an as converted basis) at $3.69 per share (subject to adjustment) or greater and the consideration to be paid to the Preferred Shareholders is cash or shares which are traded on a national securities exchange or NASDAQ and are registered under the Act for resale or (iv) concurrently with a closing of a public offering of Common Stock at a price equal to at least $3.69 per share (subject to adjustment) with proceeds to the Registrant of at least $20,000,000.
a) Not applicable.
b) Not applicable.
c) Exhibits
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Exhibit 3.1 Certificate of Designations, Preferences and Rights of Series A Preferred
Stock as filed with the Secretary of State of Delaware
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Exhibit 4.5 Form of Series A Preferred Stock Certificate
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Exhibit 4.6 Form of Short Term Warrant to purchase Common Stock
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Exhibit 4.7 Form of Long Term Warrant to purchase Common Stock
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Exhibit 4.8 Form of Warrant issued to Placement Agent
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Exhibit 10.11 Form of Subscription Agreement
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Exhibit 10.12 Registration Rights Agreement by and among the Registrant and the purchasers
of the Series A Preferred Stock
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Exhibit 10.13 Placement Agent Agreement by and between the Registrant and Indigo Securities,
LLC
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Elite Pharmaceuticals, Inc.
Date: October 11, 2004 By: /s/ Bernard Berk
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Bernard Berk
Chief Executive Officer
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EX-3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
OF
ELITE PHARMACEUTICALS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Elite Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware (the "CORPORATION"), hereby certifies that, pursuant to authority vested in the Board of Directors of the Corporation (the "Board") by Article Fourth of the Amended Certificate of Incorporation of the Corporation, the following resolution was adopted as of October 5, 2004 by the Board pursuant to Section 141 of the Delaware General Corporation Law:
RESOLVED that, pursuant to authority vested in the Board by Article Fourth of the Corporation's Amended Certificate of Incorporation, out of the total authorized number of 5,000,000 shares of Corporation preferred stock, par value $0.01 per share, there shall be designated a series of 660,000 shares which shall be issued in and constitute a single series to be known as "Series A Preferred Stock" (hereinafter called the "SERIES A PREFERRED STOCK"). The shares of Series A Preferred Stock have the voting powers, designations, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below:
1. CERTAIN DEFINITIONS.
"COMMON STOCK" means the common stock, $0.01 par value per share, of the Corporation.
"CURRENT MARKET PRICE" shall mean, with respect to any shares of capital stock or other securities, (i) if such stock or securities are listed or admitted to trading on a national securities exchange or an inter-dealer quotation system or traded in the over-the-counter market, the VWAP of such shares of capital stock or other securities, as the case may be, at the close of trading on the Trading Day on which the relevant determination is to be made or, if such day is not a Trading Day, the Trading Day immediately preceding such day and (ii) if such stock or security is not so listed, admitted or traded, the fair market value of such stock or security as determined in good faith by the Board, including the Series A Director. All such determinations shall be appropriately adjusted for any stock dividend, stock split, recapitalization or other similar transaction during such period.
"EXCLUDED STOCK" means Common Stock issued or to be issued (i) pursuant to the conversion of the Series A Preferred Stock, (ii) pursuant to the issuance of PIK Shares, (iii) pursuant to the exercise of any stock options or warrants currently outstanding or options or warrants issued after the date hereof pursuant to any Corporation benefit plan, stock option plan, stock bonus plan or other equity program approved by the Board, but only to the extent, that such shares of Common Stock issued or issuable pursuant to such stock option plans, stock bonus plans or stock incentive plans does not exceed ten percent (10%) of the then outstanding Common Stock on a fully diluted basis, (iv) as consideration in the acquisition of another corporation or business entity by the Corporation, whether by merger, stock acquisition, purchase of all or substantially all of the assets of such corporation or entity or other form of reorganization, (v) in connection with any issuance or transaction consented to as an issuance of Excluded Stock by holders of a majority of the then outstanding shares of Series A Preferred Stock, (vi) in an underwritten public offering registered pursuant to the Securities Act of 1933, as amended, at a price per share not less than three (3) times the Initial Conversion Price (as adjusted proportionately for stock splits, stock dividends, recapitalizations and other similar events), or (vii) except as otherwise provided herein, and following any applicable adjustment in the Conversion Price provided for in Subsection 4D, upon the actual issue of Common Stock or securities convertible into Common Stock at the time of exercise of any rights, options or warrants to purchase Common Stock or any securities convertible into Common Stock, as appropriate, or upon conversion or exchange of securities convertible into Common Stock.
"INITIAL CONVERSION PRICE" means $1.23.
"OFFERING" means the closing of the offering by the Corporation of the shares of Series A Preferred Stock created by the filing of this Certificate of Designations and warrants to purchase shares of Common Stock.
"PERSON" means an individual, corporation, partnership, limited liability company, association, trust and any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
"SERIES A PURCHASE PRICE" means the original issue price of the Series A Preferred Stock of $12.30 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and other similar events with respect to such shares).
"TRADING DAY" means (i) if the relevant stock or security is listed or admitted for trading on the New York Stock Exchange, the American Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; (ii) if the relevant stock or security is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; or (iii) if the relevant stock or security is not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, a day on which the relevant stock or security is traded in a regular way in the over-the-counter market and for which a closing bid and a closing asked price for such stock or security are available.
"VWAP" means, with respect to any shares of stock or
securities, including the Common Stock (as defined below), on any date of
determination, the dollar volume-weighted average price per share for the thirty
(30) consecutive Trading Days preceding and including such date of determination
as reported by Bloomberg Financial Markets, or any successor thereto
("BLOOMBERG"), through its "Volume at Price" functions or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30 a.m., New York City Time, on the first
Trading Day of the applicable thirty (30) consecutive trading period described
above and ending at 4:00 p.m., New York City Time, on the last trading day of
the applicable thirty (30) consecutive trading day period described above, as
reported by Bloomberg.
2. DIVIDENDS.
2A. The holders of the Series A Preferred Stock shall be entitled to receive noncumulative dividends, at a rate equal to eight per cent (8%) per annum of the Series A Purchase Price (the "DIVIDEND AMOUNT") and shall accrue on a daily basis from the date of issuance whether or not declared. The Dividend Amount shall be payable one-half (50%) on June 1 and one-half (50%) on December 1 of each year (the "DIVIDEND PAYMENT DATES") either in cash or in kind by issuance by the Corporation of shares of Common Stock (the "PIK SHARES") at the option of the Corporation. In the event that the applicable Dividend Amount is not paid in cash within ten (10) days of the relevant Dividend Payment Date, the Corporation shall be deemed for all purposes to have elected to pay the applicable Dividend Amount by the issuance of PIK Shares (including for purposes of determining the Conversion Rate). If the Corporation elects (or is deemed to have elected) to pay any Dividend Amount in PIK Shares, each holder of Series A Preferred Stock shall be deemed to be the holder of record of such holder's PRO RATA share of the PIK Shares issuable with respect to the relevant Dividend Amount notwithstanding that the stock transfer books of the Corporation shall then be closed or that certificates evidencing such PIK Shares shall not have been actually delivered to such holder of Series A Preferred Stock. In the event that dividends on the Series A Preferred Stock are paid with PIK Shares, each such PIK Share shall be valued at the Current Market Price of the Common Stock determined as of the Dividend Payment Date. No dividends shall be paid on any Common Stock of the Corporation or any capital stock of the Corporation that ranks junior to or on parity with the Series A Preferred Stock during any fiscal year of the Corporation until dividends in the aggregate Dividend Amount per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and other similar events with respect to such shares) of Series A Preferred Stock for the current and each prior Dividend Payment Date (including the partial periods since the most recent Dividend Payment Date) shall have been paid or have been declared and set apart for payment to the Series A Preferred Stock holders.
2B. The amount of dividends payable for any period shorter than a full year shall be determined on the basis of twelve 30-day months and a 360-day year. Dividends paid in cash on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.
2C. In the event that the Corporation shall at any time pay a dividend on the Common Stock, it shall, at the same time, pay to each holder of Series A Preferred Stock a dividend equal to the dividend that would have been payable to such holder if the shares of Series A Preferred Stock held by such holder had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividends.
3. LIQUIDATION.
3A. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series A Preferred Stock shall be entitled, before any distributions shall be made to the holders of the Common Stock, or any other class of capital stock of the Corporation ranking junior to the Series A Preferred Stock, to be paid a per share amount in cash (to the extent possible) and then other assets of the Company equal to (i) the Series A Purchase Price plus accrued and unpaid dividends through the date of liquidation, dissolution or winding up (the "SERIES A LIQUIDATION PREFERENCE") (appropriately adjusted to reflect the occurrence of any stock split, stock dividend, stock combination, stock subdivision or like occurrences) and (ii) with respect to the assets remaining after distribution of the Series A Liquidation Preference, the aggregate pro rata liquidating distribution per share payable to holders of Series A Preferred Stock on an as-converted to Common Stock basis payable ratably to Series A Preferred Stock holders and holders of Common Stock. If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series A Preferred Stock of the Corporation shall be insufficient to permit payment to the holders of Series A Preferred Stock of the full Series A Liquidation Preference of each share of Series A Preferred Stock then held, then the entire assets of the Corporation to be distributed shall be distributed pro rata to the holders of Series A Preferred Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date, the Series A Liquidation Preference of each share of Series A Preferred Stock then held and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 10 or more than 60 days prior to the payment date stated therein, to the holders of record of the Series A Preferred Stock, such notice to be addressed to each shareholder at his post office address as shown by the records of the Corporation or its transfer agent.
3B. The first to occur of:
(A) The acquisition of the Corporation by another Person or Persons by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger, consolidation or similar transaction, whether of the Corporation with or into any other Person or Persons or of any other Person or Persons with or into the Corporation, but excluding, however, (x) any merger effected exclusively for the purpose of changing the domicile of the Corporation or (y) any consolidation or merger as a result of which the holders of capital stock of the Corporation immediately prior to such merger or
consolidation possess more than 50% of the voting power of the corporation surviving such merger, consolidation or similar transaction (or other Person which is the issuer of the capital stock into which the capital stock of the Corporation is converted or exchanged in such merger or consolidation)); or
(B) a sale of all or substantially all of the assets of the Corporation; or
(C) a transaction or series of transactions in which a Person or group of Persons (as defined in Rule 13d-5(b)(1) of the Exchange Act of 1934, as amended (the "Exchange Act")) acquires beneficial ownership (as determined in accordance with Rule 13d-3 of the Exchange Act) of 50% or more of the Common Stock, on a fully diluted basis, or the voting power of the Corporation;
shall be deemed to be a liquidation for purposes of the Series A
Liquidation Preference (each such transaction described in (A), (B) or
(C) being hereinafter referred to as a "CHANGE IN CONTROL EVENT"),
unless either (i) the per share consideration paid on an as converted
to common stock basis in any such transaction has a value which exceeds
300% of the Initial Conversion Price (as adjusted proportionately for
stock splits, stock dividends, recapitalizations and other similar
events) or (ii) the Change in Control Event is approved by the holders
of a majority of the then outstanding shares of Series A Preferred
Stock. If the consideration paid or to be paid in any such merger,
consolidation or other transaction is other than cash, its value will
be deemed the fair market value as determined in good faith by the
Board and the value of any securities included in such consideration
shall be determined by the Board as follows: (i) if traded on a
securities exchange or through the Nasdaq National Market or if
actively traded over-the-counter, the Current Market Price of such
securities over the thirty (30) day period ending three (3) days prior
to the closing; or (ii) if there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by
the Board with the assistance of an independent financial advisor.
4. CONVERSION.
4A. RIGHT TO CONVERT. Each holder of shares of Series A Preferred Stock shall have the right to convert any of such holder's shares of Series A Preferred Stock into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying the number of shares of Series A Preferred Stock so to be converted by the Series A Liquidation Preference per share and dividing the result by the Initial Conversion Price, as may be adjusted in accordance with this Section 4 (such adjusted price, the "CONVERSION PRICE" and such calculation of the conversion rate per share of Series A Preferred Stock, the "CONVERSION RATE"). Such conversion may take place at any time. Such rights of conversion shall be exercised by the holder thereof by surrender of a certificate or certificates (or a lost stock affidavit therefor (with indemnification) reasonably acceptable to the Corporation) for the shares to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the Series A Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a properly completed notice of conversion in the form attached to the Series A Preferred Stock certificate with a statement of the name or names (with address), subject to compliance with applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock, shall be issued.
4B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly after the receipt by the Corporation of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of the Series A Preferred Stock to be converted (and in any event within five business days), the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Rate shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such shares shall have been surrendered as aforesaid, and at such time the Series A Preferred Stock rights of the holder of such share or shares shall cease, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.
4C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No fractional shares shall be issued upon conversion of the Series A Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share, and no payment or adjustment shall be made upon any conversion on account of any cash dividends paid on the Series A Preferred Stock so converted or the Common Stock issued as PIK Shares. In case the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the Corporation shall upon such conversion, execute and deliver to the holder thereof at the expense of the Corporation, a new certificate for the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered which are not to be converted.
4D. ADJUSTMENT OF PRICE UPON ISSUANCE. If and at any time or from time to time, after the date of first issuance of shares of Series A Preferred Stock (the "ORIGINAL ISSUANCE DATE"), the Corporation shall issue or sell, or is, in accordance with subparagraphs 4D(1) through 4D(6), deemed to have issued or sold, any shares ("ADDITIONAL COMMON SHARES") of its Common Stock, other than Excluded Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the Conversion Price shall be reduced effective concurrently with such issuance or sale of Additional Common Shares to an amount determined by multiplying the Conversion Price then in effect by a fraction, (x) the numerator of which shall be the sum of (1) the number of shares of
Common Stock (determined on a fully diluted basis) outstanding immediately prior to such issuance or sale, plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for such Additional Common Shares would purchase at such Conversion Price, and (y) the denominator of which shall be the number of shares of Common Stock (determined on a fully diluted basis) outstanding immediately after such issuance or sale.
No adjustment of the Conversion Price, however, shall be made in an amount less than $0.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $0.01 per share or more.
For purposes of this subparagraph 4D, the following paragraphs 4D(1) to 4D(6) shall also be applicable:
4D(1). ISSUANCE OF RIGHTS OR OPTIONS. In case at any time the Corporation shall in any manner grant (whether directly or indirectly, including by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any option or warrant for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "OPTIONS" and such convertible or exchangeable stock or securities being herein called "CONVERTIBLE SECURITIES" and, together with Options, the "COMMON STOCK EQUIVALENTS"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issued upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 4D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. If any Options or the conversion right of any Convertible Securities shall expire without having been exercised, the Conversion Price as adjusted upon the issuance of Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on the basis that the only additional shares of Common Stock so issued were the additional shares of Common Stock, if any, actually issued or sold on the exercise of such Options or rights of conversion of such Convertible Securities, and such additional shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such rights or Options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, PROVIDED that such readjustment shall not apply to prior conversions of Series A Preferred Stock.
4D(2). ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation shall in any manner issue (whether directly or indirectly, including by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 4D(3) below, no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 4D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.
4D(3). CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 4D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 4D(1) or 4D(2), or the rate at which any Convertible Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall change at any time (in each case other than under or by reason of provisions providing solely for protections of the holders of such Option or Convertible Securities against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in subparagraph 4D(1) or the rate at which any Convertible Securities referred to in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall be reduced at any time under or by reason of provisions with respect thereto providing solely for protection of the holders of such Option or Convertible Securities against dilution, then, in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Securities never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced.
4D(4). SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock or Convertible Securities into a greater number of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, Options or Convertible Securities the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.
4D(5). CONSIDERATION FOR STOCK. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto; such Options shall be deemed to have been issued without consideration.
4D(6). RECORD DATE. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
4D(7). DIVIDEND STOCK. If, at any time or from time to time
after the original issuance date of the Series A Preferred Stock, the
Corporation shall issue or distribute to the holders of shares, other
than Series A Preferred Shares, (the "DIVIDEND STOCK") evidences of its
indebtedness, any other securities of the Corporation or any cash,
property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of
Common Stock, referred to in Section 4D(4), any other event or
transaction which results in an adjustment of the Conversion Price
pursuant to this Section 4D, or dividends on Common Stock described in
Section 2C, and also excluding cash dividends or cash distributions
paid out of net profits legally available therefor in the full amount
thereof) (any such non-excluded event being herein called a "SPECIAL
DIVIDEND"), the Conversion Price shall be adjusted by multiplying the
Conversion Price then in effect by a fraction, the numerator of which
shall be the then Current Market Price per share of the Dividend Stock
in effect on the record date of such issuance or distribution less the
fair market value (as determined in good faith by the Board) of the
Special Dividend applicable to one share of Dividend Stock and the
denominator of which shall be the then Current Market Price Per Share
of the Dividend Stock in effect on the record date of such issuance or
distribution. An adjustment made pursuant to this Subsection 4D(7)
shall become effective immediately after the record date of any such
Special Dividend.
4E. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way (including, without
limitation, by way of consolidation or merger, but excluding a
consolidation, merger or sale which is treated as a liquidation with
respect to holders of Series A Preferred Stock for purposes of Section
3) that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock
then, as a condition of such reorganization or reclassification, lawful
and adequate provision shall be made whereby each holder of a share or
shares of Series A Preferred Stock shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of such share or
shares of the Series A Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to
the number of shares of such stock immediately theretofore so
receivable had such reorganization or reclassification not taken place
and in any such case appropriate provision shall be made with respect
to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of the Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any such consolidation or merger, or any sale of all or substantially all its assets and properties, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each holder of shares of Series A Preferred Stock at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive.
4F. NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion Price, then, and in each such case the Corporation shall give written notice thereof by first class mail, postage prepaid, addressed to each holder of shares of Series A Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
4G. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription PRO RATA to the holders of its Common Stock any additional shares of such stock of any class or other rights;
(3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with, or a sale of all or substantially all its assets to, another corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series A Preferred Stock at the address of such holder as shown on the books of the Corporation or its transfer agent, (a) at least 15 days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.
4H. MANDATORY CONVERSION. The Series A Preferred Stock shall automatically be converted into Common Stock at the then applicable Conversion Price upon the earlier of: (A) receipt of the written notice of holders of a majority of the then-outstanding shares of Series A Preferred Stock of their election to cause an automatic conversion pursuant to this subparagraph 4H, (B) the Corporation providing written notice to holders of Series A Preferred Stock certifying that the Current Market Price of the Common Stock for the last 30 consecutive Trading Days has exceeded 300% of the Initial Conversion Price (as adjusted proportionately for stock splits, stock dividends, recapitalizations and other similar events) at average daily trading volumes which have equaled or exceeded 50,000 shares per day on each such Trading Day and such notice is provided within 30 days of such occurrence, (C) upon closing of a transaction which values shares of the Series A Preferred Stock at or above 300% of the Initial Conversion Price (as adjusted proportionately for stock splits, stock dividends, recapitalizations and other similar events) and the consideration to be paid to the holders of Series A Preferred Stock is cash or securities of a class traded on nationally recognized stock exchange or the NASDAQ and the issuance thereof and resale thereof is registered under the Securities Act of 1933, as amended, or (D) concurrently with the closing of a public offering of Common Stock at a price at least equal to 300% of the Initial Conversion Price (as adjusted proportionately for stock splits, stock dividends, recapitalizations and other similar events) with proceeds to the Corporation of at least $20,000,000. Any such conversion shall be effected in accordance with the provisions of subparagraphs 4B and 4C hereof.
4I. STOCK TO BE RESERVED.
(1) The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock solely for the purpose of issuance upon the conversion of the Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Series A Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes) and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Conversion Price. The Corporation will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Conversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Series A Preferred Stock, would exceed the total number of shares of such class of Common Stock then authorized by the Corporation's Certificate of Incorporation.
(2) The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of satisfying the Corporation's obligations to issue PIK Shares as herein provided, such number of shares of Common Stock as is equal to ten times the number of shares of Series A Preferred Stock then outstanding. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes).
4J. NO REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued.
4K. ISSUE TAX. The issuance of certificates for shares of Common Stock as PIK Shares or upon conversion of the Series A Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax, transfer tax, duty or charge in respect thereof, provided that the Corporation shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Preferred Stock which is being converted.
4L. CLOSING OF BOOKS. The Corporation will at no time close its transfer books against the transfer of any Series A Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock in any manner which interferes with the timely conversion of such Series A Preferred Stock; PROVIDED, HOWEVER, nothing herein shall be construed to prevent the Corporation from setting record dates for the holders of its securities.
5. VOTING - SERIES A PREFERRED STOCK. For so long as any of the shares of Series A Preferred Stock issued by the Corporation remain outstanding, holders of the Series A Preferred Stock, voting as a separate class, shall have the right to elect one member of the Board (the "SERIES A DIRECTOR"). The initial Series A Director shall be designated by Indigo Securities LLC, as a representative of the holders of Series A Preferred Stock. In addition to any class voting rights provided by law and this Certificate of Designations, the holders of Series A Preferred Stock shall have the right to vote together with the holders of Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote (including the election of directors other than the Series A Director). With respect to the voting rights of the holders of the Series A Preferred Stock pursuant to the preceding sentence, each holder of Series A Preferred Stock shall be entitled to one vote for each share of Common Stock that would be issuable to such holder upon the conversion of all the shares of Series A Preferred Stock held by such holder on the record date for the determination of shareholders entitled to vote.
6. FURTHER RESTRICTIONS. For so long as 20% of the shares of Series A Preferred Stock issued by the Corporation remain outstanding, and in addition to any other voting rights of the Holders of Series A Preferred Stock required by law or by the Certificate of Incorporation, the prior consent of the holders of a majority of the then outstanding shares of Series A Preferred Stock, shall be required for the Corporation or any subsidiary of the Corporation to take any action (including by merger, consolidation or otherwise) that:
(i) in any manner alters or changes the designations, preferences, privileges or powers or relative, participating, optional or other special rights or qualifications, limitations or restrictions of the Series A Preferred Stock,
(ii) increases or decreases the authorized number of shares of Series A Preferred Stock,
(iii) constitutes the incurrence of indebtedness by the Corporation for borrowed money (other than indebtedness incurred in the ordinary course of the Corporation's business, consistent with past practice or borrowings from a financial institution with no equity component) which possesses senior repayment rights to the Series A Preferred Stock,
(iv) creates, designates, authorizes or issues (by reclassification or otherwise) any new class or series of securities (including any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of capital stock of the Corporation) having any rights, preferences or privileges senior or PARI PASSU with, the Series A Preferred Stock,
(v) results in the redemption of any shares of Common Stock (other than pursuant to equity incentive agreements with employees or service providers giving the Corporation the right to repurchase shares upon the termination of services and similar arrangements relating to employment or consulting services but only to the extent such redemptions do not exceed 600,000 shares of Common Stock in the aggregate),
(vi) amends, adds or repeals, any provision of, or add any provision to, the Corporation's Certificate of Incorporation, as amended, or Bylaws, as amended, if such action would alter or change this Section 7 or otherwise adversely alters or changes the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred Stock or otherwise adversely affects the holders of Series A Preferred Stock as a class,
(vii) results in a confession of judgment against the Corporation, or the settlement or compromise of any claim by or against the Corporation which could have a material adverse effect on the Corporation, or a filing for bankruptcy or receivership,
(viii) results in any material loans to, or any guaranty of any debt of, any insider, shareholder or other Person, other than in the ordinary course of business,
(ix) results in the consummation, material amendment or termination of any material contracts or other transactions with any shareholder, insider or affiliate, or
(x) results in the declaration or payment of dividends or distributions upon any capital stock of the Corporation, other than a dividend paid upon the Series A Preferred Stock or dividend paid pro rata to all holders of Common Stock in order to effect a stock split.
7. NO WAIVER. Except as otherwise modified or provided for herein, the holders of Series A Preferred Stock shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such holders under the applicable provisions of Delaware law.
8. NO IMPAIRMENT. The Corporation will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities on any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all time in good faith assist in the carrying out of all the provisions of Article Four and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series A Preferred Stock against impairment.
9. REPORTS. The Corporation shall mail to all holders of Series A Preferred Stock those reports, proxy statements and other materials that it mails to all of its holders of Common Stock.
IN WITNESS WHEREOF, this Certificate of Designations has been executed by the Corporation by its President as of this 6th day of October, 2004.
ELITE PHARMACEUTICALS, INC.
By: /s/ Bernard Berk
---------------------------------
Name: Bernard Berk
Title: President
|
SERIES "A" PREFERRED
ELITE PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
65,000,000 SHARES OF COMMON STOCK SEE REVERSE SIDE FOR PAR VALUE $0.01 PER SHARE CERTAIN DEFINITIONS AND 5,000,000 SHARES OF PREFERRED STOCK LEGENDS PAR VALUE $0.01 PER SHARE ELITE PHARMACEUTICALS, INC. |
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES "A" PREFERRED STOCK,
$0.01 PAR VALUE, OF
ELITE PHARMACEUTICALS, INC.
SECRETARY PRESIDENT JERSEY TRANSFER AND TRUST CO ___________ 201 BLOOMFIELD AVE. AUTHORIZED SIGNATURE VERONA, NJ 07044 TRANSFER AGENT |
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND RULES. NOTWITHSTANDING THE FOREGOING, THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF).
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS
EXHIBIT 4.6
THE SECURITIES REPRESENTED BY THIS WARRANT (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND RULES. NOTWITHSTANDING THE FOREGOING, THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF).
Date: October 6, 2004 STW-__
WARRANT TO PURCHASE OF [_______] SHARES OF
COMMON STOCK OF ELITE PHARMACEUTICALS, INC.
Exercise Price: $1.54 per share, subject to adjustment as provided below (the "Exercise Price")
THIS IS TO CERTIFY that, for value received, [___________________] and
its successors and assigns (collectively, the "Holder"), is entitled to
purchase, subject to the terms and conditions hereinafter set forth, up to
[_______] fully paid and nonassessable shares (the "Warrant Shares") of the
common stock, par value $0.01 per share ("Common Stock"), of Elite
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and to receive
certificates for the Common Stock so purchased. This Warrant to Purchase Common
Stock (including any Warrant(s) to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the "Warrant") has been issued pursuant to the
terms and conditions of the Subscription Agreement, dated as of October 6, 2004
by and between the Company and the initial holder hereof (the "Subscription
Agreement").
1. EXERCISE PERIOD. The Holder may purchase all or a portion of the
Warrant Shares pursuant to Section 2 at any time or times on or after the date
of issuance of this Warrant but not after 5:00 p.m., New York time on December
31, 2005 (the "Exercise Period"). This Warrant will terminate automatically and
immediately upon the earlier of (i) the expiration of the Exercise Period and
(ii) the failure of the Holder to exercise this Warrant within thirty (30) days
after receipt of a Mandatory Exercise Notice (as defined below) from the Company, as provided in Section 2(b) below.
2. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. (i) This Warrant may be exercised, in whole or in part, at any time and from time to time during the Exercise Period. Such exercise shall be accomplished by:
(x) (A) payment to the Company of an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") in cash, by wire transfer to an account designated by the Company or by certified check or bank cashier's check, payable to the order of the Company or (B) notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined below) pursuant to Section 2(d) below, and
(y) physical delivery of this Warrant with an original
executed Exercise Notice in substantially the form attached hereto as EXHIBIT A
(the "Exercise Notice") to the Company (the requirements referred to in clauses
(x) and (y) being referred to as the "Exercise Delivery Requirements").
(ii) Upon satisfaction of the Exercise Delivery Requirements,
the Company will (x) transmit to the Company's transfer agent (the "Transfer
Agent") instructions to issue the Warrant Shares in the amount set forth in the
Exercise Delivery Documents and a copy of the executed exercise notice in
substantially the form of Exhibit II attached to the letter agreement dated as
of October 6, 2004 among the Company and Jersey Transfer and Trust Company and
(y) as promptly as possible, but in no event more than three (3) business days
after satisfaction of the Exercise Delivery Requirements, (A) provided that the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (B) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate or certificates representing the
shares of Common Stock so purchased, registered in the Company's share register
in the name of the Holder or its transferee (as permitted under Section 3
below), for the number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise. With respect to any exercise of this Warrant, the
Holder will for all purposes be deemed to have become the holder of record of
the number of shares of Common Stock purchased hereunder on the date this
Warrant is delivered to the Company with a properly executed Exercise Notice and
payment of the Exercise Price (the "Exercise Date"), irrespective of the date of
delivery of the certificate evidencing such shares, except that, if the date of
such receipt is a date on which the stock transfer books of the Company are
closed, such Person will be deemed to have become the holder of such shares at
the close of business on the next succeeding date on which the stock transfer
books are open. Fractional shares of Common Stock will not be issued upon the
exercise of this Warrant. In lieu of any fractional shares that would have been
issued but for the immediately preceding sentence, but rather the number of
shares of Common Stock to be issued
shall be rounded up to the nearest whole number. In the event this Warrant is exercised in part, the Company shall issue a new Warrant to the Holder covering the aggregate number of shares of Common Stock as to which this Warrant remains exercisable for as soon as practicable and in no event later than five (5) business days after any exercise. The Company shall pay any and all taxes (other than income or withholding taxes) which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.
(b) MANDATORY EXERCISE. Notwithstanding anything set forth in
this Warrant, at any time during the Exercise Period that (x) the VWAP (as
defined in the Certificate of Designations, Preferences and Rights of Series A
Preferred Stock of the Company) of the Common Stock for any consecutive thirty
(30) day period equals or exceeds 300% of the then applicable Exercise Price,
(y) during such period the average trading volume of the Common Stock on any
nationally recognized stock exchange or quotation system equals or exceeds
50,000 shares per day and (z) the Company shall provide written notice (a
"Mandatory Exercise Notice") to the Holder of the occurrence of such events
within thirty (30) days of the conclusion of such thirty (30) day period, then
the Holder shall exercise, in full, the unexercised portion of this Warrant
within thirty (30) days of the receipt of such Mandatory Exercise Notice and, to
the extent this Warrant is not so exercised by the Holder within such thirty
(30) day period, this Warrant shall terminate automatically and immediately at
the end of such thirty (30) day period.
(c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. Subject to
Section 2 (f) and 2(g), if the Company or its transfer agent shall fail for any
reason or for no reason to issue to the Holder within five (5) business days of
satisfaction of the Exercise Delivery Requirements a certificate for the number
of shares of Common Stock to which the Holder is entitled and register such
shares of Common Stock on the Company's share register or to credit the Holder's
balance account with DTC for such number of shares of Common Stock to which the
Holder is entitled upon the Holder's exercise of this Warrant, then, in addition
to all other remedies available to the Holder, the Company shall pay in cash to
the Holder on each day after such fifth business day that the issuance of such
shares of Common Stock is not timely effected an amount equal to one percent
(1%) of the product of (A) the sum of the number of shares of Common Stock not
issued to the Holder on a timely basis and to which the Holder is entitled and
(B) the Closing Sale Price of the shares of Common Stock on the trading day
immediately preceding the last possible date which the Company could have issued
such shares of Common Stock to the Holder without violating Section 1(a). In
addition to the foregoing, if within five (5) trading days after the Company's
receipt of the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's exercise hereunder, and if on or after such trading
day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company shall, within five (5) business
days after the Holder's written request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including reasonable brokerage commissions, if any) for the shares of
Common Stock so purchased (the "Buy-In Price"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing
such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, multiplied by (B) the Closing Bid Price on the date of exercise.
(d) CASHLESS EXERCISE. The Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):
Net Number = (A X B) - (A X C)
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
B= the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the date immediately preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(e) DISPUTES. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 15.
(f) LIMITATIONS ON EXERCISE. The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise
this Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own in excess
of 9.99% of the shares of Common Stock outstanding immediately after giving
effect to such exercise. For purposes of the foregoing sentence, the aggregate
number of Common Stock beneficially owned by such Person and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Warrant, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (1) the Company's most recent Form 10-K or 10-Q and any other
Current Report on Form 8-K filed subsequent thereto with the
Securities and Exchange Commission, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
(g) FORCE MAJEURE. The Company shall not be liable for or
incur penalties for delays or nonperformance in compliance with the issuance or
delivery of the Warrant Shares upon the exercise of the Warrant, if such delay
or nonperformance was caused by: (i) act of God, act of war, strike, fire,
natural disaster, terrorism, quarantine or accident or (ii) lack of availability
of materials, fuel or utilities. Under such circumstances, the provisions of
Section 2(f) above shall (x) not apply to such delay or nonperformance but shall
apply once the event(s) that cause such delay or nonperformance terminates and
(y) shall apply to all subsequent exercises of the Warrant that are not affected
by such event(s).
3. TRANSFERABILITY AND EXCHANGE.
(a) TRANSFERABILITY. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant, registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) EXCHANGE. This Warrant is exchangeable upon its surrender by the registered Holder to the Company for new Warrants in form and substance representing in the aggregate the right to purchase the number of shares purchasable hereunder.
(c) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant representing the right to purchase the Warrant Shares then underlying this Warrant.
(d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant(s) being issued
pursuant to Section 3(a) or Section 3(b), the Warrant Shares designated by the
Holder which, when added to the number of shares of Common Stock underlying the
other new Warrants issued in connection with such issuance, does not exceed the
number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of
such new Warrant, which is the same as the issuance date hereunder and (iv) shall have the same rights and conditions as this Warrant.
(e) SECURITIES LAWS. This Warrant and the Warrant Shares issuable upon the exercise hereof may not be sold, transferred, pledged or hypothecated unless the Company shall have been provided with an opinion of counsel, or other evidence reasonably satisfactory to it, that such transfer is not in violation of the Securities Act, and any applicable state securities laws or, with respect to the Warrant Shares, a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.
4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES SUBJECT TO WARRANt. The Exercise Price and the number of shares of Common Stock purchasable upon the exercise of this Warrant are subject to adjustment from time to time upon the occurrence of any of the events specified in this Section 4.
(a) DIVIDENDS, ETC. In case the Company shall, with respect to
the holders of its Common Stock, (i) pay a Common Stock dividend or make a
distribution to its stockholders in shares of Common Stock or other securities,
(ii) split or subdivide its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, then the Exercise Price in effect at the time of the
record date for such dividend or on the effective date of such split,
subdivision or combination, and/or the number and kind of securities issuable on
such date, shall be proportionately adjusted so that the Holder of any Warrant
thereafter exercised shall be entitled to receive the aggregate number and kind
of shares of Common Stock (or such other securities other than Common Stock, as
the case may be) of the Company, at the same aggregate Exercise Price, that, if
such Warrant had been exercised immediately prior to such date, the Holder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, distribution, split, subdivision or combination. Such adjustment shall
be made successively whenever any event listed above shall occur.
(b) MERGER, ETC. If at any time after the date hereof there shall be a merger or consolidation of the Company with or into or a transfer of all or substantially all of the assets of the Company to another entity, then the Holder shall be entitled to receive upon or after such transfer, merger or consolidation becoming effective, and upon payment of the Exercise Price then in effect, the number of shares or other securities or property of the Company or of the successor corporation resulting from such merger or consolidation, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant been exercised just prior to such transfer, merger or consolidation becoming effective or to the applicable record date thereof, as the case may be. The Company will not merge or consolidate with or into any other corporation, or sell or otherwise transfer its property, assets and business substantially as an entirety to another corporation, unless the corporation resulting from such merger or consolidation (if not the Company), or such transferee corporation, as the case may be, shall expressly assume in writing the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company.
(c) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be a reorganization or reclassification of the securities as to which purchase rights under this Warrant
exist into the same or a different number of securities of any other class or classes, then the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares or other securities or property resulting from such reorganization or reclassification, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant at such time been exercised.
(d) WEIGHTED AVERAGE ADJUSTMENT. If at any time after the date
hereof, the Company shall issue shares of Common Stock or rights, options,
warrants or other securities to subscribe for or purchase Common Stock, or
securities convertible or exercisable into or exchangeable for Common Stock
("Common Stock Equivalents") (excluding shares, rights, options, warrants, or
convertible or exchangeable securities, issued or issuable (i) in any of the
transactions with respect to which an adjustment of the Exercise Price is
provided pursuant to Sections 4(a)-(c) above, (ii) upon exercise of the Warrants
or any other Common Stock Equivalents outstanding as of the date hereof, (iii)
upon conversion of the Series A Preferred Stock, par value $0.01 per share, of
the Company, (iv) pursuant to the exercise of any stock options or warrants
currently outstanding or options or warrants issued after the date hereof
pursuant to any Corporation benefit plan, stock option plan, stock bonus plan or
other equity program approved by the Board, but only to the extent, that such
shares of Common Stock issued or issuable pursuant to such stock option plans,
stock bonus plans or stock incentive plans does not exceed ten percent (10%) of
the then outstanding Common Stock on a fully diluted basis, (v) as consideration
in any merger, consolidation, acquisition of a majority of the voting equity of
any entity, acquisition of any discrete business unit of any entity or
acquisition of assets (in each case, whether directly with, by, or into the
Company or a direct or indirect subsidiary of the Company) or (vi) with respect
to any issuance or transaction as to which holders of a 66-2/3% of the then
outstanding shares of the Company's Series A Preferred Stock, par value $0.01
per share, have provided prior written consent), at a price per share lower than
80% of the Exercise Price per share of Common Stock in effect immediately prior
to such issuance, then the Exercise Price shall be reduced on the date of such
issuance to a price (calculated to the nearest cent) determined by multiplying
the Exercise Price in effect immediately prior to such issuance by a fraction,
(1) the numerator of which shall be an amount equal to the sum of (A) the number
of shares of Common Stock on a fully diluted basis (assuming conversion,
exchange or exercise of all Common Stock Equivalents) immediately prior to such
issuance plus (B) the quotient obtained by dividing the consideration received
by the Company upon such issuance by the Exercise Price, and (2) the denominator
of which shall be the total number of shares of Common Stock on a fully diluted
basis (assuming conversion, exchange or exercise of all Common Stock
Equivalents) immediately after such issuance. For the purposes of such
adjustments, the maximum number of shares which the holders of any such Common
Stock Equivalents shall be entitled to subscribe for or purchase or convert or
exchange such securities into shall be deemed to be issued and outstanding as of
the date of such issuance (whether or not such Common Stock Equivalent is then
exercisable, convertible or exchangeable), and the consideration received by the
Company therefor shall be deemed to be the consideration received by the Company
for such Common Stock Equivalents, plus the minimum aggregate consideration or
premiums stated in such Common Stock Equivalents, to be paid for the shares
covered thereby. No further adjustment of the Exercise Price shall be made as a
result of the actual issuance of shares of Common Stock on exercise of such
Common Stock Equivalents. On the expiration or the termination of such Common
Stock Equivalents, or the termination of such right to convert or
exchange, the Exercise Price shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised) to such Exercise Price as would have obtained had the adjustments made upon the issuance of such Common Stock Equivalents, been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon the exercise of such Common Stock Equivalents; and on any change of the number of shares of Common Stock deliverable upon the exercise of any such Common Stock Equivalents, or any change in the consideration to be received by the Company upon such exercise, conversion, or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Exercise Price, as then in effect, shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised or converted after such change) to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such Common Stock Equivalents not exercised prior to such change, or securities not converted or exchanged prior to such change, on the basis of such change. In case the Company shall issue shares of Common Stock or any such Common Stock Equivalents, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then the "price per share" and the "consideration received by the Company" for purposes of the first sentence of this Section 4(d) shall be as determined in good faith by the Board of Directors of the Company. Shares of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation. In the event of any adjustment in the Exercise Price pursuant to this Section 4(d), the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased as the case may be, such that aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same.
(e) ADJUSTMENTS LESS THAN ONE PERCENT. Notwithstanding any provision herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price; provided, however, that any adjustments which by reason of this Section 4(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or the nearest one-hundredth of a share, as the case may be.
(f) OTHER CAPITAL STOCK. In the event that at any time, as a result of an adjustment made pursuant to Section 4(a) or (b) above, the Holder of this Warrant, when thereafter exercised, shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 4, and the other provisions of this Warrant shall apply on like terms to any such other shares.
(g) OTHER PROTECTION. In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Company shall effect such adjustment, on a basis consistent with the essential intent and principles established in this Section
4, as may be necessary to preserve, without dilution, the purchase rights represented by this Warrant.
5. REGISTRATION RIGHTS. The Holder shall be entitled to the benefits of the Registration Rights Agreement the form of which is attached hereto as EXHIBIT C.
6. RESERVATION OF SHARES. The Company agrees at all times to reserve and hold available out of its authorized but unissued shares of Common Stock the number of shares of Common Stock issuable upon the full exercise of this Warrant. The Company further covenants and agrees that all shares of Common Stock that are delivered upon the exercise of this Warrant will, upon delivery, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the purchase thereof hereunder.
7. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price (or number of shares of Common Stock purchasable upon the exercise of this Warrant) pursuant to Section 4, the Company shall promptly thereafter, but in no event later than ten (10) days after the event causing the adjustment has occurred, cause to be given to the Holder written notice of such adjustment. Such notice shall include the Exercise Price (and/or the number of shares of Common Stock purchasable upon the exercise of this Warrant) after such adjustment, and shall set forth in reasonable detail the Company's method of calculation and the facts upon which such calculations were based. Where appropriate, such notice shall be given in advance and included as a part of any notice required to be given under the other provisions of this Section 7.
In the event of (a) any fixing by the Company of a record date with respect to the holders of any class of securities of the Company for the purpose of determining which of such holders are entitled to dividends or other distributions, or any rights to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities or property, or to receive any other right or to give effect to any split, (b) any capital reorganization of the Company, or reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets or business of the Company to, or consolidation or merger of the Company with or into, any other Person, or (c) any voluntary or involuntary dissolution or winding up of the Company, then and in each such event the Company will give the Holder a written notice specifying, as the case may be (i) the record date for such split, dividend, distribution, or right, and stating the amount and character of such split, dividend, distribution, or right; or (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, conveyance, dissolution, liquidation, or winding up is to take place and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such capital stock or securities receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock securities) for securities or other property deliverable upon such event. Any such notice shall be given at least 10 days prior to the earliest date therein specified.
8. NO RIGHTS AS A STOCKHOLDER. This Warrant does not entitle the Holder to any voting rights, distribution rights, dividend rights or other rights as a stockholder of the Company, nor to any other rights whatsoever except the rights herein set forth.
9. ADDITIONAL COVENANTS OF THE COMPANY. The Company shall, upon issuance of any shares for which this Warrant is exercisable, at its expense, promptly obtain and maintain the listing of such shares.
The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act for so long as and to the extent that such requirements apply to the Company.
The Company shall not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
not increase the par value of any shares of capital stock receivable upon
exercise of this Warrant above the amount payable therefor upon such exercise,
(b) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable stock,
and (c) the Company shall not, by amendment of its Certificate of Incorporation
or Bylaws or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issuance, or sale of securities or any other voluntary
action, avoid, circumvent, or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Warrant and in taking all such action as may be necessary or appropriate to
protect Holder's rights under this Warrant against impairment.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and permitted assigns.
11. NOTICES. The Company agrees to maintain a ledger of the ownership of this Warrant (the "Ledger"). Any notice hereunder shall be given by registered or certified mail if to the Company, at its principal executive office and, if to the Holder, to its address shown in the Ledger of the Company; provided, however, that the Holder may at any time on three (3) business days written notice to the Company designate or substitute one other address where notice is to be given. Notice shall be deemed given and received when a certified or registered letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
12. SEVERABILITY. Every provision of this Warrant is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Warrant.
13. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of choice of laws thereof.
14. ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Warrant, the prevailing party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy.
15. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one (1) business day of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within two (2) business days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) business days thereafter submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder (such approval not to be unreasonably withheld, delayed or conditioned) or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. The fees of such investment bank or independent accountant shall be borne one half by the Company and one half by the Holder.
16. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the Subscription Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
17. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders; provided that no such action may increase the exercise price of this Warrant or decrease the number of shares or class of stock obtainable upon exercise of this Warrant without the written consent of the Holder. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Series A Warrants then outstanding.
18. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by Sections 2.1(c) and (d) of the Subscription Agreement.
19. ENTIRE AGREEMENT. This Warrant (including the Exhibits attached hereto) constitutes the entire understanding between the Company and the Holder with respect to the subject matter hereof, and supersedes all prior negotiations, discussions, agreements and understandings relating to such subject matter.
20. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) "Bloomberg" means Bloomberg Financial Markets.
(b) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the American Stock Exchange, as reported by Bloomberg, or, if the American Stock Exchange begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the American Stock Exchange is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 15.
(c) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(c) "Registration Rights Agreement" means that certain registration rights agreement by and among the Company and the Investors, as in effect from time to time.
(d) "Required Holders" means the holders of the Series A Warrants representing at least a 66-2/3% of shares of Common Stock underlying the Series A Warrants then outstanding.
(e) "Series A Warrants" means this Warrant and all other warrants issued by the Company pursuant to those certain Subscription Agreements dated as of October 6, 2004 between the Company and the "Investors" named therein.
[remainder of the page intentionally left blank.]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
Elite Pharmaceuticals, Inc.
Bernard Berk, Chief Executive Officer
Confirmed and Agreed to:
INDIVIDUAL INVESTOR:
NON-INDIVIDUAL INVESTOR:
By: ________________________________
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
ELITE PHARMACEUTICALS, INC.
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("WARRANT SHARES") of Elite Pharmaceuticals, a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Registered Holder intends that payment of the Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to ________________
Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to ____________
Warrant Shares.
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2. PAYMENT OF EXERCISE PRICE. In the event that the Registered Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to the Registered Holder __________ Warrant Shares in accordance with the terms of the Warrant.
The Registered Holder understands that because the Common Stock has not been registered under the Securities Act, the Registered Holder must hold such Common Stock indefinitely unless the Common Stock is subsequently registered and qualified under the Securities Act or is exempt from such registration and qualification. The Registered Holder shall not make any transfer or disposition of the Common Stock unless (a) in the opinion of counsel reasonably satisfactory to the Company such transfer or disposition can be made without registration under the Securities Act by reason of a specific exemption from such registration and such qualification or (b) a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.
Date:________________ __, _________
By: _____________________
Title (if applicable):
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.)
For Value Received the foregoing Warrant and all rights evidenced thereby are hereby assigned to __________________________ whose address is ___________________________________________, ________________________________
Dated: ______________________, __________
Holder's Signature:_____________________________
Holder's Address:______________________________
EXHIBIT 4.7
THE SECURITIES REPRESENTED BY THIS WARRANT (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND RULES. NOTWITHSTANDING THE FOREGOING, THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF).
Date: October 6, 2004 LTW-__
WARRANT TO PURCHASE OF [_______] SHARES OF
COMMON STOCK OF ELITE PHARMACEUTICALS, INC.
Exercise Price: $1.54 per share, subject to adjustment as provided below (the "Exercise Price")
THIS IS TO CERTIFY that, for value received, [___________________] and
its successors and assigns (collectively, the "Holder"), is entitled to
purchase, subject to the terms and conditions hereinafter set forth, up to
[_______] fully paid and nonassessable shares (the "Warrant Shares") of the
common stock, par value $0.01 per share ("Common Stock"), of Elite
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and to receive
certificates for the Common Stock so purchased. This Warrant to Purchase Common
Stock (including any Warrant(s) to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the "Warrant") has been issued pursuant to the
terms and conditions of the Subscription Agreement, dated as of October 6, 2004
by and between the Company and the initial holder hereof (the "Subscription
Agreement").
1. EXERCISE PERIOD. The Holder may purchase all or a portion of the Warrant Shares pursuant to Section 2 at any time or times on or after the date of issuance of this Warrant but not after 5:00 p.m., New York time on the earlier of (i) the fifth (5) anniversary of the date upon which a registration statement covering the shares of Common Stock issuable upon exercise of this Warrant shall have been declared or ordered effective by the Securities and Exchange
Commission and (ii) October 6, 2010 (the "Exercise Period"). This Warrant will terminate automatically and immediately upon the earlier of (i) the expiration of the Exercise Period and (ii) the failure of the Holder to exercise this Warrant within thirty (30) days after receipt of a Mandatory Exercise Notice (as defined below) from the Company, as provided in Section 2(b) below.
2. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. (i) This Warrant may be exercised, in whole or in part, at any time and from time to time during the Exercise Period. Such exercise shall be accomplished by:
(x) (A) payment to the Company of an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") in cash, by wire transfer to an account designated by the Company or by certified check or bank cashier's check, payable to the order of the Company or (B) notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined below) pursuant to Section 2(d) below, and
(y) physical delivery of this Warrant with an original
executed Exercise Notice in substantially the form attached hereto as EXHIBIT A
(the "Exercise Notice") to the Company (the requirements referred to in clauses
(x) and (y) being referred to as the "Exercise Delivery Requirements").
(ii) Upon satisfaction of the Exercise Delivery Requirements,
the Company will (x) transmit to the Company's transfer agent (the "Transfer
Agent") instructions to issue the Warrant Shares in the amount set forth in the
Exercise Delivery Documents and a copy of the executed exercise notice in
substantially the form of Exhibit II attached to the letter agreement dated as
of October 6, 2004 among the Company and Jersey Transfer and Trust Company and
(y) as promptly as possible, but in no event more than three (3) business days
after satisfaction of the Exercise Delivery Requirements, (A) provided that the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (B) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate or certificates representing the
shares of Common Stock so purchased, registered in the Company's share register
in the name of the Holder or its transferee (as permitted under Section 3
below), for the number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise. With respect to any exercise of this Warrant, the
Holder will for all purposes be deemed to have become the holder of record of
the number of shares of Common Stock purchased hereunder on the date this
Warrant is delivered to the Company with a properly executed Exercise Notice and
payment of the Exercise Price (the "Exercise Date"), irrespective of the date of
delivery of the certificate evidencing such shares, except that, if the date of
such receipt is a date on which the stock transfer books of the Company are
closed, such Person will be deemed to have become the holder of such shares at
the close of business on the next succeeding date on which the stock
transfer books are open. Fractional shares of Common Stock will not be issued upon the exercise of this Warrant. In lieu of any fractional shares that would have been issued but for the immediately preceding sentence, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. In the event this Warrant is exercised in part, the Company shall issue a new Warrant to the Holder covering the aggregate number of shares of Common Stock as to which this Warrant remains exercisable for as soon as practicable and in no event later than five (5) business days after any exercise. The Company shall pay any and all taxes (other than income or withholding taxes) which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.
(b) MANDATORY EXERCISE. Notwithstanding anything set forth in
this Warrant, at any time during the Exercise Period that (x) the VWAP (as
defined in the Certificate of Designations, Preferences and Rights of Series A
Preferred Stock of the Company) of the Common Stock for any consecutive thirty
(30) day period equals or exceeds 300% of the then applicable Exercise Price,
(y) during such period the average trading volume of the Common Stock on any
nationally recognized stock exchange or quotation system equals or exceeds
50,000 shares per day and (z) the Company shall provide written notice (a
"Mandatory Exercise Notice") to the Holder of the occurrence of such events
within thirty (30) days of the conclusion of such thirty (30) day period, then
the Holder shall exercise, in full, the unexercised portion of this Warrant
within thirty (30) days of the receipt of such Mandatory Exercise Notice and, to
the extent this Warrant is not so exercised by the Holder within such thirty
(30) day period, this Warrant shall terminate automatically and immediately at
the end of such thirty (30) day period.
(c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. Subject to
Section 2 (f) and 2(g), if the Company or its transfer agent shall fail for any
reason or for no reason to issue to the Holder within five (5) business days of
satisfaction of the Exercise Delivery Requirements a certificate for the number
of shares of Common Stock to which the Holder is entitled and register such
shares of Common Stock on the Company's share register or to credit the Holder's
balance account with DTC for such number of shares of Common Stock to which the
Holder is entitled upon the Holder's exercise of this Warrant, then, in addition
to all other remedies available to the Holder, the Company shall pay in cash to
the Holder on each day after such fifth business day that the issuance of such
shares of Common Stock is not timely effected an amount equal to one percent
(1%) of the product of (A) the sum of the number of shares of Common Stock not
issued to the Holder on a timely basis and to which the Holder is entitled and
(B) the Closing Sale Price of the shares of Common Stock on the trading day
immediately preceding the last possible date which the Company could have issued
such shares of Common Stock to the Holder without violating Section 1(a). In
addition to the foregoing, if within five (5) trading days after the Company's
receipt of the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's exercise hereunder, and if on or after such trading
day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company shall, within five (5) business
days after the Holder's written request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including reasonable brokerage commissions, if any) for the shares
of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, multiplied by (B) the Closing Bid Price on the date of exercise.
(d) CASHLESS EXERCISE. The Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "Cashless Exercise"):
Net Number = (A X B) - (A X C)
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
B= the Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on the date immediately preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(e) DISPUTES. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 15.
(f) LIMITATIONS ON EXERCISE. The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise
this Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own in excess
of 9.99% of the shares of Common Stock outstanding immediately after giving
effect to such exercise. For purposes of the foregoing sentence, the aggregate
number of Common Stock beneficially owned by such Person and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Warrant, in
determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-K or 10-Q and any other Current Report on Form 8-K filed subsequent thereto with the Securities and Exchange Commission, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) business day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
(g) FORCE MAJEURE. The Company shall not be liable for or incur penalties for delays or nonperformance in compliance with the issuance or delivery of the Warrant Shares upon the exercise of the Warrant, if such delay or nonperformance was caused by: (i) act of God, act of war, strike, fire, natural disaster, terrorism, quarantine or accident; or (ii) lack of availability of materials, fuel or utilities. Under such circumstances, the provisions of Section 2(f) above shall (x) not apply to such delay or nonperformance but shall apply once the event(s) that cause such delay or nonperformance terminates and (y) shall apply to all subsequent exercises of the Warrant that are not affected by such event(s).
3. TRANSFERABILITY AND EXCHANGE.
(a) TRANSFERABILITY. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant, registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) EXCHANGE. This Warrant is exchangeable upon its surrender by the registered Holder to the Company for new Warrants in form and substance representing in the aggregate the right to purchase the number of shares purchasable hereunder.
(c) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant representing the right to purchase the Warrant Shares then underlying this Warrant.
(d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant(s) being issued
pursuant to Section 3(a) or Section 3(b), the Warrant Shares designated by the
Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant, which is the same as the issuance date hereunder and (iv) shall have the same rights and conditions as this Warrant.
(e) SECURITIES LAWS. This Warrant and the Warrant Shares issuable upon the exercise hereof may not be sold, transferred, pledged or hypothecated unless the Company shall have been provided with an opinion of counsel, or other evidence reasonably satisfactory to it, that such transfer is not in violation of the Securities Act, and any applicable state securities laws or, with respect to the Warrant Shares, a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition..
4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES SUBJECT TO WARRANT. The Exercise Price and the number of shares of Common Stock purchasable upon the exercise of this Warrant are subject to adjustment from time to time upon the occurrence of any of the events specified in this Section 4.
(a) DIVIDENDS, ETC. In case the Company shall, with respect to
the holders of its Common Stock, (i) pay a Common Stock dividend or make a
distribution to its stockholders in shares of Common Stock or other securities,
(ii) split or subdivide its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, then the Exercise Price in effect at the time of the
record date for such dividend or on the effective date of such split,
subdivision or combination, and/or the number and kind of securities issuable on
such date, shall be proportionately adjusted so that the Holder of any Warrant
thereafter exercised shall be entitled to receive the aggregate number and kind
of shares of Common Stock (or such other securities other than Common Stock, as
the case may be) of the Company, at the same aggregate Exercise Price, that, if
such Warrant had been exercised immediately prior to such date, the Holder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, distribution, split, subdivision or combination. Such adjustment shall
be made successively whenever any event listed above shall occur.
(b) MERGER, ETC. If at any time after the date hereof there shall be a merger or consolidation of the Company with or into or a transfer of all or substantially all of the assets of the Company to another entity, then the Holder shall be entitled to receive upon or after such transfer, merger or consolidation becoming effective, and upon payment of the Exercise Price then in effect, the number of shares or other securities or property of the Company or of the successor corporation resulting from such merger or consolidation, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant been exercised just prior to such transfer, merger or consolidation becoming effective or to the applicable record date thereof, as the case may be. The Company will not merge or consolidate with or into any other corporation, or sell or otherwise transfer its property, assets and business substantially as an entirety to another corporation, unless the corporation resulting from such merger or consolidation (if not the Company), or such transferee corporation, as the case may be, shall expressly assume in writing the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company.
(c) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be a reorganization or reclassification of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, then the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares or other securities or property resulting from such reorganization or reclassification, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant at such time been exercised.
(d) WEIGHTED AVERAGE ADJUSTMENT. If at any time after the date
hereof, the Company shall issue shares of Common Stock or rights, options,
warrants or other securities to subscribe for or purchase Common Stock, or
securities convertible or exercisable into or exchangeable for Common Stock
("Common Stock Equivalents") (excluding shares, rights, options, warrants, or
convertible or exchangeable securities, issued or issuable (i) in any of the
transactions with respect to which an adjustment of the Exercise Price is
provided pursuant to Sections 4(a)-(c) above, (ii) upon exercise of the Warrants
or any other Common Stock Equivalents outstanding as of the date hereof, (iii)
upon conversion of the Series A Preferred Stock, par value $0.01 per share, of
the Company, (iv) pursuant to the exercise of any stock options or warrants
currently outstanding or options or warrants issued after the date hereof
pursuant to any Corporation benefit plan, stock option plan, stock bonus plan or
other equity program approved by the Board, but only to the extent, that such
shares of Common Stock issued or issuable pursuant to such stock option plans,
stock bonus plans or stock incentive plans does not exceed ten percent (10%) of
the then outstanding Common Stock on a fully diluted basis, (v) as consideration
in any merger, consolidation, acquisition of a majority of the voting equity of
any entity, acquisition of any discrete business unit of any entity or
acquisition of assets (in each case, whether directly with, by, or into the
Company or a direct or indirect subsidiary of the Company) or (vi) with respect
to any issuance or transaction as to which holders of a 66-2/3% of the then
outstanding shares of the Company's Series A Preferred Stock, par value $0.01
per share, have provided prior written consent), at a price per share lower than
80% of the Exercise Price per share of Common Stock in effect immediately prior
to such issuance, then the Exercise Price shall be reduced on the date of such
issuance to a price (calculated to the nearest cent) determined by multiplying
the Exercise Price in effect immediately prior to such issuance by a fraction,
(1) the numerator of which shall be an amount equal to the sum of (A) the number
of shares of Common Stock on a fully diluted basis (assuming conversion,
exchange or exercise of all Common Stock Equivalents) immediately prior to such
issuance plus (B) the quotient obtained by dividing the consideration received
by the Company upon such issuance by the Exercise Price, and (2) the denominator
of which shall be the total number of shares of Common Stock on a fully diluted
basis (assuming conversion, exchange or exercise of all Common Stock
Equivalents) immediately after such issuance. For the purposes of such
adjustments, the maximum number of shares which the holders of any such Common
Stock Equivalents shall be entitled to subscribe for or purchase or convert or
exchange such securities into shall be deemed to be issued and outstanding as of
the date of such issuance (whether or not such Common Stock Equivalent is then
exercisable, convertible or exchangeable), and the consideration received by the
Company therefor shall be deemed to be the consideration received by the Company
for such Common Stock Equivalents, plus the minimum aggregate consideration or
premiums stated in such Common Stock Equivalents, to be paid for the shares
covered thereby. No further adjustment of the Exercise Price shall be made as a
result of the actual issuance of shares of
Common Stock on exercise of such Common Stock Equivalents. On the expiration or the termination of such Common Stock Equivalents, or the termination of such right to convert or exchange, the Exercise Price shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised) to such Exercise Price as would have obtained had the adjustments made upon the issuance of such Common Stock Equivalents, been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon the exercise of such Common Stock Equivalents; and on any change of the number of shares of Common Stock deliverable upon the exercise of any such Common Stock Equivalents, or any change in the consideration to be received by the Company upon such exercise, conversion, or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Exercise Price, as then in effect, shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised or converted after such change) to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such Common Stock Equivalents not exercised prior to such change, or securities not converted or exchanged prior to such change, on the basis of such change. In case the Company shall issue shares of Common Stock or any such Common Stock Equivalents, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then the "price per share" and the "consideration received by the Company" for purposes of the first sentence of this Section 4(d) shall be as determined in good faith by the Board of Directors of the Company. Shares of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation. In the event of any adjustment in the Exercise Price pursuant to this Section 4(d), the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased as the case may be, such that aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same.
(e) ADJUSTMENTS LESS THAN ONE PERCENT. Notwithstanding any provision herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price; provided, however, that any adjustments which by reason of this Section 4(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or the nearest one-hundredth of a share, as the case may be.
(f) OTHER CAPITAL STOCK. In the event that at any time, as a result of an adjustment made pursuant to Section 4(a) or (b) above, the Holder of this Warrant, when thereafter exercised, shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 4, and the other provisions of this Warrant shall apply on like terms to any such other shares.
(g) OTHER PROTECTION. In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Company shall effect such
adjustment, on a basis consistent with the essential intent and principles established in this Section 4, as may be necessary to preserve, without dilution, the purchase rights represented by this Warrant.
5. REGISTRATION RIGHTS. The Holder shall be entitled to the benefits of the Registration Rights Agreement the form of which is attached hereto as EXHIBIT C.
6. RESERVATION OF SHARES. The Company agrees at all times to reserve and hold available out of its authorized but unissued shares of Common Stock the number of shares of Common Stock issuable upon the full exercise of this Warrant. The Company further covenants and agrees that all shares of Common Stock that are delivered upon the exercise of this Warrant will, upon delivery, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the purchase thereof hereunder.
7. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price (or number of shares of Common Stock purchasable upon the exercise of this Warrant) pursuant to Section 4, the Company shall promptly thereafter, but in no event later than ten (10) days after the event causing the adjustment has occurred, cause to be given to the Holder written notice of such adjustment. Such notice shall include the Exercise Price (and/or the number of shares of Common Stock purchasable upon the exercise of this Warrant) after such adjustment, and shall set forth in reasonable detail the Company's method of calculation and the facts upon which such calculations were based. Where appropriate, such notice shall be given in advance and included as a part of any notice required to be given under the other provisions of this Section 7.
In the event of (a) any fixing by the Company of a record date with respect to the holders of any class of securities of the Company for the purpose of determining which of such holders are entitled to dividends or other distributions, or any rights to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities or property, or to receive any other right or to give effect to any split, (b) any capital reorganization of the Company, or reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets or business of the Company to, or consolidation or merger of the Company with or into, any other Person, or (c) any voluntary or involuntary dissolution or winding up of the Company, then and in each such event the Company will give the Holder a written notice specifying, as the case may be (i) the record date for such split, dividend, distribution, or right, and stating the amount and character of such split, dividend, distribution, or right; or (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, conveyance, dissolution, liquidation, or winding up is to take place and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such capital stock or securities receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock securities) for securities or other property deliverable upon such event. Any such notice shall be given at least 10 days prior to the earliest date therein specified.
8. NO RIGHTS AS A STOCKHOLDER. This Warrant does not entitle the Holder to any voting rights, distribution rights, dividend rights or other rights as a stockholder of the Company, nor to any other rights whatsoever except the rights herein set forth.
9. ADDITIONAL COVENANTS OF THE COMPANY. The Company shall, upon issuance of any shares for which this Warrant is exercisable, at its expense, promptly obtain and maintain the listing of such shares.
The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act for so long as and to the extent that such requirements apply to the Company.
The Company shall not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
not increase the par value of any shares of capital stock receivable upon
exercise of this Warrant above the amount payable therefor upon such exercise,
(b) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable stock,
and (c) the Company shall not, by amendment of its Certificate of Incorporation
or Bylaws or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issuance, or sale of securities or any other voluntary
action, avoid, circumvent, or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Warrant and in taking all such action as may be necessary or appropriate to
protect Holder's rights under this Warrant against impairment.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and permitted assigns.
11. NOTICES. The Company agrees to maintain a ledger of the ownership of this Warrant (the "Ledger"). Any notice hereunder shall be given by registered or certified mail if to the Company, at its principal executive office and, if to the Holder, to its address shown in the Ledger of the Company; provided, however, that the Holder may at any time on three (3) business days written notice to the Company designate or substitute one other address where notice is to be given. Notice shall be deemed given and received when a certified or registered letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
12. SEVERABILITY. Every provision of this Warrant is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Warrant.
13. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of choice of laws thereof.
14. ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Warrant, the prevailing party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy.
15. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one (1) business day of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within two (2) business days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) business days thereafter submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder (such approval not to be unreasonably withheld, delayed or conditioned) or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) business days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. The fees of such investment bank or independent accountant shall be borne one half by the Company and one half by the Holder.
16. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the Subscription Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
17. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders; provided that no such action may increase the exercise price of this Warrant or decrease the number of shares or class of stock obtainable upon exercise of this Warrant without the written consent of the Holder. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Series A Warrants then outstanding.
18. TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by Sections 2.1(c) and (d) of the Subscription Agreement.
19. ENTIRE AGREEMENT. This Warrant (including the Exhibits attached hereto) constitutes the entire understanding between the Company and the Holder with respect to the subject matter hereof, and supersedes all prior negotiations, discussions, agreements and understandings relating to such subject matter.
20. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) "Bloomberg" means Bloomberg Financial Markets.
(b) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the American Stock Exchange, as reported by Bloomberg, or, if the American Stock Exchange begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the American Stock Exchange is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 15.
(c) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(c) "Registration Rights Agreement" means that certain registration rights agreement by and among the Company and the Investors, as in effect from time to time.
(d) "Required Holders" means the holders of the Series A Warrants representing at least a 66-2/3% of shares of Common Stock underlying the Series A Warrants then outstanding.
(e) "Series A Warrants" means this Warrant and all other warrants issued by the Company pursuant to those certain Subscription Agreements dated as of October 6, 2004 between the Company and the "Investors" named therein.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
Elite Pharmaceuticals, Inc.
Bernard Berk, Chief Executive Officer
Confirmed and Agreed to:
INDIVIDUAL INVESTOR:
NON-INDIVIDUAL INVESTOR:
By: ________________________________
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
ELITE PHARMACEUTICALS, INC.
The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("WARRANT SHARES") of Elite Pharmaceuticals, a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. FORM OF EXERCISE PRICE. The Registered Holder intends that payment of the Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to _______________
Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to ___________
Warrant Shares.
|
2. PAYMENT OF EXERCISE PRICE. In the event that the Registered Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.
3. DELIVERY OF WARRANT SHARES. The Company shall deliver to the Registered Holder __________ Warrant Shares in accordance with the terms of the Warrant.
The Registered Holder understands that because the Common Stock has not been registered under the Securities Act, the Registered Holder must hold such Common Stock indefinitely unless the Common Stock is subsequently registered and qualified under the Securities Act or is exempt from such registration and qualification. The Registered Holder shall not make any transfer or disposition of the Common Stock unless (a) in the opinion of counsel reasonably satisfactory to the Company such transfer or disposition can be made without registration under the Securities Act by reason of a specific exemption from such registration and such qualification or (b) a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.
Date:________________ __, _________
By: ______________________________
Title (if applicable):
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.)
For Value Received the foregoing Warrant and all rights evidenced thereby are hereby assigned to __________________________ whose address is ___________________________________________, ___________________________________
Dated: ______________________, __________
Holder's Signature:_____________________________
Holder's Address:______________________________
EX-4.8
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES), SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS IS NOT REQUIRED.
WARRANT FOR THE PURCHASE OF _______ SHARES OF
COMMON STOCK OF ELITE PHARMACEUTICALS, INC.
Exercise Price: $1.23 per share, subject to adjustment as provided below (the "Exercise Price")
THIS IS TO CERTIFY that, for value received, ___________________ and its successors and assigns (collectively, the "Holder"), is entitled to purchase, subject to the terms and conditions hereinafter set forth, up to _______ shares (the "Warrant Shares") of the common stock ("Common Stock"), of Elite Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and to receive certificates for the Common Stock so purchased.
1. EXERCISE PERIOD. The period (the "Exercise Period") in which to purchase shares of Common Stock is the period beginning on the earlier of (i) the effectiveness of a registration statement covering shares of the Common Stock issued upon conversion of the Series A Preferred Stock, par value $0.01 per share, of the Company, sold by the Company in a private placement pursuant to the Placement Agent Agreement dated August 12, 2004, and (ii) October __, 2005; and end at 5:00 p.m., New York time on the earlier of (x) the fifth anniversary of the effectiveness of such registration statement and (y) October __, 2010. This Warrant will terminate automatically and immediately upon the expiration of the Exercise Period.
2. EXERCISE OF WARRANT; CASHLESS EXERCISE. This Warrant may be exercised, in whole or in part, at any time and from time to time during the Exercise Period. Such exercise shall be accomplished by tender to the Company of Exercise Price, either (a) in cash, by wire transfer or by certified check or bank cashier's check, payable to the order of the Company, or (b) by surrendering all or a portion of the Warrant using the amount by which the Fair Market Value, as defined, exceeds the Exercise Price to purchase a number of shares of Common Stock without the payment of any cash as illustrated in the formula below in this Section 2 (a "Cashless Exercise"), together with presentation and surrender to the Company of this Warrant with an
executed subscription in substantially the form attached hereto as EXHIBIT A (the "Subscription"). Upon receipt of the foregoing, the Company will deliver to the Holder, as promptly as possible but in no event more than three business days, a certificate or certificates representing the shares of Common Stock so purchased, registered in the name of the Holder or its transferee (as permitted under Section 3 below). With respect to any exercise of this Warrant, the Holder will for all purposes be deemed to have become the holder of record of the number of shares of Common Stock purchased hereunder on the date this Warrant is delivered to the Company with a properly executed Subscription and payment of the Exercise Price (the "Exercise Date"), irrespective of the date of delivery of the certificate evidencing such shares, except that, if the date of such receipt is a date on which the stock transfer books of the Company are closed, such person will be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. Fractional shares of Common Stock will not be issued upon the exercise of this Warrant. In lieu of any fractional shares that would have been issued but for the immediately preceding sentence, the Holder will be entitled to receive cash equal to the current Fair Market Value of such fraction of a share of Common Stock on the trading day immediately preceding the Exercise Date. In the event this Warrant is exercised in part, the Company shall issue a new Warrant to the Holder covering the aggregate number of shares of Common Stock as to which this Warrant remains exercisable for.
If the Holder elects to conduct a Cashless Exercise, the Company shall cause to be delivered to the Holder a certificate or certificates representing the number of shares of Common Stock computed using the following formula:
X = Y (A-B)
A
Where:
X = the number of shares of Common Stock to be issued to Holder;
Y = the portion of the Warrant (in number of shares of Common Stock) being exercised by Holder (at the date of such calculation) on a cashless basis;
A = the Fair Market Value of one share of Common Stock on the Exercise Date (as calculated below); and
B = Exercise Price.
For purposes of the above calculation, the fair market value of one share shall mean: (i) if the principal trading market for such securities is a national securities exchange, the Nasdaq Stock Market or the Over-the-Counter Bulletin Board (OCBB) (or a similar system then in use), the average last reported sales or if only traded on the OCBB, the average last closing price on the principal market for the five trading days immediately prior to the Exercise Date; or (ii) if (i) is not applicable, and if bid and asked prices for shares of Common Stock are reported by the National Quotation Bureau, Inc., the average of the high bid and low asked prices so reported for the five trading days immediately prior to the Exercise Date. Notwithstanding the foregoing, if
there is no last reported sales or closing price or bid and asked prices, as the case may be, for the period in question, then the fair market value of one share on the Exercise Date shall be determined in good faith by, and reflected in a formal resolution of, the board of directors of the Company.
3. TRANSFERABILITY AND EXCHANGE.
(a) This Warrant, and the Common Stock issuable upon the exercise hereof, may not be sold, transferred, pledged or hypothecated unless the Company shall have been provided with an opinion of counsel, or other evidence reasonably satisfactory to it, that such transfer is not in violation of the Securities Act, and any applicable state securities laws. Subject to the satisfaction of the aforesaid condition, this Warrant and the underlying shares of Common Stock shall be transferable from time to time by the Holder upon written notice to the Company. If this Warrant is transferred, in whole or in part, the Company shall, upon surrender of this Warrant to the Company, deliver to each transferee a Warrant evidencing the rights of such transferee to purchase the number of shares of Common Stock that such transferee is entitled to purchase pursuant to such transfer. The Company may place a legend similar to the legend at the top of this Warrant on any replacement Warrant and on each certificate representing shares issuable upon exercise of this Warrant or any replacement Warrants. Only a registered Holder may enforce the provisions of this Warrant against the Company. No transfer of this Warrant may be effective upon a failure to deliver by the Registered Holder to the Company of this Warrant and Assignment substantially in the form set forth in EXHIBIT B attached hereto.
(b) This Warrant is exchangeable upon its surrender by the registered Holder to the Company for new Warrants in form and substance representing in the aggregate the right to purchase the number of shares purchasable hereunder.
4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES SUBJECT TO WARRANT. The Exercise Price and the number of shares of Common Stock purchasable upon the exercise of this Warrant are subject to adjustment from time to time upon the occurrence of any of the events specified in this Section 4.
(a) DIVIDENDS, ETC. In case the Company shall, with respect to
the holders of its Common Stock, (i) pay a Common Stock dividend or make a
distribution to its stockholders in shares of Common Stock or other securities,
(ii) split or subdivide its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, then the Exercise Price in effect at the time of the
record date for such dividend or on the effective date of such split,
subdivision or combination, and/or the number and kind of securities issuable on
such date, shall be proportionately adjusted so that the Holder of any Warrant
thereafter exercised shall be entitled to receive the aggregate number and kind
of shares of Common Stock (or such other securities other than Common Stock, as
the case may be) of the Company, at the same aggregate Exercise Price, that, if
such Warrant had been exercised immediately prior to such date, the Holder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, distribution, split, subdivision or combination. Such adjustment shall
be made successively whenever any event listed above shall occur.
(b) MERGER, ETC. If at any time after the date hereof there shall be a merger or consolidation of the Company with or into or a transfer of all or substantially all of the assets of
the Company to another entity, then the Holder shall be entitled to receive upon or after such transfer, merger or consolidation becoming effective, and upon payment of the Exercise Price then in effect, the number of shares or other securities or property of the Company or of the successor corporation resulting from such merger or consolidation, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant been exercised just prior to such transfer, merger or consolidation becoming effective or to the applicable record date thereof, as the case may be. The Company will not merge or consolidate with or into any other corporation, or sell or otherwise transfer its property, assets and business substantially as an entirety to another corporation, unless the corporation resulting from such merger or consolidation (if not the Company), or such transferee corporation, as the case may be, shall expressly assume in writing the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company.
(c) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be a reorganization or reclassification of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, then the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares or other securities or property resulting from such reorganization or reclassification, which would have been received by the Holder for the shares of stock subject to this Warrant had this Warrant at such time been exercised.
(d) WEIGHTED AVERAGE ADJUSTMENT. If at any time after the date hereof, the Company shall issue shares of Common Stock or rights, options, warrants or other securities to subscribe for or purchase Common Stock, or securities convertible or exercisable into or exchangeable for Common Stock ("Common Stock Equivalents") (excluding shares, rights, options, warrants, or convertible or exchangeable securities, issued or issuable (i) in any of the transactions with respect to which an adjustment of the Exercise Price is provided pursuant to Sections 4(a) -(c) above, (ii) upon exercise of the Warrants or any other Common Stock Equivalents outstanding as of the date hereof, (iii) upon conversion of the Series A Preferred Stock, par value $0.01 per share, of the Company, (iv) pursuant to any stock option plans, stock bonus plans or stock incentive plans, (v) in connection, or as consideration for, any merger, consolidation, acquisition of a majority of the voting equity of any entity, acquisition of any discrete business unit of any entity or acquisition of assets (in each case, whether directly with, by, or into the Company or a direct or indirect subsidiary of the Company) or (vi) with respect to any issuance or transaction as to which holders of a majority of the Company's Series A Preferred Stock, par value $0.01 per share, have provided written consent), at a price per share lower than the Exercise Price per share of Common Stock in effect immediately prior to such issuance, then the Exercise Price shall be reduced on the date of such issuance to a price (calculated to the nearest cent) determined by multiplying the Exercise Price in effect immediately prior to such issuance by a fraction, (1) the numerator of which shall be an amount equal to the sum of (A) the number of shares of Common Stock on a fully diluted basis (assuming conversion, exchange or exercise of all Common Stock Equivalents) immediately prior to such issuance plus (B) the quotient obtained by dividing the consideration received by the Company upon such issuance by the Exercise Price, and (2) the denominator of which shall be the total number of shares of Common Stock on a fully diluted basis (assuming conversion, exchange or exercise of all Common Stock Equivalents) immediately after such issuance. For the purposes of such adjustments, the maximum number of shares which the holders of any such
Common Stock Equivalents shall be entitled to subscribe for or purchase or convert or exchange such securities into shall be deemed to be issued and outstanding as of the date of such issuance (whether or not such Common Stock Equivalent is then exercisable, convertible or exchangeable), and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such Common Stock Equivalents, plus the minimum aggregate consideration or premiums stated in such Common Stock Equivalents, to be paid for the shares covered thereby. No further adjustment of the Exercise Price shall be made as a result of the actual issuance of shares of Common Stock on exercise of such Common Stock Equivalents. On the expiration or the termination of such Common Stock Equivalents, or the termination of such right to convert or exchange, the Exercise Price shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised) to such Exercise Price as would have obtained had the adjustments made upon the issuance of such Common Stock Equivalents, been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon the exercise of such Common Stock Equivalents; and on any change of the number of shares of Common Stock deliverable upon the exercise of any such Common Stock Equivalents, or any change in the consideration to be received by the Company upon such exercise, conversion, or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Exercise Price, as then in effect, shall forthwith be readjusted (but only with respect to that portion of the Warrants which has not yet been exercised or converted after such change) to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such Common Stock Equivalents not exercised prior to such change, or securities not converted or exchanged prior to such change, on the basis of such change. In case the Company shall issue shares of Common Stock or any such Common Stock Equivalents, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then the "price per share" and the "consideration received by the Company" for purposes of the first sentence of this Section 4(d) shall be as determined in good faith by the Board of Directors of the Company. Shares of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation. In the event of any adjustment in the Exercise Price pursuant to this Section 4(d), the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased as the case may be, such that aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same.
(e) Notwithstanding any provision herein to the contrary, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; provided, however, that any adjustments which by reason of this Section 4(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or the nearest one-hundredth of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made pursuant to Section 4(a) or (b) above, the Holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this
Section 4, and the other provisions of this Warrant shall apply on like terms to any such other shares.
(g) In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Company shall effect such adjustment, on a basis consistent with the essential intent and principles established in this Section 4, as may be necessary to preserve, without dilution, the purchase rights represented by this Warrant. In no event shall any adjustment be required or result from the sale by the Company of securities or convertible securities or the grant or sale of options or warrants to purchase shares of its Common Stock or other securities.
5. REGISTRATION RIGHTS. The Holder shall be entitled to the benefits of the Registration Rights Agreement the form of which is attached hereto as EXHIBIT C.
6. RESERVATION OF SHARES. The Company agrees at all times to reserve and hold available out of its authorized but unissued shares of Common Stock the number of shares of Common Stock issuable upon the full exercise of this Warrant. The Company further covenants and agrees that all shares of Common Stock that are delivered upon the exercise of this Warrant will, upon delivery, be fully paid and nonassessable and free from all taxes, liens and charges with respect to the purchase thereof hereunder.
7. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price (or number of shares of Common Stock purchasable upon the exercise of this Warrant) pursuant to Section 4, the Company shall promptly thereafter, but in no event later than 10 days after the event causing the adjustment has occurred, cause to be given to the Holder written notice of such adjustment. Such notice shall include the Exercise Price (and/or the number of shares of Common Stock purchasable upon the exercise of this Warrant) after such adjustment, and shall set forth in reasonable detail the Company's method of calculation and the facts upon which such calculations were based. Where appropriate, such notice shall be given in advance and included as a part of any notice required to be given under the other provisions of this Section 7.
In the event of (a) any fixing by the Company of a record date with
respect to the holders of any class of securities of the Company for the purpose
of determining which of such holders are entitled to dividends or other
distributions, or any rights to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities or property, or to
receive any other right or to give effect to any split, (b) any capital
reorganization of the Company, or reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all of the
assets or business of the Company to, or consolidation or merger of the Company
with or into, any other entity or person, or (c) any voluntary or involuntary
dissolution or winding up of the Company, then and in each such event the
Company will give the Holder a written notice specifying, as the case may be (i)
the record date for such split, dividend, distribution, or right, and stating
the amount and character of such split, dividend, distribution, or right; or
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation, or winding up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such capital stock or
securities receivable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock securities) for securities or other property deliverable upon such event. Any such notice shall be given at least 10 days prior to the earliest date therein specified.
8. NO RIGHTS AS A STOCKHOLDER. This Warrant does not entitle the Holder to any voting rights, distribution rights, dividend rights or other rights as a stockholder of the Company, nor to any other rights whatsoever except the rights herein set forth.
9. ADDITIONAL COVENANTS OF THE COMPANY. If the Common Stock is listed for trading on any national securities exchange or Nasdaq, the Company shall, upon issuance of any shares for which this Warrant is exercisable, at its expense, promptly obtain and maintain the listing of such shares.
The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act for so long as and to the extent that such requirements apply to the Company.
The Company shall not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
not increase the par value of any shares of capital stock receivable upon
exercise of this Warrant above the amount payable therefor upon such exercise,
(b) will take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable stock,
and (c) the Company shall not, by amendment of its Certificate of Incorporation
or Bylaws or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issuance, or sale of securities or any other voluntary
action, avoid, circumvent, or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Warrant and in taking all such action as may be necessary or appropriate to
protect Holder's rights under this Warrant against impairment.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and permitted assigns.
11. NOTICES. The Company agrees to maintain a ledger of the ownership of this Warrant (the "Ledger"). Any notice hereunder shall be given by registered or certified mail if to the Company, at its principal executive office and, if to the Holder, to its address shown in the Ledger of the Company; provided, however, that the Holder may at any time on three business days written notice to the Company designate or substitute one other address where notice is to be given. Notice shall be deemed given and received when a certified or registered letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
12. SEVERABILITY. Every provision of this Warrant is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Warrant.
13. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of choice of laws thereof.
14. ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Warrant, the prevailing party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy.
15. ENTIRE AGREEMENT. This Warrant (including the Exhibits attached hereto) constitutes the entire understanding between the Company and the Holder with respect to the subject matter hereof, and supersedes all prior negotiations, discussions, agreements and understandings relating to such subject matter.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of the date first set forth above.
Elite Pharmaceuticals, Inc.
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Holder to Exercise the Rights To Purchase Common Stock Evidenced by the Within Warrant)
The undersigned hereby irrevocably subscribes for _______ shares of the Common Stock of the Company pursuant to and in accordance with the terms and conditions of the Warrant to which this form is a part, and hereby makes payment of $_______ therefor by tendering cash, wire transferring or delivering a certified check or bank cashier's check, payable to the order of the Company (or by electing a Cashless Exercise as provided in Section 2 of the Warrant). The undersigned requests that a certificate for the Common Stock be issued in the name of the undersigned and be delivered to the undersigned at the address stated below. If said certificate for the Common Stock is less than all of the shares purchasable pursuant to the Warrant, the undersigned requests that a new Warrant of like tenor for the balance of the remaining shares purchasable thereunder be delivered to the undersigned at the address stated below.
In connection with the issuance of the Common Stock, I hereby represent to the Company that I am acquiring the Common Stock for my own account for investment and not with a view to, or for resale in connection with, a distribution of the shares within the meaning of the Securities Act of 1933, as amended (the "Securities Act") except to the extent, the Common Stock is registered under the Securities Act for distribution.
I understand that because the Common Stock has not been registered under the Securities Act, I must hold such Common Stock indefinitely unless the Common Stock is subsequently registered and qualified under the Securities Act or is exempt from such registration and qualification. I shall make no transfer or disposition of the Common Stock unless (a) in the opinion of counsel reasonably satisfactory to the Company such transfer or disposition can be made without registration under the Securities Act by reason of a specific exemption from such registration and such qualification, or (b) a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.
I agree that each certificate representing the Common Stock delivered to me shall bear substantially the same legend as set forth on the front page of the Warrant.
I further agree that the Company may place stop orders on the certificates evidencing the Common Stock with the transfer agent, if any, to the same effect as the above legend. The legend and stop transfer notice referred to above shall be removed only upon my furnishing to the Company of an opinion of counsel (reasonably satisfactory to the Company) to the effect that such legend may be removed.
Date:_______________________________ Signed:________________________________
Address:_______________________________
EXHIBIT B
ASSIGNMENT
(To be Executed by the Holder to Effect Transfer of the Warrant)
For Value Received __________________________ hereby sells, assigns and transfers to _________________________ the Warrant attached hereto and the rights represented thereby to purchase _________ shares of Common Stock in accordance with the terms and conditions hereof, and does hereby irrevocably constitute and appoint _________________________ as attorney to transfer such Warrant on the books of the Company with full power of substitution.
The Assignor shall not transfer or dispose of the Warrant unless (a) in the opinion of counsel reasonably satisfactory to the Company, such transfer or disposition can be made without registration under the Securities Act of 1933, as amended (the "Securities Act"), by reason of a specific exemption from such registration and such qualification, or (b) a registration statement has been filed pursuant to the Securities Act and has been declared effective with respect to such disposition.
Dated:________________________ Signed: _____________________________ Please print or typewrite Please insert Social Security name and address of or other Tax Identification assignee: Number of Assignee: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- |
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT 10.11
ELITE PHARMACEUTICALS, INC.
SUBSCRIPTION AGREEMENT
Name of Subscriber: __________________________________________
1. SUBSCRIPTION TERMS - SECURITIES
1.1 SUBSCRIPTION. The undersigned Investor, hereby subscribes for and agrees to purchase ______ shares (the "Shares"), of Series A Preferred Stock, par value $0.01 per share of the Company (the "Series A Preferred Stock"), ____ short term warrants to purchase shares of Common Stock (the "ST Warrant") and ________ long term warrants to purchase shares of Common Stock (the "LT Warrant" and together with the ST Warrant and the Shares, the "Securities") of Elite Pharmaceuticals, Inc. (the "Company") for a total investment of $____________. For purposes of this Subscription Agreement, the shares of Common Stock issuable upon the conversion of the Series A Preferred Stock are referred to herein as the "Conversion Shares," the shares of Common Stock issuable upon exercise of the LT Warrant and the ST Warrant are referred to herein as the "Warrant Shares," and the Conversion Shares and the Warrant Shares are referred to herein collectively as the "Underlying Shares."
1.2 SUBSCRIPTION PAYMENT. As payment for this subscription, simultaneously with the execution hereof: The Investor shall immediately wire the amount specified in Section 1.1 above, pursuant to the wire transfer instructions specified on Exhibit A or shall send to the address set forth on Exhibit A, via overnight courier, a check payable to "Elite Pharmaceuticals, Inc. Escrow Account."
1.3 ACCEPTANCE OR REJECTION OF SUBSCRIPTION.
(a) The Investor understands and agrees that the Company reserves the right to reject this subscription for the Securities in its sole and absolute discretion, in whole or in part and at any time prior to the completion of the offering, notwithstanding prior receipt by the Investor of notice of acceptance of the Investor's subscription; and
(b) In the event of rejection of this subscription, the Investor's subscription payment shall be promptly returned to the Investor without deduction or interest, and this Subscription Agreement shall have no force or effect.
2. REPRESENTATIONS AND WARRANTIES.
2.1 INVESTOR REPRESENTATIONS AND WARRANTIES. The Investor acknowledges, represents and warrants to, and agrees with, the Company as follows:
(a) The Investor is aware this is a "best efforts" offering subject to the sale of at least $4,000,000 of the Securities which must be sold and that the Investor's investment involves a high degree of risk as described in the Confidential Term Sheet dated August 13, 2004 (the "Term Sheet")
(b) The Investor is aware that there is no assurance as to the future performance of the Company;
(c) The Investor is purchasing the Securities for the Investor's own account for investment and not with a view to or for sale in connection with the distribution of the Securities or the Underlying Shares in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Investor agrees that he, she or it must bear the economic risk of the Investor's investment for an indefinite period of time because, among other reasons, the Securities have not been registered under the Securities Act or under the securities laws of any states and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under applicable securities laws of such states or an exemption from such registration is available.
(d) The Investor hereby authorizes the Company to place the following legend denoting the restriction on the Securities and the Underlying Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND RULES. NOTWITHSTANDING THE FOREGOING, THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF) MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES (AND/OR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE HEREOF)."
In addition, the Investor agrees that the Company may place stop transfer orders with its transfer agent with respect to such certificates in order to implement the restrictions on transfer set forth in this Subscription Agreement. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities and the Underlying Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities and Underlying Shares are registered for resale under the Securities Act, (ii) such holder provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that a sale, assignment or transfer of the Securities or Underlying Shares may be made without registration under the Securities Act and the transferee agrees to be bound by the terms and conditions of this Subscription Agreement, (iii) such holder provides the Company with reasonable assurances (in the form of seller and broker representation letters) that the Securities or Underlying Shares, as the case may be, can be sold pursuant to Rule 144 or (iv) such holder provides the Company with reasonable assurances that the Securities or Underlying Shares, as the case may be, can be sold pursuant to Rule 144. Following the date the Registration Statement (as defined in the Registration Rights Agreement) is declared effective by the SEC or at such earlier time as a legend is no longer required, the
Company will no later than five (5) business days following the receipt by the Company's transfer agent of a legended certificate from such holder representing such holder's Securities or Underlying Shares (and an opinion of counsel to the extent required hereby), deliver or cause to be delivered to such holder a certificate representing such Securities or Underlying Shares that is free from all restrictive and other legends. If the Company shall fail to deliver a certificate representing such Securities or Underlying Shares as required, and if such holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such holder of shares of Common Stock that the undersigned anticipated receiving from the Company (a "Buy-In"), then the Company shall, within five (5) business days after such holder's written request and in such holder's discretion, either (i) pay cash to such holder in an amount equal to such holder's total purchase price (including reasonable brokerage commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to deliver such shares of Common Stock shall terminate or (ii) promptly honor its obligation to deliver to the Purchaser a certificate or certificates representing such shares of Common Stock and pay cash to such holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the Closing Bid Price (as defined in the Warrants) on the date of delivery of the legended certificate.
(e) The Investor has the financial ability to bear the economic risk of the Investor's investment in the Company (including its possible total loss), has adequate means for providing for the Investor's current needs and personal contingencies and have no need for liquidity with respect to the Investor's investment in the Company;
(f) The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities and have obtained, in the Investor's judgment, sufficient information from the Company to evaluate the merits and risks of an investment in the Company;
(g) The Investor:
(1) Has carefully read this Subscription Agreement and
the Term Sheet, understand and have evaluated the risks
of a purchase of the Securities and has relied solely
(except as indicated in subsections (2) and (3) below)
on the information contained in the Term Sheet and this
Subscription Agreement;
(2) Has not relied upon any representations or other information (whether oral or written) from the Company, or any of its agents other than as set forth in this Subscription Agreement, the Term Sheet, the Company's Proxy Statement filed May 19, 2004 with the SEC, and the SEC Documents;
(3) Has been provided an opportunity to obtain any additional information concerning the Offering, the Company and all other information to the extent the Company possesses such information or can acquire it without unreasonable effort or expense and the Company has
made available to the Investor all documents and information that the Investor has requested relating to an investment in the Company;
(4) Has been given the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of the Offering and other matters pertaining to this investment; and
(5) Has carefully considered and have to the extent the Investor believes such discussion necessary, discussed with the Investor's professional, legal, tax and financial advisers the suitability of an investment in the Company for the Investor's particular tax and financial situation and the Investor has determined that the Securities are a suitable investment for the Investor.
(h) In making the Investor's decision to purchase the Securities herein subscribed for, the Investor has relied solely upon independent investigations made by the Investor. Neither such inquiries nor any other investigation conducted by or on the undersigned's behalf or its representatives or counsel shall modify, amend or affect the undersigned's right to rely on the truth, accuracy and completeness of such information and the Company's representations and warranties contained in this Subscription Agreement;
(i) If the undersigned is a corporation, trust, partnership, employee benefit plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it is authorized and qualified to become an investor in the Company and the person signing this Subscription Agreement on behalf of such entity has been duly authorized by such entity to do so;
(j) No representations or warranties have been made to the undersigned by the Placement Agent, or any of its officers, employees, agents, affiliates or attorneys;
(k) The information contained in Section 2.2 of this Subscription Agreement is true and correct including any information which the Investor has furnished to the Company with respect to the Investor's financial position and business experience, is correct and complete as of the date of this Subscription Agreement and if there should be any material change in such information prior to acceptance of the Investor's subscription, the Investor shall furnish such revised or corrected information to the Company;
(l) Subject to Section 4 hereof, the Investor hereby acknowledges and the Investor is aware that, except for any rescission rights that may be provided under applicable state laws, the Investor is not entitled to cancel, terminate or revoke this subscription, and any agreements made in connection herewith shall survive his or her death or disability.
(m) The Investor is aware that the offering of Securities for an aggregate purchase price of up to $6,600,000 on substantially the same terms and conditions set forth in this Subscription Agreement may occur in one or more closings, each upon the same terms and no longer than twenty (20) business days between the first such closing and the final such closing;
2.2 INVESTOR REPRESENTATIONS AND WARRANTIES CONCERNING SUITABILITY, ACCREDITED INVESTOR AND ELIGIBLE CLIENT STATUS. The Investor represents and warrants the following information:
(a) The following information should be provided by the person making the investment decision whether on his own behalf or on behalf of an entity:
(1) Name of Investor: Age:
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(2) Name of person making investment decision
Age:
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(Print)
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(3) Principal residence address and telephone number:
(____)
(____)
The Investor has no present intention of becoming a resident of any other state or jurisdiction.
(5) Name, address, telephone number and facsimile number of employer or business:
(6) Length of employment or in current position
(7) Prior employment, positions or occupations during the past five years (and the inclusive dates of each) are as follows:
Nature of Employment, or Occupation Position/ Duties From/To
Attach additional pages to answer any questions in greater detail, if necessary.
Each prospective investor should answer the following questions, which pertain to income, tax rate, net worth, liquid assets, and non-liquid assets by including spousal contribution even though the investment shall be held in single name.
(8) Business or professional education and the degree(s) received are as follows:
School Degree Year Received
(b) Accredited Investor Representations. Initial all appropriate spaces on the following pages indicating the basis upon which the undersigned qualifies as an accredited investor (please initial only where appropriate). [Must Initial One]
For Individual Investors Only:
(1) I certify that I am an accredited investor because I have an individual net worth, or my spouse and I have combined net worth, in excess of $1,000,000. For purposes of this question, "net worth" means the excess of total assets at fair market value, including home, home furnishings and automobiles, over total liabilities.
(2a) I certify that I am an accredited investor because I had individual income (exclusive of any income attributable to my spouse) of more than $200,000 in 2002 and 2003 and I reasonably expect to have an individual income in excess of $200,000 this year.
(2b) Alternatively, my spouse and I have joint income in excess of $300,000 in each applicable year.
(3) I am a director or executive officer of the Company.
Other Investors:
(4) ______The undersigned certifies that it is one of the following: any bank as defined in Section 3(a)(2) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; insurance company as defined
in Section 2(13) of the Securities Act; investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees,
if such plan has total assets in excess of $5,000,000;
employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in
excess of $5,000,000, or if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors.
(5) ______The undersigned certifies that it is a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940.
(6) ______The undersigned certifies that it is a organization described in Section 501(c)(3) of the U.S. Internal Revenue Code, corporation, limited liability company, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
(7) ______The undersigned certifies that it is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Securities Act.
(8) ______The undersigned certifies that it is an entity in which all of the equity owners are accredited investors.
2.3 DISCLOSURE. In reliance upon exemptions contained in the Securities Act and Rule 506 promulgated thereunder and applicable state securities laws, the Securities are being sold without registration under the Securities Act. The Placement Agent, on behalf of the Company, has delivered the Term Sheet to the Investor. In addition, the Company is offering the Securities utilizing this Agreement and the other Subscription Agreements, the form of ST Warrant in substantially the form attached hereto as EXHIBIT B, the form of LT Warrant in substantially the form attached hereto as EXHIBIT C, the Registration Rights Agreement in substantially the form attached hereto as EXHIBIT D and the Certificate of Designations in substantially the form attached hereto as EXHIBIT E and the other agreements, instruments and documents contemplated hereby (collectively the "Offering Documents"). The Investor hereby acknowledges receipt of the foregoing Offering Documents which are delivered with this Subscription Agreement and receipt of the Term Sheet. The Investor also has had access to all SEC Documents and the opportunity to review them.
2.4 PROHIBITION ON NET SHORT POSITIONS. From and including the date of this Subscription Agreement until the effective date of the Registration Statement to be filed by the Company pursuant to the terms of the Registration Rights Agreement, the Investor agrees that the Investor will not maintain a Net Short Position in the Company Stock. "Net Short Position" shall mean that the aggregate number of shares of any Common Stock held in a short position with respect to the Securities by the Investor exceeds the number of Underlying Shares issuable to the Investor at such time.
2.5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each investor purchasing the Securities which representations and warranties which are true and correct and shall be true and correct as of the time of the Closing, as follows:
2.5.1 SECURITIES LAW COMPLIANCE. The Term Sheet and the Offering Documents shall not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. If at any time prior to the completion of the Offering or other termination of this Subscription Agreement any event shall occur as a result of which it might become necessary to amend or supplement the Offering Documents so that they do not include any untrue statement of any material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances then existing, not misleading, the Company shall promptly notify the Placement Agent and shall supply the Placement Agent with amendments or supplements correcting such statement or omission (provided that such notice shall not be deemed to satisfy the condition in Section 4(a)). The Company shall also provide the Placement Agent for delivery to all offerees and their representatives, if any, any information, documents and instruments which the Placement Agent and the Company deem necessary to comply with state and federal law applicable to the Offering.
2.5.2 ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own and lease its properties, to carry on its business as currently conducted, to execute and deliver this Subscription Agreement and the other Offering Documents and to carry out the transactions contemplated by this Subscription Agreement and the other Offering Documents, as appropriate. The Company is duly licensed or qualified to do business as a foreign corporation in each jurisdiction in which the conduct of its business or ownership or leasing of is properties requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect.
2.5.3 CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company prior to the consummation of the transactions contemplated hereby is as set forth on Schedule 2.5.3 hereto. All issued and outstanding shares of Common Stock of the Company are validly issued, fully paid and nonassessable and have not been issued in violation of the preemptive rights of any securityholder of the Company. All prior sales of securities of the Company were issued in compliance with the Securities Act and applicable state securities laws.
2.5.4 DERIVATIVE SECURITIES; RIGHTS. Except as disclosed in SCHEDULE 2.5.4 or as set forth in the most recent Form 10-Q or Form 10-K filed by the Company prior to the date hereof, there are not, nor shall there be immediately prior to the Closing, any outstanding
warrants, options, agreements, convertible or exchangeable securities, preemptive rights to subscribe for or other commitments pursuant to which the Company or any of its Subsidiaries is, or may become, obligated to issue any shares of its capital stock or other securities of the Company and this Offering and the issuance of the Underlying Shares shall not cause any anti-dilution or other adjustments to, or modified or incremental rights with respect to, such securities or commitments. Since the most recent Form 10-Q or Form 10-K filed by the Company prior to the date hereof, there has not been any additional re-pricing of any outstanding warrants, options or other securities of the Company. There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of the Company. The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of the Company are correct and complete.
2.5.5 SUBSIDIARIES AND INVESTMENTS. SCHEDULE 2.5.5 sets forth as of the date hereof for each Subsidiary of the Company (i) its name and jurisdiction of incorporation; (ii) the number of shares of authorized capital stock of each class of its capital stock; (iii) the number of issued and outstanding shares of each class of its capital stock, all of which are owned by the Company; and (iv) its directors and officers. Each Subsidiary is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the failure shall not have a Material Adverse Effect. Each Subsidiary has full power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and in which it presently proposes to engage and to own and use the properties owned and used by it, except where the failure shall not have a Material Adverse Effect. The Company has made available to the Placement Agent correct and complete copies of the charter and bylaws of each Subsidiary (as amended to date). All of the issued and outstanding shares of capital stock of each Subsidiary has been duly authorized and are validly issued, fully paid, and nonassessable. The Company holds of record and owns beneficially all of the outstanding shares of each Subsidiary, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), taxes, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any of the Company or any Subsidiary to sell, transfer, or otherwise dispose of any capital stock of any of a Subsidiary or that could require any Subsidiary to issue, sell, or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of each Subsidiary are correct and complete. None of the Subsidiaries are in default under or in violation of any provision of their respective charters or bylaws. Neither the Company nor any Subsidiary controls, directly or indirectly, or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a Subsidiary.
2.5.6 FINANCIAL STATEMENTS. The Financial Statements included in the Offering Documents and the SEC Documents are: (i) in accordance with all books, records and accounts of the Company; (ii) are true, correct and complete; and (iii) have been prepared in accordance with generally accepted accounting principles, consistently applied. The Financial Statements fairly present, in all material respects, the financial condition, results of operations, changes in stockholders equity and cash flow as of the applicable dates and/or for the periods covered. The Company has no material liabilities, contingent or otherwise, other than: (a) liabilities reflected on the Most Recent Balance Sheet; (b) liabilities incurred in the ordinary course of business subsequent to the date of such Financial Statements; and (c) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such Financial Statements. The Financial Statements complied as to form in all material respects with the rules and regulations of the SEC.
2.5.7 ABSENCE OF CHANGES. Except as set forth on Schedule 2.5.7, since the Most Recent Balance Sheet, neither the Company nor any Subsidiary has:
(i) incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business,
(ii) entered into any transaction not in the ordinary course of business, which is material to the business of the Company or any Subsidiary,
(iii) incurred any adverse change or any development involving, so far as the Company or any Subsidiary can now reasonably foresee which would have a Material Adverse Effect, and neither the Company nor any Subsidiary has become a party to, and neither the business nor the property of the Company or any Subsidiary has become the subject of, any litigation, whether or not in the ordinary course of their respective businesses,
(iv) declared, set aside or paid any dividend or other distribution of the assets of the Company with respect to any shares of capital stock of the Company or repurchased, redeemed or otherwise acquired any outstanding securities of Company,
(v) suffered any damage, destruction or loss of the Company's assets or properties, whether or not covered by insurance, except for such occurrences which, either individually or in the aggregate, have not had and would not have a Material Adverse Effect, or
(vi) given any waiver of a valuable right or of a material debt owed to it, except for such waivers, either individually or in the aggregate, that have not had and would not have a Material Adverse Effect, or
(vii) change in the Company's authorized capital stock, or issuance of options, warrants or other rights to purchase the capital stock or other securities of the Company or any Subsidiary.
2.5.8 TITLE. Except as disclosed in SCHEDULE 2.5.8 or as set forth in the SEC Documents, each of the Company and the Subsidiaries has good and marketable title to their
respective properties and assets, free and clear of all liens, charges, encumbrances or restrictions, except liens for the payment of current taxes which are not yet delinquent ad liens which arise in the ordinary course and will not affect in any material respect the properties and assets of the Company and its Subsidiaries; all of the leases and subleases under which the Company or any Subsidiary is the lessor or sublessor of properties or assets or under which the Company or any Subsidiary holds properties or assets as lessee or sublessee are in full force and effect, and neither the Company (nor any Subsidiary) is in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no material claim has been asserted by anyone adverse to rights of the Company or any Subsidiary as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company or any Subsidiary to continued possession of the leased or subleased premises or assets under any such lease or sublease. The Company and each Subsidiary owns or leases all such properties as are necessary to their respective operations as now conducted.
2.5.9 LITIGATION. Except as set forth in the SEC Documents, there is no action, suit, investigation, inquiry or similar governmental proceeding, claim or proceeding at law or in equity by or before any arbitrator, governmental instrumentality or other agency now pending or, to the Knowledge of any of the Company or its Subsidiaries, threatened against the Company or any Subsidiary or to the Knowledge of the Company, any officer or director of the Company or any Subsidiary (or basis therefor known to the Company or any Subsidiary) the adverse outcome of which would have a Material Adverse Effect or that seeks to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Offering Documents. Neither the Company nor any Subsidiary is subject to any judgment, order, writ, injunction or decree of any federal, state, municipal or other governmental instrumentality, commission, board, bureau, agency or instrumentality, domestic or foreign or self-regulatory organization (including the American Stock Exchange).
2.5.10 NON-DEFAULT; NON-CONTRAVENTION. Neither the Company nor any of the Subsidiaries is in breach of, or in default under, any term or provision of any indenture, mortgage, deed of trust, lease, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected. Neither the Company nor any of the Subsidiaries is in violation of (i) any provision of its charter or Bylaws or (ii) any franchise, license, permit, judgment, decree or order, or any statute, rule or regulation that, in the case of this clause (ii), would, individually or in the aggregate, have a Material Adverse Effect. Neither the execution and delivery of the Subscription Agreements or the Related Documents, nor the issuance and sale or delivery of the securities comprising the Securities and the Placement Agent Warrants, nor the issuance of the Underlying Shares nor the consummation of any of the transactions contemplated in the Subscription Agreements or the other Offering Documents, nor the compliance by the Company with the terms and provisions hereof or thereof, has conflicted with or will conflict with, or has resulted in or will result in a breach of, any of the material terms and provisions of, or has constituted or will constitute a default (or an event with notice or lapse of time or both will become a default) under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries or pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries may be bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject; nor will such action result in any violation of the provisions of the charter or the Bylaws of the Company or any of the Subsidiaries or any statute or any order, rule or regulation applicable to the Company or any of the Subsidiaries of any court or of any foreign, federal, state or other regulatory authority (including the American Stock Exchange) or other government body having jurisdiction over the Company or any of the Subsidiaries.
2.5.11 TAXES. Each of the Company and its Subsidiaries has filed all U.S. federal, state, local and foreign tax returns which are required to be filed by each of them and all such returns are true and correct in all material respects. The Company and each Subsidiary has paid all taxes pursuant to such returns or pursuant to any assessments received by any of them or by which any of them are obligated to withhold from amounts owing to any employee, creditor or third party. The Company and each Subsidiary has properly accrued all taxes required to be accrued and/or paid, except where the failure would not have a Material Adverse Effect. The tax returns of the Company and its Subsidiaries are not currently being audited by any state, local or federal authorities. Neither the Company nor any Subsidiary has waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. The Company has set aside on its books adequate provision for the payment of any unpaid taxes.
2.5.12 COMPLIANCE WITH LAWS, LICENSES, ETC. Neither the Company nor any Subsidiary has received notice of any violation of or noncompliance with any federal, state, local or foreign, laws, ordinances, regulations and orders applicable to its business (including but not limited to all applicable laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants), which has not been cured, the violation of, or noncompliance with which would have a Material Adverse Effect. The Company and each Subsidiary has all Licenses required by every federal, state and local government or regulatory body for the operation of its business as currently conducted and the use of its properties, except where the failure to be licensed would not have a Material Adverse Effect. The Licenses are in full force and effect and no violations are or have been recorded in respect of any License and no proceeding is pending or threatened to revoke, modify or limit any thereof.
2.5.13 AUTHORIZATION OF AGREEMENT, ETC. Each of this Agreement and the other Offering Documents have been duly executed and delivered by the Company and the execution, delivery and performance by the Company of this Subscription Agreement, the other Offering Documents, and the Placement Agent Agreement and the issuance of the Securities and the Underlying Shares have been duly authorized by the Company's board of directors and no further consent or authorization of its board of directors or its stockholders is required by the Company (including by application of the American Stock Exchange rules and regulations) and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally.
2.5.14 AUTHORIZATION OF SECURITIES. The Securities, when issued and delivered in accordance with this Subscription Agreement, and the Underlying Shares when issued and delivered upon conversion or exercise of the Securities, as appropriate, shall be validly issued, fully paid, and nonassessable and shall not be issued in violation of any preemptive rights of securityholders and will not trigger any antidilution rights of securityholders.
2.5.15 EXEMPTION FROM REGISTRATION. Assuming (i) the accuracy of the information provided by the respective Subscribers in the Subscription Documents, and (ii) that the Placement Agent shall comply in all respects with the provisions of Rule 506 Regulation D promulgated under the Securities Act, the offer and sale of the Securities pursuant to the terms of this Subscription Agreement shall be exempt from the registration requirements of the Securities Act and the rules and regulations promulgated thereunder. The Company is not disqualified from the exemption under Regulation D by virtue of the disqualifications contained in Rule 507 promulgated thereunder.
2.5.16 BROKERS. Neither the Company nor any of its officers, directors, employees or stockholders has employed any broker or finder in connection with the Offering or the transactions contemplated by this Subscription Agreement other than the Placement Agent (whose fees are payable by the Company).
2.5.17 TITLE TO SECURITIES. When the certificates representing the Securities have been duly delivered and payment shall have been made therefor by the Holders the Subscribers shall receive good title to the Securities (and the Underlying Shares). All such title shall be free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreement, and voting trusts (with the exception of claims arising or through the acts of the Holders and except as arising from applicable federal and securities laws), and the Company shall have paid all taxes, if any, in respect of the original issuance thereof.
2.5.18 RIGHTS OF FIRST REFUSAL. Except for rights granted to the Placement Agent pursuant to Section 3.5 of the PA Agreement, no other person, firm or other business entity is a party to any agreement, contract or understanding, written or oral entitling such party to a right of first refusal with respect to securities to be issued by the Company.
2.5.19 INTELLECTUAL PROPERTY. The Company owns or possesses valid and binding licenses or other rights to use, whether or not registered, all of the Intellectual Property. Such Intellectual Property constitutes all of the intellectual property necessary to operate the business of the Company and its Subsidiaries as presently conducted. Neither the Company nor any Subsidiary has received any notice of any claims, nor do any of them have any Knowledge of any threatened claims, and none of them know of any facts which would form the basis of any claim, asserted by any person to the effect that the sale or use of any product or process now used or offered by the Company or any Subsidiary or proposed to be used or offered by the Company or any Subsidiary infringes upon, or has infringed upon, the use of any such patents, trademarks, copyrights, technology, know-how, processes or other intellectual property of another person. To the best of the Company's Knowledge, no person is infringing upon the Intellectual Property. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of the Intellectual Property. No person, other than the Company, owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in part, in any Intellectual Property.
2.5.20 FOREIGN CORRUPT PRACTICES. Neither the Company nor any Subsidiary nor any of their respective directors, officers, agents, employees or other persons acting on their behalf, in the course of their actions for, or on behalf of the Company or any Subsidiary, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee or made any payment or provided any benefit to an employee or agent of a customer which would reasonably be expected to violate such customer's policies or code of conduct and results in the termination or a significant reduction in such customer's business with the Company.
2.5.21 FILINGS WITH THE SEC. The Company has made all filings with the SEC that it has been required to make under the Securities Act and the Exchange Act of 1934, as amended (the "Exchange Act"), all of which complied as to form with such acts and the rules thereunder. All documents required to be filed as exhibits to the SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect, except those which have expired in accordance with their terms, and neither the Company nor any of its subsidiaries is in material default of these material contracts. Each of the Company's SEC Documents has complied in all material respects with the Securities Act and the Exchange Act in effect as of their respective dates of filing (or if amended, as of the date of amendment). None of the Company's SEC Documents, as of their respective filing dates (or if amended, as of the amendment dates), 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 made therein, in the light of the circumstances under which they were made, not misleading.
2.5.22 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, or notice to, any court, federal, state or local governmental authority or regulatory or self regulatory agency or authority or other person on the part of the Company or any Subsidiary is required in connection with the issuance of the Securities or the Underlying Shares or the consummation of the other transactions contemplated by the Offering Documents, except (i) such filings as have been made prior to the date hereof, (ii) the filing of a notification form with the Amex and (iii) such additional post-Closing ministerial filings as may be required to comply with applicable state and federal securities laws and the listing requirements of Amex.
2.5.23 MATERIAL NON-PUBLIC INFORMATION. The Company has not
provided, and will not provide, to the undersigned any material non-public
information other than information related to the transactions contemplated
hereby or by the Offering Documents, all of which information related to the
transactions contemplated hereby shall be disclosed by the Company pursuant to
Section 3.1.6 hereof.
2.5.24 SARBANES-OXLEY. The Chief Executive Officer and the Chief Financial Officer of the Company have signed, and the Company has furnished to the SEC, all certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Such certifications contain no qualifications or exceptions to the matters certified therein and have not been modified or withdrawn; and neither the Company nor any of its officers has received notice from any governmental entity questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certifications.
2.5.25 SOLVENCY. Neither the Company nor any Subsidiary has taken any steps to seek protection pursuant to any bankruptcy or reorganization law nor does the Company nor any Subsidiary have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy or reorganization proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. Neither the Company nor any Subsidiary is as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent. "Insolvent" means (i) the present fair value of the Company's consolidated assets as calculated under U.S. generally accepted accounting principles ("GAAP") is less than the amount of the Company's total consolidated indebtedness as calculated in accordance with GAAP (less any future lease liabilities), (ii) the Company is unable to pay its consolidated debts and liabilities (other than any future lease liabilities), subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) the Company intends to incur or believes that it will incur consolidated debts (other than any future lease liabilities) that would be beyond its ability to pay as such debts mature.
2.5.26 REGISTRATION RIGHTS. Except as set forth on SCHEDULE 2.5.26, effective upon the Closing, the Company is not currently subject to any agreement providing any person or entity any rights (including piggyback registration rights) to have any securities of the Company registered with the SEC or registered or qualified with any other governmental authority.
2.5.27 INSURANCE. The Company and its Subsidiaries maintain insurance of the types and in the amounts that the Company reasonably believes is prudent and adequate for its business, all of which insurance is in full force and effect. Neither the Company nor any Subsidiary has been refused any insurance coverage sought or applied for and 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 at a cost that would not have a Material Adverse Effect.
2.5.28 LABOR RELATIONS. No material labor dispute exists or, to the knowledge of the Company, is threatened with respect to any of the employees of the Company or its Subsidiaries. No executive officer of the Company (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. No executive officer of the Company or its Subsidiaries, to the knowledge of the Company, is in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement or any other contract or agreement or any restrictive covenant, and, to the Company's knowledge, the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.
2.5.29 INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
2.5.30 GENERAL SOLICITATION. Neither the Company nor any other person or entity authorized by the Company to act on its behalf has engaged in any general solicitation (within the meaning of Regulation D of the Securities Act) of, or general advertising (within the meaning of Regulation D of the Securities Act) directed towards, investors with respect to offers or sales of the Securities.
2.5.31 REGISTRATION STATEMENT MATTERS. The Company currently meets the eligibility requirements for use of a Form S-3 Registration Statement for the resale of the Securities and the Underlying Shares by the Investors. The Company is not aware of any facts or circumstances that would prohibit or delay the preparation and filing of a registration statement with respect to the Securities and Underlying Shares.
2.5.32 NO INTEGRATED OFFERING. Neither the Company, nor any Affiliate (as hereafter defined) of the Company, 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 or the Underlying Shares to be integrated with prior offerings by the Company for purposes of the Securities Act, any applicable state securities laws or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any national securities exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company take any action or steps that would cause the offering of the Securities or the Underlying Shares to be integrated with other offerings.
2.5.33 AMEX LISTING MATTERS. The Common Stock is registered and designated for quotation on the American Stock Exchange under the ticker symbol "ELI." The Company is not in violation of the listing requirements of the American Stock Exchange and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. The issuance and sale of the Securities or the Underlying Shares under this Subscription Agreement and/or the other Offering Documents does not contravene the rules and regulations of the American Stock Exchange. Since December 31, 2002, (i) trading in the Common Stock has not been suspended by the SEC or the American Stock Exchange and (iii) the Company has received no communication, written or oral, from the SEC or the American Stock Exchange regarding the suspension or delisting of the Common Stock from the American Stock Exchange.
2.5.34 APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the jurisdiction of its formation which is or could become applicable to any Investor as a result of the transactions contemplated by the Offering Documents, including, without limitation, the Company's issuance of the Securities and/or the Underlying Shares and any Investor's ownership of the Securities or the Underlying Shares.
2.5.35 INVESTMENT COMPANY. The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof will not be, required to register as, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended.
2.5.36 TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC Documents, none of the officers or directors of the Company has entered into any transaction with the Company or any Subsidiary that would be required to be disclosed pursuant to Item 404(a), (b) or (c) of Regulation S-K of the SEC.
2.5.37 NO MANIPULATION. The Company has not taken any action in violation of applicable law designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale of the Securities or the Underlying Shares.
2.5.38 DISCLOSURE. The Company understands and confirms that the Investor will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Investor regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company's representations and warranties set forth in this Agreement) is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
2.5.39 DEFINITIONS. For the purposes of this Subscription Agreement, the following terms shall have the meanings set forth below:
"Affiliate" of the undersigned Investor means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with the undersigned Investor. For purposes of this definition, "control" means the power to direct the management and policies of such person or firm, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
"Certificate of Designations" means the Certificate of Designations, Preferences and Rights of Series A Preferred Stock of the Company in substantially the form attached hereto as EXHIBIT E.
"Closing" shall refer to that event which, subject to the terms of the PA Agreement, occurs when the Placement Agent has received and delivered to the Company subscriptions
which the Company has agreed to accept for at least a minimum of gross proceeds from Subscribers on or prior to the Termination Date. Upon the prior consent of the Company, one or more additional Closings may be held for additional subscriptions accepted by the Company no later than the Termination Date of the Offering.
"Closing Date" means the date of the Closing.
"Common Stock" means the Company's Common Stock, par value $0.01 per share.
"Financial Statements" means the audited consolidated financial statements of the Company for the fiscal years ended March 31, 2004 and 2003, including balance sheets and related statements of income, stockholders' equity and cash flows, together with the related notes, audited by the Company's independent certified public accountants as the same have been filed with the SEC as part of the SEC Documents and the unaudited consolidated financial statements of the Company for the quarters ended June 30, 2004 and 2003, including balance sheets and related statements of income, stockholders' equity and cash flows as the same have been filed with the SEC as part of the SEC Documents.
"Holder" or "Holders" means the holder of any Securities and/or any Placement Agent Warrant, and the securities contained in, and underlying each of, the foregoing securities.
"Intellectual Property" means trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses and trade secrets.
"Investor" means the undersigned investor.
"Investors" means the Investor and the other investors to the other Subscription Agreements pursuant to which such investors shall purchase the Securities from the Company in connection with the Offering.
"Knowledge" shall mean the knowledge, after reasonable investigation, of the Chief Executive Officer, the Financial Officer and the other executive officers of the Company.
"License" or "Licenses" means all licenses, permits and other governmental and self-regulatory (including the American Stock Exchange) certificates, authorizations and permits, and approvals of the Company or any Subsidiary.
"Material Adverse Effect" means any change or effect that is materially adverse to (i) the business, results of operations, financial condition, assets or liabilities of the Company or any Subsidiary or (ii) the transactions contemplated hereby or by the Offering Documents.
"Most Recent Balance Sheet" shall refer to the consolidated balance sheet of the Company dated as of June 30, 2004 as the same has been filed with the SEC as part of the SEC Documents.
"Offering" means the solicitation by the Placement Agent of Subscribers for the purchase of Securities pursuant to this Subscription Agreement, and applicable law.
"PA Agreement" shall mean the Placement Agent Agreement dated as of August 12, 2004 by and between the Company and the Placement Agent.
"Placement Agent" shall mean Indigo Securities, LLC.
"Placement Agent Warrants" shall refer to the warrants issued to the Placement Agent as part of its compensation for services rendered under the PA Agreement.
"Registration Rights Agreement" shall refer to that agreement by and between the Company, on one hand and the Placement Agent and Holders on the other hand.
"SEC" refers to the Securities and Exchange Commission.
"SEC Documents" means any registration statement, reports and documents filed with the SEC by the Company.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Subscriber" or "Subscribers" means an "accredited investor," as defined under Rule 501 of the Securities Act, subscribing to purchase Securities.
"Termination Date" means the date set forth in Section 3.1 of the PA Agreement.
2.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company and the Subscribers contained in this Subscription Agreement shall survive the Closing and remain in full force and effect.
3. COVENANTS.
3.1.1 RULE 144 INFORMATION. For five (5) years after the date of this Subscription Agreement, the Company shall use its best efforts file in a timely manner all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder and shall take such further action to the extent required to enable the Investor to sell the Securities and the Underlying Shares pursuant to Rule 144 under the Securities Act (as such rule may be amended from time to time).
3.1.2 REPORTING STATUS. Until the date on which the Investor shall have sold all the Securities and the Underlying Shares and none of the Warrants are outstanding, the Company shall file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination.
3.1.3 LISTING. The Company shall maintain the eligibility for quotation of the Common Stock on the American Stock Exchange. Subject to applicable law, neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the American Stock Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under
this section. The Company shall maintain Jersey Transfer and Trust Company as its transfer agent (or other transfer agent of equivalent recognition).
3.1.4 PLEDGE OF SECURITIES. The Company acknowledges and agrees that the Securities and the Underlying Shares may be pledged by the Investor in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities or the Underlying Shares. The pledge of Securities or the Underlying Shares shall not be deemed to be a transfer, sale or assignment of the Securities or the Underlying Shares hereunder, and the Investor shall not be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Subscription Agreement or any other Offering Document. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities or the Underlying Shares may reasonably request in connection with a pledge of the Securities or the Underlying Securities to such pledgee by the Investor (but without the obligation to incur any cost or expense in connection therewith).
3.1.5 DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION. On or before 9:00 a.m., New York time, on the first business day following the Closing Date, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Offering Documents in the form required by the Exchange Act and attaching the material Offering Documents (including, without limitation, this Subscription Agreement, the Certificate of Designations and the forms of Warrant) as exhibits to such filing (including all attachments, the "8-K Filing"). From the Closing, the Company shall not provide the Investor with any material, nonpublic information from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide the Investor with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of the Investor. Neither the Company nor the Investor shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled, without the prior approval of the Investor, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing or (ii) as may be required by applicable law, rule or regulation (provided that in the case of clause (i) the Investor (so long as such Investor has invested more than $850,000 pursuant to this Subscription Agreement) shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Investor, or include the name of the Investor in any filing with the SEC or any regulatory agency or Amex, without the prior written consent of the Investor, except (i) for disclosure thereof which is required in the 8-K Filing or Registration Statement or (ii) as required by law or Amex regulations or any order of any court or other governmental agency, in which case the Company shall provide the Investor with prior notice of such disclosure.
3.1.6 RESERVATION OF SHARES. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, after the Closing Date, 100% of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock and upon exercise of the Warrants.
3.1.7 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Securities for working capital purposes and not for the redemption or repurchase of any of its equity securities.
3.1.8 LISTING. The Company shall secure the listing of all Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Offering Documents. The Company shall use its best efforts to maintain the Common Stock's authorization for listing on the American Stock Exchange . Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the American Stock Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 3.1.8.
3.1.9 TRANSFER AGENT CERTIFICATION. The Company shall deliver to the Investor a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five (5) business days prior to the Closing Date.
3.2 CERTAIN PRE-FUNDING COVENANTS. The Company agrees as follows with respect to the period between the execution of this Agreement and the Closing:
(a) GENERAL. The Company will use its commercially reasonable
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Subscription Agreement (including satisfaction, but not waiver, of the
conditions to set forth in SECTION 4; provided, however, that nothing in this
SECTION 3.2(a) shall be deemed to require the Investor to purchase the
Securities unless and until the conditions set forth in SECTION 4 are satisfied
or, in the sole discretion of the Investor, waived.
(b) OPERATION OF BUSINESS. The Company and its Subsidiaries shall not engage in any practice, take any action, or enter into any material transaction which is outside the ordinary course of business. Without limiting the generality of the foregoing, the Company shall not engage in any practice, take any action, or enter into any transaction of the sort described in SECTION 2.5.25 above.
(c) FULL ACCESS. The Company will permit representatives of the Investor to have reasonable access at reasonable times to its premises, properties, personnel, and to the books and documents of or pertaining to the Company.
(d) NOTICE OF DEVELOPMENTS. The Company will give prompt written notice to the Investor of any development causing a breach of any of the representations and warranties in SECTION 2.5. No disclosure by any party pursuant to this SECTION 3.2(d), however, shall be deemed to amend or supplement the schedules hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant, unless the Investor consents to the incorporation of such amendment or supplement or disclosure by consummating the transactions contemplated hereby.
3.3 TRANSFER AGENT INSTRUCTIONS. As of the date hereof, and conditioned only upon the issuance of the Securities at the Closing, the Company shall issue irrevocable instructions to its transfer agent in the form attached hereto as EXHIBIT E (the "Irrevocable Transfer Agent Instructions"), and any subsequent transfer agent, to promptly issue certificates, registered in the name of the Investor or its respective nominee(s), for the Underlying Shares in such amounts as specified from time to time by the Investor to the Company upon conversion of the Series A Preferred Stock or upon exercise of the Warrants.
4. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of the Investor under Section 1(b) of this Agreement are subject to the fulfillment or waiver, on or before the Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations and warranties of the Company contained in Section 3 shall be true and correct in all material respects on and as of the date hereof and on and as of the date of the Closing with the same effect as though such representations and warranties had been made as of the Closing.
(b) PERFORMANCE. The Company shall have performed and complied in all respects with all agreements, obligations and conditions contained in this Subscription Agreement that are required to be performed or complied with by it on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein; PROVIDED, however, that the Company may furnish to each Investor a facsimile copy of a form of warrant representing the Warrants and of the stock certificate representing the Series A Preferred Stock, with the original warrant and original stock certificate held in trust by counsel for the Company until delivery thereof on the fourth (4th) business day following the Closing.
(c) COMPLIANCE CERTIFICATE. The Company will have delivered to the Investors a certificate signed on its behalf by its Chief Executive Officer or Chief Financial Officer certifying that the conditions specified in Sections 4(a) and 4(b) hereof have been fulfilled.
(d) AGREEMENT. The Company shall have executed and delivered to the Investors this Subscription Agreement.
(e) SECURITIES EXEMPTIONS. The offer and sale of the Securities to the Investors pursuant to this Subscription Agreement shall be exempt from the registration requirements of the Securities Act and the registration and/or qualification requirements of all applicable state securities laws.
(f) NO SUSPENSION OF TRADING OR LISTING OF THE COMMON STOCK. The Common Stock (i) shall be designated for quotation or listed on the American Stock Exchange and (ii) shall not have been suspended from trading by the SEC or on the American Stock Exchange nor shall suspension by the SEC or the American Stock Exchange have been threatened, as of the Closing Date, either (A) in writing by the SEC or the American Stock Exchange or (B) because the price per share of the Common Stock has fallen below the minimum listing maintenance requirements of the American Stock Exchange.
(g) GOOD STANDING CERTIFICATES. The Company shall have delivered to the Investors a certificate of the Secretary of State of the State of Delaware, dated as of a date within ten (10) business days of the date of the Closing, with respect to the good standing of the Company.
(h) SECRETARY'S CERTIFICATE. The Company shall have delivered to the Investors a certificate of the Company executed by the Secretary of the Company attaching and certifying to the truth and correctness of (1) the Certificate of Incorporation, (2) the Bylaws and (3) the resolutions adopted by the Board of Directors in connection with the transactions contemplated by the Offering Documents.
(i) OPINION OF COMPANY COUNSEL. The Investors will have received an opinion on behalf of the Company, dated as of the date of the Closing, from Reitler Brown & Rosenblatt LLC, counsel to the Company.
(j) NO STATUTE OR RULE CHALLENGING TRANSACTION. No statute, rule, regulation, executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization (including the American Stock Exchange) or the staff of any of the foregoing having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by the Offering Documents.
(k) AMOUNT INVESTED. The Investors under the Subscription Agreements shall have tendered at closing not less than $4,000,000 in the aggregate for the Securities.
(l) OTHER ACTIONS. The Company shall have executed such certificates, agreements, instruments and other documents, and taken such other actions as shall be customary or reasonably requested by the Investor in connection with the transactions contemplated hereby.
(m) IRREVOCABLE TRANSFER AGENT INSTRUCTIONS. The Company shall have delivered the Irrevocable Transfer Agent Instructions, executed by each of the Company and its transfer agent.
(n) CERTIFICATE OF DESIGNATIONS. The Certificate of Designations shall have been filed with the Secretary of State of the State of Delaware, and copies thereof shall have been certified by such Secretary of State and shall have been delivered to the Investor.
5. TERMINATION.
(a) The Investor and the Company may terminate this Subscription Agreement by mutual written consent at any time prior to the Closing;
(b) The Investor may terminate this Subscription Agreement by giving written notice to the Company at any time prior to the Closing:
(i) in the event that the Company has breached any representation, warranty, or agreement contained in this Subscription Agreement or in any other
Offering Document in any material respect, the Investor or any other Investor has notified the Company of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach,
(ii) if the Closing shall not have occurred on or before October 31, 2004, by reason of the failure of any condition precedent under SECTION 4 hereof or if satisfaction of any such condition by such date is or becomes impossible (unless the failure results primarily from any Investor itself breaching any representation, warranty, or covenant contained in the Subscription Agreements or any other Offering Document).
(c) The Company may terminate this Agreement by giving written notice to the Investor at any time prior to the Closing in the event that the Investor has breached any representation, warranty, or covenant contained in this Subscription Agreement in any material respect, the Company has notified the Investor of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach.
(c) EFFECT OF TERMINATION. Each party's right of termination under
SECTION 5(A) is in addition to any other rights it may have under this
Subscription Agreement or otherwise, and the exercise of such right of
termination will not be an election of remedies. Upon any termination, the
amount deposited in escrow shall be immediately wired to the Investor.
6. INDEMNIFICATION.
(a) The Investor hereby agrees to indemnify and hold harmless the Company and its officers, directors, managers, members, partners, shareholders, employees, agents and attorneys and any control persons against any and all losses, claims, demands, liabilities, actions or causes of action, encumbrances and expenses (including reasonable legal or other expenses) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person) to which any such indemnified party may become subject under the Securities Act, under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses arise out of or are based upon any breach by the Investor of any representation, warranty, covenant, obligation or agreement contained herein.
(b) The Company hereby agrees to indemnify and hold harmless the Investors and its officers, directors, managers, members, partners, shareholders, employees, agents and attorneys and any control persons against any and all losses, claims, demands, liabilities, actions or causes of action, encumbrances and expenses (including reasonable legal or other expenses) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person) to which any such indemnified party may become subject under the Securities Act, under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by the Company and contained in this Subscription Agreement, the other Offering Documents, the Term Sheet or the SEC Documents, or (b) arise out of or are based upon any breach of any representation, warranty, covenant, obligation or agreement contained herein or therein. The
Company hereby agrees to indemnify the Investor for expenses (including reasonable legal or other expenses) incurred by the Investor in connection with any claims made by the Investor against the Company arising out of or based upon any breach of any representation, warranty, covenant, obligation or agreement of the Company contained herein.
7. CONSENT TO JURISDICTION. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Subscription Agreement (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 Manhattan, New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Manhattan, New York 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 hereof). Each party agrees not to commence a claim or proceeding hereunder in a court other than a state court or federal court sitting in Manhattan, New York, except (i) if required as a mandatory counterclaim or cross-claim in a proceeding commenced by a Person in a different jurisdiction or (ii) if such party has first brought such claim or proceeding in such court sitting in Manhattan, New York and both the state courts and the federal courts sitting in Manhattan, New York have denied jurisdiction over such claim or proceeding. Each party hereto 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 Subscription 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 manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Subscription Agreement or the transactions contemplated hereby.
8. SEVERABILITY. In the event any parts of this Subscription Agreement are found to be void, the remaining provisions of this Subscription Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.
9. COUNTERPARTS. This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Subscription Agreement may be by actual or facsimile signature.
10. BENEFIT. This Subscription Agreement shall be binding upon and inure to the benefit of the parties' hereto and their legal representatives, successors and assigns.
11. NOTICES AND ADDRESSES. All notices, offers, acceptance and any other acts under this Subscription Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipted next business day delivery followed by next business day delivery, or by facsimile delivery, as follows:
Investor: At the address designated in Section 2.2 of this
Subscription Agreement
The Company: Elite Pharmaceuticals, Inc.
165 Ludlow Avenue
Northvale, New Jersey 07647
Facsimile: (201) 750-2755
Attention: Mr. Bernard Berk,
Chairman and Chief Executive Office
With a copy to: Reitler Brown & Rosenblatt LLC
800 Third Avenue, 21st Floor
New York, NY 10021
Facsimile: (212) 371-5500
Attention: Scott H. Rosenblatt
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or to such other address as either of them, by notice to the other may designate from time to time. The transmission confirmation receipt from the sender's facsimile machine shall be evidence of successful facsimile delivery. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.
12. GOVERNING LAW. This Subscription Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided therein or performance shall be governed or interpreted according to the laws of the State of New York.
13. ENTIRE AGREEMENT. This Subscription Agreement constitutes the entire Subscription Agreement between the parties and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. Neither this Subscription Agreement nor any provision hereof may be amended, waived, discharged or terminated, except by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought; provided, however, that any amendment which creates superior rights or preferences for the Investor relative to any other Investor shall be approved by holders of at least 66-2/3% of the aggregate number of Series A Preferred Stock purchased under the Subscription Agreements.
14. SECTION HEADINGS. Section headings herein have been inserted for referenceonly and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Subscription Agreement.
15. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations, warranties and agreements contained herein shall survive the delivery of and payment for the Securities.
16. REMEDIES. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Investor and the Company will be entitled to specific performance under this Subscription Agreement. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
17. INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS. The obligations of the Investor under this Subscription Agreement are several and not joint with the obligations of any other Investor under any other Subscription Agreement, and the Investor shall not be responsible in any way for the performance of the obligations of any other Investor under any of the other Subscription Agreements. The decision of the Investor to purchase the Securities pursuant to this Subscription Agreement has been made by such Investor independently of any other Investor. Nothing contained herein or in any of the other Subscription Agreements, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Agreements. The Investor acknowledges that no other Investor has acted as agent for Investor in connection with making its investment hereunder and that no other Investor will be acting as agent of the Investor in connection with monitoring its investment in the Securities or enforcing its rights under this Subscription Agreement. The Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Subscription Agreement, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.
18. REPLACEMENT OF SECURITIES AND UNDERLYING SHARES. If any certificate or instrument evidencing any Securities or any Underlying Shares is mutilated, lost, stolen or destroyed, the Company shall promptly issue or cause to be issued in exchange and substitution for and upon cancellation thereof, 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 and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities or Underlying Shares.
19. PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Investor pursuant to this Subscription Agreement or the Investor enforces or exercises its rights hereunder, 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.
Individual Investors:
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Social Security Number Print Name of Investor No. 1
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Signature of Investor No. 1
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Social Security Number Print Name of Investor No. 2
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Signature of Investor No. 2
Manner in which Securities are to be held:
_____ Individual Ownership _____ Partnership
_____ Tenants-in-Common _____ Trust
_____ Joint Tenant With Right of Survivorship _____ Corporation
_____ Community Property _____ Employee Benefit Plan
_____ Separate Property _____ Other (please indicate)
Corporate or Other Entity:
---------------------------------- -----------------------
Federal ID Number Print Name of Entity
By:
--------------------
Signature, Title
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DATED: _______________, 2004
By signing below, the undersigned accepts the foregoing subscription and agrees to be bound by its terms.
Elite Pharmaceuticals, Inc.
By: ___________________________ Dated: October 6, 2004
Bernard Berk,
Chief Executive Officer
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EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Bank of NYC
ABA No. 021000018
GLA 111-565
Cust A/C # 106148
A/C Name: Elite Pharmaceuticals Series A Preferred Placement - Escrow
EXHIBIT B
FORM OF SHORT TERM WARRANT
EXHIBIT C
FORM OF LONG TERM WARRANT
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
FORM OF CERTIFICATE OF DESIGNATIONS
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of October 6, 2004, by and among Elite Pharmaceuticals, Inc., a Delaware corporation (the "Company"), Indigo Securities, LLC (the "Placement Agent"), and the purchasers listed on SCHEDULE 1 of the Securities, as defined below (each an "Investor" or collectively, the "Investors")
WHEREAS, the Company and each of the Investors have entered into a Subscription Agreement dated the date hereof (each a "Subscription Agreement" and collectively, the "Subscription Agreements").
WHEREAS, to induce each Investors to execute and deliver a Subscription Agreement, the Company has agreed to provide certain registration rights under the Securities Act, and the rules and regulations thereunder, or any similar successor statute, as well as any applicable state securities laws.
NOW, THEREFORE, in consideration of the premises, representations, warranties, and the mutual covenants and agreements contained herein, and in the Subscription Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Placement Agent and the Investors, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS.
Capitalized terms defined in the Subscription Agreements shall have the same meanings herein as are ascribed to them therein. In addition, as used in this Agreement, the following terms shall have the following meanings ascribed to them below:
"Affiliate" means any Person that has a relationship with a designated Person whereby either of such Persons directly or indirectly controls or is controlled by or is under common control with the other. For this purpose "control" means the power, direct or indirect, of one Person to direct or cause direction of the management and policies of another, or any act with respect to the securities of the Company, whether by contract, through voting securities or otherwise.
"Closing" refers to that event which occurs when the Securities shall have been subscribed for, the funds representing the sale of the Securities shall have cleared, and the Company shall accept the subscriptions.
"Common Stock" shall be the Company's authorized common stock, as constituted on the date of this Agreement, any stock into which such common stock may thereafter be changed and any stock of the Company of any other class, which is not preferred as to dividends or assets
over any other class of stock of the Company issued to the Investors of shares of such common stock upon any re-classification thereof.
"Company Registration Expenses" shall mean bills or invoices (other
than Selling Expenses) incident to the Company's performance of or compliance
with this Agreement including, without limitation, all registration, filing and
NASDR fees, fees and expenses of compliance with securities or blue sky laws,
word processing, duplicating and printing expenses, messenger and delivery
expenses, fees and disbursements of counsel for the Company and all independent
public accountants including the expenses of any audit and/or "cold comfort"
letter, all fees and expenses in connection with the Company's obligations under
Section 3.1, if applicable, and other Persons retained by the Company.
"Controlling Person" shall have the meaning set forth under Section 15 of the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Form" means a Form S-4 or Form S-8, pursuant to the Securities Act or any similar or successor form then in effect.
"Investors" means the Investors and any transferees or assignees who
agree to become bound by the provisions of this Agreement in accordance with
Section 9 hereof. Investors also refers to the Placement Agent and its assignees
when referring to the offer and sale of Registrable Securities and other rights
arising under Sections 2 and 3.
"NASDR" means the NASD Regulation, Inc.
"Offering" means the solicitation by the Placement Agent of Subscribers for the purchase of the Securities.
"Person" means a corporation, an association, a partnership, a limited liability company, a joint venture, a trust, an organization, a business, an entity, an individual, a government or political subdivision thereof or a governmental body.
"Placement Agent" shall mean Indigo Securities, LLC.
"Placement Agent Agreement" shall mean the placement agent agreement, dated as of August 12, 2004, between the Placement Agent and the Company.
"Placement Agent Warrants" shall mean the warrants to purchase shares of Common Stock issued to the Placement Agent pursuant to the Placement Agent Agreement.
"Private Placement" shall mean the placement of the Securities by the Company through the Placement Agent pursuant to the Placement Agent Agreement.
"Register, registered and registration" means a registration effected by preparing and filing a Registration Statement on a form approved by the SEC other than an Excluded Form in compliance with the Securities Act and the declaration of effectiveness ordering the effectiveness of such Registration Statement.
"Registrable Securities" means Common Stock issued upon (i) conversion of the Series A Preferred Stock issued at the Closing, (ii) exercise of the Warrants, (iii) exercise of the Placement Agent Warrants and (iv) any securities issued upon the Series A Preferred Stock or such Common Stock by way of stock dividend or stock split, penalty under Section 2.1.2 hereof, or in connection with a combination, recapitalization, share exchange, consolidation or other reorganization of the Company. As to any Registrable Securities, once issued, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement, (ii) they shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (iii) they shall have been otherwise transferred but new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (iv) they shall have ceased to be outstanding.
"Registration Statement" means one or more registration statements of the Company on Form S-3 under the Securities Act registering all of the Registrable Securities, including any amendments or supplements thereto.
"SEC" means the Securities and Exchange Commission or any other governmental body at the time administering the Securities Act.
"Securities" means (i) up to 660,000 shares of Series A Preferred Stock
(which includes a 10% over allotment option in favor of the Placement Agent) and
(ii) warrants to purchase up to 5,950,000 shares of Common Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, brokerage fees and selling commissions applicable to the Registrable Securities registered and all fees and disbursements of counsel for the Investor.
"Series A Preferred Stock" means shares of Series A Preferred Stock, par value $0.01 per share issued by the Company.
"Subscriber" means an "accredited investor" as defined under Rule 501 of the Securities Act, subscribing to purchase the Securities.
"Warrants" means the warrants to purchase up to 5,400,000 shares of Common Stock, granted by the Company at the Closing to the Investors in connection with the closing of the Private Placement.
2. REGISTRATION.
2.1 MANDATORY REGISTRATION.
2.1.1 The Company shall file with the SEC, on the date which is on
or before forty-five (45) days after the Closing Date (the "Filing Deadline") a
Registration Statement on Form S-3 (or, if Form S-3 is not available, on such
form of Registration Statement as is then available to effect a registration of
all of the Registrable Securities; provided, that the Company shall convert such
other form to Form S-3, or file a replacement registration statement on Form S-3
promptly after the first date on which it meets such requirement), to enable the
resale of all of the Registrable Securities which Registration Statement, to the
extent allowable under the Securities Act and the rules promulgated thereunder
shall state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Series A Preferred Stock or exercise of the Warrants pursuant
to provisions to prevent dilution resulting from stock splits, stock dividends
or similar transactions (the "Mandatory Registration Statement"). The Mandatory
Registration Statement shall contain, unless otherwise required by applicable
law or the SEC, the "Selling Shareholders" and "Plan of Distribution" section of
the Prospectus in a form reasonably satisfactory to the Investors based upon
information provided by the selling shareholder. The Registrable Securities
included in the Mandatory Registration Statement shall be registered on behalf
of the Investors set forth on Schedule 1 hereof. The Mandatory Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to the Investors and
their counsel at least five (5) business days prior to its filing or other
submission; such notice to specify the securities to be registered, the proposed
numbers and amounts thereof and the date thereafter by which the Company must
receive the Investors' written indication if any Investor does not wish to
include their Registrable Securities in such Registration Statement and advising
the Investors of their rights under this Section 2. The Company shall file the
Mandatory Registration Statement and use its best efforts to cause all of the
Registrable Securities (unless an Investor has indicated otherwise with respect
to all or any portion of such Investor's Registrable Securities pursuant to the
preceding sentence) to be registered under the Securities Act, in connection
with the sale or other disposition by the Investors of the Registrable
Securities so registered. The Company shall use its best efforts to cause the
Mandatory Registration Statement, as amended, to become effective as soon as
practicable after the filing thereof. The Mandatory Registration Statement shall
only cover the Registrable Securities, the shares of Common Stock described in
Section 8(b)(iii) below and any stockholder of the Company that exercises any
existing piggy-back registration rights as set forth on Schedule 3.3 attached
hereto.
2.1.2 If the Mandatory Registration Statement has not been declared or ordered effective within ninety (90) days after the Closing (the "Three Month Period"), the Company shall pay each Investor a fee equal to 2% of the purchase price paid by such Investor for the Securities for any thirty (30) days after such failure (pro rata for partial months), which payments shall be payable at the end of each calendar month until the date upon which the Mandatory Registration Statement is declared effective, but not to exceed an aggregate of 16%. This payment may be made, at the election of the Company, in cash or in additional shares of Common Stock valued at the VWAP (as defined in the Certificate of Designations, Preferences
and Rights of Series A Preferred Stock of the Company) for such stock on the date immediately prior to the date that the payment is made. Notwithstanding anything set forth in this Section 2.1.2, if during the Three Month Period, the SEC modifies or amends the rules with respect to Form S-3 (or any successor form) to change the criteria for availability of Form S-3 (or any successor form), the result of which makes Form S-3 (or any successor form) unavailable to the Company (independent of any action or omission of the Company), the Three Month Period for purposes of this Section 2.1.2 shall be reset and commence from the effective date of such modification or amendment and, with the modification of the period, all other provisions of this Section 2.1.2 shall reset and apply from such date forward.
2.1.3 In the event that the Registration Statement is filed and declared effective but, during the Registration Period (as defined in Section 3.1.2 below), shall thereafter cease to be effective or useable or the prospectus included in the Registration Statement (the "Prospectus", as amended or supplemented by any prospectus supplement and by all other amendments thereto and all material incorporated by reference in such Prospectus) ceases to be usable (other than as a result of any act or omission by a holder of Registrable Securities), in either case, in connection with resales of the Registrable Securities, without such lapse being cured within ten (10) business days (the "Cure Period"), with the maximum number of days in any Cure Periods during any 365 day period not to exceed forty-five (45) business days, by a post-effective amendment to the Registration Statement, a supplement to the Prospectus or a report filed with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such lapse, then the Company shall pay to each Investor (in addition to the rights and remedies available to each Investor under applicable law and this Agreement), for the period from and including the first day following the expiration of the Cure Period (or number of days in such Cure Periods exceeding the aforementioned forty-five (45) days) until, but excluding, the earlier of (i) the date on which such failure is cured and (ii) the date on which the Registration Period expires, at a rate equal to two percent (2%) for every thirty days after such failure (pro rata for partial months) of the purchase price paid by such Investor for the Securities, which payment shall be payable at the end of each calendar month. The Company shall have the option to pay such amounts in cash or Common Stock as provided for in Section 2.1.2 above.
2.2 DEMAND REGISTRATION
2.2.1 If the Mandatory Registration Statement shall not have been declared or ordered effective and the Company shall receive a written request no earlier than ninety (90) days following the Closing but no later than 22 months after the Closing from Investors holding more than $500,000 in value of the Registrable Securities then outstanding (the "Initiating Investor") that the Company file a registration statement under the Securities Act covering the registration of the Registrable Securities, then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Investors, and subject to the limitations set forth herein, effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that the Investors request to be registered.
2.2.2 The Company shall not be required to effect a registration pursuant to this Section 2.2 if (i) the Mandatory Registration Statement has been declared or ordered effective, whether or not one or more holders of Registrable Securities elected not to register all of their
respective shares in the Mandatory Registration Statement (ii) the Company has previously effected two registrations pursuant to this Section 2.2 and such previous registrations has been declared or ordered effective or (iii) the Registrable Securities covered by registrations pursuant to this Section 2.2 may be sold pursuant to Rule 144(k) promulgated under the Securities Act or any successor provision. Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered pursuant to this Section 2.2 as soon as practicable after receipt of the request or requests of the Investors.
2.3 PIGGYBACK RIGHTS.
2.3.1 If the Company shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on an Excluded Form), then the Company shall send to each Investor holding Registrable Securities that have not been covered by a registration statement that has been declared or ordered effective (each, an "Eligible Investor"), written notice of such determination and if, within 15 business days after receipt of such notice any such Eligible Investor shall so request in writing, the Company shall include in such registration statement the Registrable Securities requested by the Eligible Investors to be so included. Such written notice shall state the intended method of disposition of the Registrable Securities by such Eligible Investor. If an Eligible Investor decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Eligible Investor shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein, to the extent all Registrable Securities held by such Investor have not been covered by a registration statement that has been declared or ordered effective by the time of such subsequent registration. Notwithstanding any provision of this Agreement to the contrary, the Company shall not file a registration statement for its account or the account of others until the Mandatory Registration Statement or a Registration Statement pursuant to Section 2.2 shall have been declared and ordered effective.
2.3.2 If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Eligible Investors of Registrable Securities. In such event, the right of any such Eligible Investor to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Eligible Investor's participation in such underwriting and the inclusion of such Eligible Investor's Registrable Securities in the underwriting to the extent provided herein. All Eligible Investors proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to any selling shareholders that shall have exercised a demand registration right; third, on a PRO RATA basis, to the Eligible Investors and any other shareholders of the Company exercising incidental registration rights based on the total number
of Registrable Securities sought to be registered in such registration by the Eligible Investors and such other shareholder of the Company.
2.3.3 If any Eligible Investor disapproves of the terms of any such underwriting, such Eligible Investor may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Eligible Investor which is a partnership, limited liability company, or corporation, the partners, retired partners, members, retired members and shareholders of such Eligible Investor, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Eligible Investor," and any PRO RATA reduction with respect to such "Eligible Investor" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Eligible Investor," as defined in this sentence.
2.3.4 The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Eligible Investor has elected to include securities in such registration.
3. REGISTRATION PROCEDURES.
3.1 If and whenever the Company is required by the provisions hereof to effect or cause the registration of any Registrable Securities under the Securities Act as provided herein, the Company shall, as expeditiously as possible:
3.1.1 prepare and file with the SEC, on or before the Filing Deadline the Mandatory Registration Statement required by Section 2.1 or a demand Registration Statement pursuant to Section 2.2 with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become and remain effective (pursuant to Rule 415 of the Securities Act) as soon as practicable after such filing (provided that, before filing a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the Investors copies of all such documents proposed to be filed);
3.1.2 prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective, true and correct during the Registration Period. For purposes of this Agreement, "Registration Period" means the period commencing with the effective date and ending on the earlier of (i) the sale of all Registrable Securities covered thereby, (ii) the date upon which the Investors may sell the Registrable Securities pursuant to Rule 144(k) promulgated under the Securities Act, or (iii) the expiration of the 24 months after Closing or such shorter period as shall be necessary to complete the distribution of the securities covered thereby so long as the Company has not violated Section 7 below, and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the Investors in such Registration Statement;
3.1.3 permit the Investors and their counsel to review and comment upon (which comments shall not be unreasonably withheld) all Registration Statements at least five (5) business days prior to its filing with the SEC and all amendments and supplements to all Registration Statements (except for documents incorporated by reference therein) within a reasonable number of days prior to their filing with the SEC;
3.1.4 submit to the SEC, within two (2) business days after the Company learns that no review of the Registration Statement will be made by the staff of the SEC (the "Staff") or that the Staff has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of the Registration Statement to a time and date not later than 48 hours after the submission of such request;
3.1.5 furnish to each Investor whose Registrable Securities are included in the Registration Statement, and to the Placement Agent's counsel and each underwriter of the securities being sold by the Investors such number of copies of such Registration Statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such Registration Statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as such counsel and underwriter may reasonably request, in substantially the form in which they are proposed to be filed with the SEC, in order to facilitate the public sale or other disposition of the Registrable Securities owned by the participating Investors. In the case of all Registration Statements referred to in Section 2, the Company shall furnish to each Investor which requests (i) a copy of any request to accelerate the effectiveness of any Registration Statement or amendment thereto, (ii) on the date of effectiveness of the Registration Statement or any amendment thereto, a notice stating that the Registration Statement or amendment has been declared effective, and (iii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. In responding to comments from the staff of the SEC, the Company shall cooperate with any Investor that notifies the Company that it desires to be consulted with respect to such process. To the extent that issues raised by the staff of the SEC have an impact primarily on any such Investor rather than the Company, the Company shall give reasonable deference to such Investor's requests with respect to the process and substance of responses with respect to such issues;
3.1.6 use its best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as each
Investor who holds Registrable Securities being offered reasonably requests,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be reasonably
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3.1.6;
3.17 subject to Section 3.1.6, use its best efforts to cause such Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary to enable the participating Investors to consummate the disposition of its Registrable Securities;
3.1.8 notify the participating Investors at any time when a prospectus relating to its Registrable Securities is required to be delivered under the Securities Act, of the Company's becoming aware that the prospectus included in the related Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare and furnish to the participating Investors and each underwriter a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;
3.1.9 otherwise use its best efforts to comply with all applicable rules and regulations of the SEC;
3.1.10 if the Common Stock is listed on the American Stock Exchange, another national securities exchange, or on the Nasdaq Stock Market, as the case may be, the Company shall use its best efforts to cause all such Registrable Securities covered by such Registration Statement to be listed on the American Stock Exchange, other national securities exchange, or on the Nasdaq Stock Market, as the case may be (if such Registrable Securities are not already so listed), if the listing of such Registrable Securities is then permitted under the rules of such exchange or market;
3.1.11 provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement;
3.1.12 in the case of an underwritten offering, enable the Registrable Securities to be in such denominations and registered in such names as the underwriters may request at least two business days prior to the sale of the Registrable Securities;
3.1.13 cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request;
3.1.14 notify the Investors of any stop order threatened, to the knowledge of the Company, or issued by the SEC (and the Company shall notify the Investors of the resolution of
any issued stop order) and take all actions reasonably necessary to prevent the entry of such stop order or to remove it if entered;
3.1.15 make available for inspection the Investors and their representatives and advisors (collectively, the "Inspectors") based on the number of shares of Common Stock acquired by the Investors in the Private Placement, pertinent financial and other records, and pertinent corporate documents and properties of the Company, as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence;
3.1.16 hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement, or (v) such Investor consents to the form and content of any such disclosure. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information;
3.1.17 instruct the Company's transfer agent to remove the restrictive legend on the stock certificates after effectiveness of the applicable Registration Statement and provide. with the cooperation of the Investors, any required legal opinions at the Company's sole expense; and
3.1.18 the Company shall use its commercially reasonable efforts to (subject to applicable law), as soon as practicable, (A) incorporate in a prospectus supplement or post-effective amendment the information provided by an Investor pursuant to Section 3.2 relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, (B) make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment and (C) supplement or make amendments to any Registration Statement if reasonably requested by an Investor holding any Registrable Securities as it relates to the information provided by an Investor pursuant to Section 3.2 relating to the sale and distribution of Registrable Securities.
3.2 In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:
3.2.1 each participating Investor shall furnish to the Company in writing such information and documents regarding it and the distribution of its securities as may reasonably
be required to be disclosed in the Registration Statement in question by the rules and regulations under the Securities Act or under any other applicable securities or blue sky laws of the jurisdictions referred to in Section 3.1.4 above, or as may otherwise be reasonably requested; and
3.2.2 if any such registration or comparable statement refers to any participating Investor by name or otherwise as the Investor of any securities of the Company, but such reference to such participating Investor by name or otherwise is not required by the Securities Act or any similar federal statute then in force, then such participating Investor shall have the right to require the deletion of the reference to such participating Investor.
3.3 From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in the Mandatory Registration Statement under
Section 2.1 hereof or any amendment or supplement thereto under Section 3.1.2
hereof without the consent of the Investors of a majority in interest (based
upon the dollars invested) of the Registrable Securities, except pursuant to
outstanding registration rights set forth on SCHEDULE 3.3 attached hereto.
4. REGISTRATION EXPENSES.
In connection with any registration of Registrable Securities pursuant to Section 2, the Company shall, whether or not any such registration shall become effective, from time to time promptly pay all Company Registration Expenses. Such expenses shall not include any Selling Expenses other than up to $10,000 of reasonable fees and expenses of one counsel selected by a majority of the Investors solely with respect to the Mandatory Registration Statement.
5. INDEMNIFICATION.
5.1 The Company shall, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each Investor and each Placement Agent (and their respective officers, directors, managers, members, partners, stockholders, employees, agents and advisors) and each Person who controls any Investor or Placement Agent within the meaning of the Securities Act (each, an "Indemnified Party") from and against all losses, claims, damages, liabilities and expenses, joint or several, to which any such Indemnified Party may become subject under the Securities Act, the Exchange Act and all rules and regulations under each such act, any other federal or state statute, law or regulation at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any amendment or supplement thereto or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary, final or summary prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Company shall have filed with the SEC, any amendment thereof or supplement thereto), or any omission or alleged omission to state therein 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, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and
relating to action of or inaction by the Company in connection with any such registration including the failure to deliver any document required herein to be delivered, to an Investor and a Placement Agent; and in each such case, the Company shall reimburse each such Indemnified Party for any reasonable legal or other expenses as such reasonable expenses are incurred by any of them in connection with investigating, defending, settling, compromising, proving or defending any such loss, claim, damage, liability, expense, action or proceeding; PROVIDED, HOWEVER, that the Company shall not be liable to any such Indemnified Party insofar as such losses, claims, damages, liabilities, expenses, actions or proceedings are caused by any untrue statement or alleged untrue statement or material omission to provide information pursuant to Section 5.2 made in reliance on and in conformity with any written information furnished to the Company by or on behalf of any Indemnified Party to be furnished under the Section 5.2 or as a result of the failure of the Indemnified Party to furnish a prospectus to a purchaser.
5.2 In connection with any Registration Statement in which any Investor and the Placement Agent is participating, such participating parties shall furnish to the Company in writing such information as shall be reasonably requested by the Company for use in any such Registration Statement or prospectus and shall indemnify and hold harmless, severally and not jointly, to the extent permitted by law, the Company, its officers, directors, employees, agents, advisors and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities, expenses, actions or proceedings resulting from any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact with respect to information expressly requested by the Company and required to be stated in the Registration Statement or prospectus or preliminary prospectus or any amendment thereof or supplement thereto, or necessary to make the statements therein in the light of the circumstance under which they were made (in the case of a prospectus) not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission with respect to information expressly requested by the Company is made in reliance on and in conformity with any information so furnished in writing or to be furnished under this Section 5.2 by such participating Investor expressly for use therein. Notwithstanding the provisions of this Section 5.2, each Investor shall not be liable for any indemnification obligation under this Agreement in excess of the aggregate amount of net proceeds received by such Investor from the sale of the Registrable Securities pursuant to the applicable Registration Statement. In no case shall the Placement Agent be liable for any indemnification obligation under this Agreement in excess of the compensation received by it pursuant to the Placement Agent Agreement.
5.3 Any Person entitled to indemnification under the provisions of this
Section 5 shall (i) give prompt notice to the indemnifying party of any claim
with respect to which it seeks indemnification but the omission to so notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have pursuant to this Section 5 to the extent it is not materially
prejudiced as a result of such failure, and (ii) unless in the reasonable
judgment of counsel for such indemnified party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim,
permit such indemnifying party to assume the defense of such claim, with counsel
reasonably satisfactory to the indemnified party; and if such defense is so
assumed, such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes liability to the
indemnified party and such indemnifying party shall not be subject to any
liability for any
settlement made without its consent. In the event an indemnifying party shall not be entitled, or elects not, to assume the defense of a claim, such indemnifying party shall not be obligated to pay the fees and expenses of more than one law firm for all parties indemnified by such indemnifying party hereunder in respect of such claim, unless in the reasonable judgment of any such counsel a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect to such claim. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the transfer of such securities by such indemnified party.
5.4 If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations in accordance with Section 6 below. NOTWITHSTANDING THE FOREGOING, each of the Investors and the Placement Agent shall not be required to contribute any amount in excess of the amount such Investor or Placement Agent would have been required to pay to an indemnified party if the indemnity under Section 5.2 was available. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
5.5 An indemnifying party shall make payments of all amounts required to be made pursuant to the foregoing provisions of this Section 5 to or for the account of the indemnified party from time to time promptly upon receipt of bills or invoices relating thereto or when otherwise due and payable.
6. CONTRIBUTION.
To provide for just and equitable contribution, if (i) an Indemnified Party makes a claim for indemnification pursuant to Section 5 but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agreement expressly provides indemnification in such case, or (ii) any indemnified party or indemnifying party seeks contribution under the Securities Act, the Exchange Act, or otherwise, then the Company (including for this purpose any contribution made by or on behalf of any officer, director, employee or agent for the Company, or any Controlling Person of the Company), on the one hand, and the indemnified party, on the other hand, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, in such proportions as are appropriate to reflect the relative benefits received by the Company, on the one hand, and the indemnified party, on the other hand; PROVIDED, HOWEVER, that if applicable law does not permit such allocation, then other relevant equitable considerations such as the relative fault of the Company and the indemnified party in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses shall also be considered. No Person liable for a fraudulent misrepresentation shall be entitled to contribution from any person who is not liable for such fraudulent misrepresentation. Anything in this Section 6 to the contrary notwithstanding, no party shall be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 6 is intended to supersede any right to contribution under the Securities Act, the Exchange Act, or otherwise unless such statute makes such right exclusive.
The Company, the Investors and the Placement Agent agree that it would not be
just and equitable if contribution pursuant to this Section 6 were determined
solely by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in this Section 6.
Notwithstanding the provisions of this Section 6, each of the Investors and the
Placement Agent shall not be required to contribute any amount in excess of the
amount such Investor or Placement Agent would have been required to pay to an
indemnified party if the indemnity under Section 5.2 was available. The
Investors' and the Placement Agent's obligations to contribute pursuant to this
Section 6 are several and not joint.
7. RULE 144.
The Company covenants that it shall file the reports required to be filed under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, in the event that the Company is not required to file such reports, it shall make publicly available information as set forth in Rule 144(c)(2) promulgated under the Securities Act), or to the extent required from time to time to enable the Investors and the Placement Agent to sell their Registrable Securities without registration under the Securities Act within the limitation of the exemption provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC (collectively, "Rule 144").
8. REGISTRATION RIGHTS OF OTHERS.
(a) Subject to Section 8(b) hereof, if the Company shall at any time hereafter provide any Person any rights with respect to the registration of any securities of the Company under the Securities Act, such rights shall not permit any such securities to become registered during the period between Closing and the date that is 180 days after the Mandatory Registration Statement becomes effective or, in any other manner, be superior to the rights provided herein to the Investors and the Placement Agent.
(b) The Investors and Placement Agent acknowledge: (i) the existence of the registration rights previously granted by the Company as set forth on SCHEDULE 8 attached hereto, (ii) that the covenant set forth in Section 8(a) shall not be breached or violated by the granting to, or the exercise by such holders of the rights set forth on SCHEDULE 8, and (iii) up to 1,3650,200 shares of Common Stock, currently held by Dr. Atul Mehta and his Affiliates (the "Mehta Holders"), may be included in the Mandatory Registration Statement if some or all of such shares are purchased from the Mehta Holders by third parties. Subject to the time restrictions in Section 8(a), the granting of demand rights to other parties shall not be deemed an impairment of the Investors' and the Placement Agent's rights hereunder.
9. REPORTING STATUS AND LISTING.
(a) Until the date on which the Investors shall have sold all of their Registrable Securities, the Company shall file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination.
(b) The Company shall use its best efforts to maintain the eligibility for quotation of the Common Stock on the American Stock Exchange. Subject to applicable law, neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the American Stock Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this section.
10. TRANSFER OF REGISTRATION RIGHTS.
If and to the extent that any Investor or the Placement Agent sells or otherwise disposes of Registrable Securities or warrants exercisable for Registrable Securities in any transaction that does not require registration under the Securities Act (other than a transaction exempt under Rule 144), the rights of the Investor or the Placement Agent hereunder with respect to such Registrable Securities shall be assignable to any transferee of such Registrable Securities; PROVIDED, HOWEVER, that such transferee agrees in writing to be bound by all the terms and conditions of this Agreement.
11. MISCELLANEOUS.
11.1 The registration rights provided to the Investors of Registrable
Securities hereunder shall terminate on the date there shall no longer be any
outstanding Registrable Securities; PROVIDED, HOWEVER that the provisions of
Section 5 hereof shall survive any termination of this Agreement.
11.2 A Person is deemed to be an Investor of Registrable Securities whenever such Person owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
11.3 All notices, offers, acceptance and any other acts under this Agreement shall be in writing, and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar receipted overnight delivery, or by facsimile or e-mail delivery followed by a copy sent by Federal Express or similar receipted overnight delivery, as follows:
If to the Company: Elite Pharmaceuticals, Inc.
165 Ludlow Avenue
Northvale, NJ 07647
Facsimile No.: (201) 750-2755
Attention: Mr. Bernard Berk
Chief Executive Officer
15
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With a copy to: Reitler Brown & Rosenblatt LLC
800 Third Avenue, 21st Floor
New York, NY 10022
Facsimile No.: (212) 371-5500
Attention: Scott H. Rosenblatt, Esq.
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If to an Investor, at such address as such Investor shall have provided in writing to the Company or such other address as such Investor furnishes by notice given in accordance with this Section 11.3, with a copy to:
Indigo Securities, LLC
780 Third Avenue, 23rd Floor
New York, NY 10017
Facsimile No.: (212) 298-9933
Attention: Eric Brachfeld
With a Copy to: Wollmuth Maher & Deutsch LLP
500 Fifth Avenue
New York, New York 10110
Facsimile No.: (212) 382-0050
Attention: Rory M. Deutsch, Esq.
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11.4 Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
11.5 This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York.
11.6 Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (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 Manhattan, New
York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in Manhattan, New York 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 hereof). Each party agrees not to commence a claim or proceeding
hereunder in a court other than a state court or federal court sitting in
Manhattan, New York, except (i) if required as a mandatory counterclaim or
cross-claim in a proceeding commenced by a Person in a different jurisdiction or
(ii) if such party has first brought such claim or proceeding in such court
sitting in Manhattan, New York and both the state courts and the federal courts
sitting in Manhattan, New York have denied jurisdiction over such claim or
proceeding. Each party hereto 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 manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
11.7 This Agreement, the Subscription Agreement and the Placement Agent Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Subscription Agreement and the Placement Agent Agreement supersede all prior agreements and understandings among the parties hereto and thereto with respect to the subject matter hereof and thereof.
11.8 Subject to the requirements of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.
11.9 The headings in this Agreement are for convenience of reference only and shall not form part of or effect the interpretation of this Agreement.
11.10 This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.
11.11 Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
11.12 Except as otherwise set forth herein, all consents, approvals and other determinations to be made by the Investors pursuant to this Agreement shall be made by the Investors holding more than 66 2/3% of the Registrable Securities then held by all Investors.
11.13 If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.
11.14 This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by any other Person.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties have set their hands and seals the date and year first above written.
ELITE PHARMACEUTICALS, INC.
INVESTORS:
INDIGO SECURITIES, LLC
[ADDITIONAL SIGNATURE PAGES ATTACHED]
INDIVIDUAL:
Dated: __________________ ________________________
Name of Individual:
Address:
________________________
________________________
________________________
________________________
Facsimile: ____________
Dated: __________________ NON-INDIVIDUAL:
________________________
Name of Entity
By:_____________________
Name:
Title:
Address:
________________________
________________________
________________________
________________________
Facsimile: ____________
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SCHEDULE 1
TO
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
ELITE PHARMACEUTICALS, INC.
AND THE FOLLOWING INVESTORS:
EXHIBIT 10.13
ELITE PHARMACEUTICALS, INC.
PLACEMENT AGENT AGREEMENT
This Placement Agent Agreement dated as of August 12, 2004 is entered into by and between Elite Pharmaceuticals, Inc. (the "Company") and Indigo Securities, LLC (the "Placement Agent"). The Company and the Placement Agent shall sometimes collectively be referred to as the Parties, or singly as a "Party."
WHEREAS, the Company desires to appoint the Placement Agent as its agent to sell on a "best efforts" basis up to $6,000,000 in shares of Series A Preferred Stock convertible into shares of Common Stock (subject to a 10% over allotment option in favor of the Placement Agent) and warrants to purchase shares of Common Stock (the "Investor Warrants" and together with the Series A Preferred Stock the "Securities") pursuant to a Term Sheet and offering documents to be prepared by the Company; and
WHEREAS, the Placement Agent desires to accept such appointment on the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings set forth below:
"Blue Sky" means the laws of any state or other jurisdiction relating to the requirements for registering and offering securities for sale in such state or other jurisdiction.
"Blue Sky Application" means any application or other document executed by the Company specifically for the purpose of qualifying the Securities in any state or other jurisdiction under the Blue Sky laws of any such state or other jurisdiction.
"Closing" shall refer to that event which, subject to the terms hereof, occurs when the Placement Agent has received and delivered to the Company subscriptions which the Company has agreed to accept for at least a minimum of gross proceeds from Subscribers on or prior to the Termination Date. Upon the prior consent of the Company, one or more additional Closings may be held for additional subscriptions accepted by the Company no later than the Termination Date of the offering.
"Closing Date" means the date when the Closing occurs.
"Closing Price" means the average closing sale price of a
share of Common Stock reported on the American Stock Exchange during the five
(5) trading days ending two (2) trading days immediately preceding the Closing.
"Company" shall have the meaning set forth in the preface.
"Common Stock" means common stock, par value $0.01 per share of the Company.
"Controlling Person" shall have the meaning set forth under
Section 15 of the Securities Act.
"Covered Claims" shall refer to the claims set forth in
Section 10.1 for which a party may seek indemnification under Section 10.
"Exchange Act" means the Securities Exchange Act of 1934.
"Financial Statements" means the audited consolidated financial statements of the Company for the fiscal years ended March 31, 2004 and 2003, including balance sheets and related statements of income, stockholders' equity and cash flows, together with the related notes, audited by the Company's independent certified public accountants as the same have been filed with the SEC as part of the SEC Documents and the unaudited consolidated financial statements of the Company for the quarters ended June 30, 2004 and 2003, including balance sheets and related statements of income, stockholders' equity and cash flows as the same have been filed with the SEC as part of the SEC Documents.
"Holder" or "Holders" means the holder of any Securities and/or any Placement Agent Warrant, and the securities contained in, and underlying each of, the foregoing securities.
"Indemnified Party" refers to a party who is entitled to indemnification under Section 10 and shall refer either to (i) the Placement Agent, or (ii) the Company, as the case may be, and (iii) their respective stockholders, directors, officers, employees, and Controlling Persons.
"Indemnifying Party" means a party who has agreed to provide indemnification under Section 10.
"Intellectual Property Rights" means all patents, patent applications, trademarks, service marks, copyrights, trade secrets, processes or formulations used or proposed to be used in the conduct of the business of the Company and any Subsidiaries.
"Investor Warrants" means the LT Warrants and the ST Warrants to purchase shares of Common Stock of the Company to be issued to the Investors in connection with the Offering.
"Knowledge" shall mean the actual knowledge of the Chief Executive Officer and the Financial Officer of the Company.
"License" or "Licenses" means all licenses, permits and other governmental certificates, authorizations and permits, and approvals of the Company or any Subsidiary.
"LT Warrants" means the warrants to purchase shares of Common Stock to be issued to the Investors in connection with the Offering which expire on the fifth anniversary of the Closing.
"Material Adverse Effect" means any change or effect that is materially adverse to the business, results of operations, financial condition, or material proprietary rights of the Company or any Subsidiary.
"Most Recent Balance Sheet Date" shall refer to the consolidated balance sheet of the Company dated as of June 30, 2004 as the same has been filed with the SEC as part of the SEC Documents.
"NASDR" means the NASD Regulation, Inc.
"NOBO List" means the list of non-objecting beneficial owners of the Company's publicly traded securities.
"Offering" means the solicitation by the Placement Agent of Subscribers for the purchase of Securities pursuant to this Agreement, the Term Sheet and applicable law.
"Offering Documents" shall refer to the Term Sheet and all attachments and exhibits thereto, including but not limited to Elite's Annual Report on Form 10-K for the year ended March 31, 2004 and Elite Quarterly Report on Form 10-Q for the period ended June 30, 2004, the form of Registration Rights Agreement, and Subscription Agreement.
"Offering Period" shall refer to the period during which the Offering may occur as more particularly described in Section 3.1 hereof.
"Placement Agent" shall have the meaning set forth in the preface.
"Placement Agent Warrants" shall refer to the warrants issued to the Placement Agent as part of its compensation for services rendered hereunder in the form attached hereto as EXHIBIT A.
"Private Placement" shall mean the placement of up to $6,000,000 in shares of Series A Preferred Stock (subject to an over allotment option in favor of the Placement Agent) and Investor Warrants to purchase a number of shares of Common Stock by the Company through the Placement Agent pursuant to this Agreement and the Term Sheet.
"Registration Rights Agreement" shall refer to that agreement by and between the Company, on one hand and the Placement Agent and Holders on the other hand.
"SEC" refers to the Securities and Exchange Commission.
"SEC Documents" means any registration statement, reports and documents filed with the SEC by the Company.
"Securities" shall have the meaning set forth in the preface.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Selected Dealer" means a person or entity which is a member of the NASDR and which is selected by the Placement Agent pursuant to this Placement Agent Agreement to assist the Placement Agent in the Offering.
"Series A Preferred Stock" means a newly created series of preferred stock designated by the Company as Series A Preferred Stock, par value $0.01 per share, of the Company.
"ST Warrants" means the warrants to purchase shares of Common Stock to be issued to the Investors in connection with the Offering which expire 180 days after the date upon which a registration statement covering the shares of Common Stock issuable upon exercise of such warrants is declared effective by the SEC.
"Subscriber" or "Subscribers" means an "accredited investor," as defined under Rule 501 of the Securities Act, subscribing to purchase Securities.
"Subscription Agreement" means the agreement between the Company and a Subscriber for the purchase of one or more Securities, pursuant to the Term Sheet.
"Termination Date" means the date set forth in Section 3.1.
"Term Sheet" means the document prepared by the Company which sets forth the terms and conditions of the Offering.
Capitalized terms used herein, not otherwise expressly defined above, shall have the same meanings provided in the Offering Documents unless a contrary or differing meaning is provided herein.
2. NATURE OF OFFERING.
2.1 BEST EFFORTS. The Placement Agent shall offer to accredited investors, as defined by Rule 501 under the Securities Act, on a "best efforts basis" during the Offering Period (a) a minimum of $4,000,000 and a maximum of $6,600,000 of Series A Preferred Stock at a price per share equal (i) 10 multiplied by (ii) the Closing Price, (b) LT Warrants to purchase a number of shares of Common Stock equal to 50% of the number of shares of Common Stock issuable at the Closing upon the conversion in full of all shares of Series A Preferred Stock at an exercise price equal to 125% of the Closing Price and (c) ST Warrants to purchase a number of shares of Common Stock issuable at the Closing upon the conversion in full of all shares of Series A Preferred Stock at an exercise price equal to 125% of the Closing Price. The Company and Placement Agent shall take all necessary steps to insure that the Offering is exempt from registration under Section 4(2) under the Securities Act and Rule 506 thereunder. The Offering shall be made solely to prospective investors which qualify as "accredited investors" as defined in Rule 501(a) of Reg. D promulgated under the Securities Act. The Company has prepared a Term Sheet, acceptable to the Placement Agent, containing the terms and conditions of the Offering.
2.2 SUBSCRIPTION PROCEEDS. All subscriptions shall be deposited in an escrow account at Bank of New York reference: Elite Pharmaceuticals, Inc for the benefit of customers established under Exchange Act Rule 15c2-4 pending the Closing or termination of the Offering. Prior to the Closing or termination of the Offering, the Company will notify the Placement Agent as to which, if any, subscriptions it will not accept; provided that proceeds for subscriptions not accepted will be promptly returned without interest following termination of the Offering. The Company may not accept subscriptions if the aggregate subscription do not equal or exceed $4,000,000 or if the Closing Price is less than $1.40.
2.3 SUBSCRIPTION DOCUMENTS. Each prospective investor who desires to purchase Securities shall be required to deliver to a Placement Agent, one copy of an executed Subscription Agreement, including applicable investor questionnaire, one copy of the Registration Rights Agreement, and any other documents required by the Company in connection with the purchase of the Securities.
3. APPOINTMENT OF PLACEMENT AGENT.
3.1 APPOINTMENT. The Company hereby appoints the Placement Agent its exclusive agent (subject to Section 3.3 hereof), for the purposes of placing the Securities with qualified Subscribers during the Offering Period pursuant to the Offering as described in the Offering Documents. The Offering Period shall commence on the day the Offering Documents are first made available by the Company to the Placement Agent for delivery in connection with the offering of Securities for sale and such appointment shall continue until the earliest to occur of (i) the closing of the sale of $6,600,000 of the Securities, (ii) September [___], 2004(1), or (iii) the date the parties agree to terminate the Offering (the "Termination Date").
3.2 ACCEPTANCE OF AGENCY. Subject to the performance by the Company of all of its obligations to be performed under this Agreement and to the other terms contained in this Agreement, the Placement Agent hereby accepts such agency and agrees to use its best efforts to assist the Company in placing the Securities with qualified Subscribers pursuant to the Offering described in the Offering Documents. It is understood that the Placement Agent has no commitment to sell any Securities.
3.3 SELECTED DEALERS. The Placement Agent may engage other persons selected by the Placement Agent and approved by the Company that are members of NASDR, and that have executed a selected dealer agreement in a form approved by or acceptable to the Placement Agent to assist the Placement Agent in the Offering. The Placement Agent may allow such persons such part of the compensation and payment of expenses payable to the Placement Agent hereunder as it shall determine. No compensation or other obligation shall be due to such Selected Dealers by the Company. Each Selected Dealer shall be required to agree in writing to comply with the provisions of, and to make the representations, warranties and covenants contained in this Agreement applicable to the sale of Securities.
3.4 SUBSCRIPTION AGREEMENTS FOR SECURITIES. Subscriptions for Securities shall be evidenced by the execution by Subscribers of a Subscription Agreement in the form of Exhibit B hereto. No Subscription Agreement shall be effective unless and until it is accepted by the Company.
3.5 RIGHT OF FIRST OFFER TO SUBSEQUENT OFFERINGS. If, during the eighteen (18) month period immediately following the final closing of the Offering (the "FO Period"), the Company seeks to engage a placement agent or finder to assist the Company in the placement of any equity securities or securities convertible into equity securities of the Company (other than an underwritten public offering) to any party that is not an affiliate at such time or shareholder of the Company as of the date of this Agreement, the Company shall provide to the Placement Agent a written summary of the terms for such offering (a " Offering Notice"). During the ten (10) day period immediately following the delivery of the Offering Notice, the Company and the Placement Agent shall negotiate in good faith, on an exclusive basis, the terms of such offering. If, at the end of such ten (10) day period, the Placement Agent elects to assist in such offering, the Placement Agent shall (i) provide the Company with written notice of its election to participate (a "Election Notice") and include in such notice the agreed upon terms of such offering and (ii) provide to the Company evidence of commitments for at least the minimum prospective offering within thirty (30) days after delivery to the Company of the Election Notice. If either of the conditions set forth in clause (i) or (ii) of the previous sentence is not satisfied with respect to an prospective equity financing during the FO Period, the Company may enter into a placement arrangement with any third party or directly with prospective investors on terms no more favorable to the prospective investors or placement agent than the terms contained in the Offering Notice.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Placement Agent and each Selected Dealer, if any, which representations and warranties which are true and correct and shall be true and correct as of the time of the Closing, as follows:
4.1 SECURITIES LAW COMPLIANCE. The Offering Documents shall not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. If at any time prior to the completion of the Offering or other termination of this Agreement any event shall occur as a result of which it might become necessary to amend or supplement the Offering Documents so that they do not include any untrue statement of any material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances then existing, not misleading, the Company shall promptly notify the Placement Agent and shall supply the Placement Agent with amendments or supplements correcting such statement or omission. The Company shall also provide the Placement Agent for delivery to all offerees and their representatives, if any, any information, documents and instruments which the Placement Agent and the Company deem necessary to comply with state and federal law applicable to the offering.
4.2 ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own and lease its properties, to carry on its business as currently conducted, to execute and deliver this Agreement and to carry out the transactions contemplated by this Agreement, as appropriate, and is duly licensed or qualified to do business as a foreign corporation in each jurisdiction in which the conduct of its business or ownership or leasing of is properties requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect.
4.3 CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company prior to the consummation of the transactions contemplated hereby is as set forth in the Offering Documents and the SEC Documents. All issued and outstanding shares of common stock of the Company are validly issued, fully paid and nonassessable and have not been issued in violation of the preemptive rights of any stockholder of the Company. All prior sales of securities of the Company were either registered under the Securities Act and applicable state securities laws or exempt from such registration.
4.4 DERIVATIVE SECURITIES; RIGHTS. Except as disclosed on SCHEDULE 4.4 hereof or as set forth in the most recent Form 10-Q or Form 10-K filed by the Company, there are not, nor shall there be immediately prior to the Closing, any outstanding warrants, options, agreements, convertible securities, preemptive rights to subscribe for or other commitments pursuant to which the Company or any of its Subsidiaries is, or may become, obligated to issue any shares of its capital stock or other securities of the Company and this Offering shall not cause any anti-dilution adjustments to such securities or commitments. Since the most recent Form 10-Q or Form 10-K filed by the Company, there has not been any additional re-pricing of any outstanding, warrants, options or other securities of the Company.
4.5 SUBSIDIARIES AND INVESTMENTS. SCHEDULE 4.5 sets forth as of the date hereof for each Subsidiary of the Company (i) its name and jurisdiction of incorporation; (ii) the number of shares of authorized capital stock of each class of its capital stock; (iii) the number of issued and outstanding shares of each class of its capital stock, all of which is owned by the Company; and (iv) its directors and officers. Each Subsidiary is a corporation duly organized, validly existing, and in in
good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the failure shall not have a Material Adverse Effect. Each Subsidiary has full power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged andwhich it presently proposes to engage and to own and use the properties owned and used by it, except where the failure shall not have a Material Adverse Effect. The Company has made available to the Placement Agent correct and complete copies of the charter and bylaws of each Subsidiary (as amended to date). All of the issued and outstanding shares of capital stock of each Subsidiary has been duly authorized and are validly issued, fully paid, and nonassessable. The Company holds of record and owns beneficially all of the outstanding shares of each Subsidiary, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), taxes, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any of the Company or any Subsidiary to sell, transfer, or otherwise dispose of any capital stock of any of a Subsidiary or that could require any Subsidiary to issue, sell, or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of each Subsidiary are correct and complete. None of the Subsidiaries are in default under or in violation of any provision of their respective charters or bylaws. Neither the Company nor any Subsidiary controls, directly or indirectly, or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a Subsidiary.
4.6 FINANCIAL STATEMENTS. The Financial Statements included in the Offering Documents are: (i) in accordance with all books, records and accounts of the Company; (ii) are true, correct and complete; and (iii) have been prepared in accordance with generally accepted accounting principles, consistently applied. The Financial Statements fairly present, in all material respects, the results of operations and cash flow for the periods covered. The Company has no material liabilities, contingent or otherwise, other than: (a) liabilities reflected on the Most Recent Balance Sheet; (b) liabilities incurred in the ordinary course of business subsequent to the date of such Financial Statements; and (c) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such Financial Statements.
4.7 ABSENCE OF CHANGES. Since the Most Recent Balance Sheet, to the
Company's Knowledge, neither the Company nor any Subsidiary has (i) incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, (ii) entered into any transaction not in the ordinary course of
business, which is material to the business of the Company or any Subsidiary, or
(iii) incurred any adverse change or any development involving, so far as the
Company or any Subsidiary can now reasonably foresee which would have a Material
Adverse Effect, and neither the Company nor any Subsidiary has become a party
to, and neither the business nor the property of the Company or any Subsidiary
has become the subject of, any litigation,
whether or not in the ordinary course of their respective businesses. Nor has there been any change in the capital stock of, or any incurrence of long-term debt by the Company or any Subsidiary, or any issuance of options, warrants or other rights to purchase the capital stock of the Company or any Subsidiary.
4.8 TITLE. Except as disclosed on SCHEDULE 4.8 hereto or as set forth in the SEC Documents, each of the Company and the Subsidiaries has good and marketable title to their respective properties and assets, free and clear of all liens, charges, encumbrances or restrictions, which would have a Material Adverse Effect; all of the leases and subleases under which the Company or any Subsidiary is the lessor or sublessor of properties or assets or under which the Company or any Subsidiary holds properties or assets as lessee or sublessee are in full force and effect, and neither the Company (nor any Subsidiary) is in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no material claim has been asserted by anyone adverse to rights of the Company or any Subsidiary as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company or any Subsidiary to continued possession of the leased or subleased premises or assets under any such lease or sublease. To its Knowledge, the Company and each Subsidiary owns or leases all such properties as are necessary to their respective operations as now conducted.
4.9 LITIGATION. Except as set forth in the SEC Documents, there is no action, suit, investigation, inquiry or similar governmental proceeding, claim or proceeding at law or in equity by or before any arbitrator, governmental instrumentality or other agency now pending or, to the Knowledge of any of the Company or its Subsidiaries, threatened against the Company or any Subsidiary (or basis therefore known to the Company or any Subsidiary) the adverse outcome of which would have a Material Adverse Effect. Neither the Company nor any Subsidiary is subject to any judgment, order, writ, injunction or decree of any federal, state, municipal or other governmental instrumentality, commission, board, bureau, agency or instrumentality, domestic or foreign which would have a Material Adverse Effect.
4.10 NON-DEFAULT; NON-CONTRAVENTION. Neither the Company nor any of the Subsidiaries is in breach of, or in default under, any term or provision of any indenture, mortgage, deed of trust, lease, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected. Neither the Company nor any of the Subsidiaries is in violation of any provision of its charter or Bylaws or in violation of any franchise, license, permit, judgment, decree or order, or in violation of any statute, rule or regulation that would individually or in the aggregate have a Material Adverse Effect. Neither the execution and delivery of this Agreement, the Subscription Agreements, nor the issuance and sale or delivery of the securities comprising the Securities and the Placement Agent Warrants, nor the consummation of any of the transactions contemplated herein or in the Subscription Agreements, or the Term Sheet, nor the compliance by the Company with the terms and provisions hereof or thereof, has conflicted with or will conflict with, or has resulted in or will result in a breach of, any of the material terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries or pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the
Subsidiaries may be bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject; nor will such action result in any violation of the provisions of the charter or the Bylaws of the Company or any of the Subsidiaries or, assuming the due performance by the Placement Agent of its obligations hereunder, any statute or any order, rule or regulation applicable to the Company or any of the Subsidiaries of any court or of any foreign, federal, state or other regulatory authority or other government body having jurisdiction over the Company or any of the Subsidiaries.
4.11 TAXES. Each of the Company and its Subsidiaries has filed all U.S. federal, state, local and foreign tax returns which are required to be filed by each of them and all such returns are true and correct in all material respects. The Company and each Subsidiary has paid all taxes pursuant to such returns or pursuant to any assessments received by any of them or by which any of them are obligated to withhold from amounts owing to any employee, creditor or third party. The Company and each Subsidiary has properly accrued all taxes required to be accrued and/or paid, except where the failure would not have a Material Adverse Effect. The tax returns of the Company and its Subsidiaries are not currently being audited by any state, local or federal authorities. Neither the Company nor any Subsidiary has waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency.
4.12 COMPLIANCE WITH LAWS, LICENSES, ETC. To the best of the Company's Knowledge, neither the Company nor any Subsidiary has received notice of any violation of or noncompliance with any federal, state, local or foreign, laws, ordinances, regulations and orders applicable to its business (including but not limited to all applicable laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants), which has not been cured, the violation of, or noncompliance with which would have a Material Adverse Effect. The Company and each Subsidiary has all Licenses required by every federal, state and local government or regulatory body for the operation of its business as currently conducted and the use of its properties, except where the failure to be licensed would not have a Material Adverse Effect. The Licenses are in full force and effect and no violations are or have been recorded in respect of any License and no proceeding is pending or threatened to revoke, modify or limit any thereof.
4.13 AUTHORIZATION OF AGREEMENT, ETC. This Agreement has been duly executed and delivered by the Company and the execution, delivery and performance by the Company of this Agreement, the Offering Documents and the Placement Agent Warrants have been duly authorized by the Company's board of directors and no further consent or authorization of its board of directors or its stockholders is required by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally.
4.14 AUTHORIZATION OF SECURITIES AND PLACEMENT AGENT WARRANTS. The Securities and the Placement Agent Warrants, when issued and delivered in accordance with this Agreement, and the
shares of common stock underlying the Placement Agent Warrants, when issued and delivered upon exercise of the Placement Agent Warrants shall be validly issued, fully paid, and nonassessable and shall not be issued in violation of any preemptive rights of stockholders.
4.15 EXEMPTION FROM REGISTRATION. Assuming (i) the accuracy of the information provided by the respective Subscribers in the Subscription Documents, and (ii) that each Placement Agent shall comply in all respects with the provisions of Rule 506 Regulation D promulgated under the Securities Act, the offer and sale of the Securities and Placement Agent Warrants pursuant to the terms of this Agreement shall be exempt from the registration requirements of the Securities Act and the rules and regulations promulgated thereunder. The Company is not disqualified from the exemption under Regulation D by virtue of the disqualifications contained in Rule 507 promulgated thereunder.
4.16 BROKERS. Neither the Company nor any of its officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Agreement other than the Placement Agent.
4.17 TITLE TO SECURITIES AND PLACEMENT AGENT WARRANTS. When the certificates representing the Securities and the Placement Agent Warrants have been duly delivered and payment shall have been made therefor by the Holders and/or the Placement Agent as the case may be (i) the Subscribers shall receive good title to the Securities, and the Placement Agent shall receive good title to the Placement Agent Warrants, (and the underlying common stock upon exercise of the Investor Warrants or Placement Agent Warrants). All such title shall be free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreement, and voting trusts (with the exception of claims arising or through the acts of the Holders and except as arising from applicable federal and securities laws), and the Company shall have paid all taxes, if any, in respect of the original issuance thereof. .
4.18 RIGHTS OF FIRST REFUSAL. Except for rights granted to the Placement Agent pursuant to Section 7.3 hereof, no other person, firm or other business entity is a party to any agreement, contract or understanding, written or oral entitling such party to a right of first refusal with respect to securities to be issued by the Company.
4.19 INTELLECTUAL PROPERTY. The Company owns or possesses valid and binding licenses or other rights to use, whether or not registered, all its Intellectual Property. The Intellectual Property constitutes all of the intellectual property necessary to operate the Company's business as presently conducted. Neither the Company nor any Subsidiary has received any notice of any claims, nor do any of them have any Knowledge of any threatened claims, and none of them know of any facts which would form the basis of any claim, asserted by any person to the effect that the sale or use of any product or process now used or offered by the Company or any Subsidiary or proposed to be used or offered by the Company or any Subsidiary infringes upon the use of any such patents, trademarks, copyrights, technology, know-how, processes or other intellectual property of another person. To the best of the Company's Knowledge, no person is infringing upon the Intellectual Property. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of the Intellectual Property. No person, other than the Company, owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part, in any Intellectual Property.
4.20 FOREIGN CORRUPT PRACTICES. To the best of the Company's Knowledge, neither the Company nor any Subsidiary nor to the Knowledge of any of their respective directors, officers, agents, employees or other persons acting on their behalf, in the course of their actions for, or on behalf of the Company or any Subsidiary, used any corporate funds, which would have a Material Adverse Effect for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
4.21 FILINGS WITH THE SEC. The Company has made all filings with the SEC that it has been required to make under the Securities Act and the Exchange Act. All documents required to be filed as exhibits to the SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect, except those which have expired in accordance with their terms, and neither the Company nor any of its subsidiaries is in material default of these material contracts. Each of the Company's SEC Documents has complied in all material respects with the Securities Act and the Exchange Act in effect as of their respective dates of filing. None of the Company's SEC Documents, as of their respective filing dates, 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 made therein, in light of the circumstances under which they were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF PLACEMENT AGENT. The Placement Agent represents, warrants and covenants to the Company that:
5.1 The Placement Agent is a member in good standing of the NASDR., and is duly registered as a broker-dealer under the Exchange Act, and under the laws of each state in which we propose to offer the Securities, except where such registration would not be required by law.
5.2 Each purchaser of Securities will execute the Subscription Agreement in the form attached as Exhibit B to the Term Sheet. The Placement Agent will have no reason to believe that the persons executing such Agreement do not have the qualifications set forth therein.
5.3 This Agreement when accepted and approved will be duly authorized, executed and delivered by the Placement Agent and is a valid and binding agreement on its part in accordance with its terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally.
5.4 The consummation of the transactions contemplated by the Term Sheet related to the offering will not result in any beach of any of the terms or conditions of or constitute a default under any indenture, agreement or other instrument to which the Placement Agent is a party, or violate any order applicable to the Placement Agent of any federal or state regulatory body or administrative agency having jurisdiction over it or its property.
5.5 Until the termination of this Agreement, if any event affecting the Company or the Placement Agent shall occur which, in the opinion of counsel to the Company, should be set forth in a supplement or amendment to the Term Sheet, the Placement Agent agrees to distribute each supplement or amendment to the Term Sheet to each person who has previously received a copy of the Term Sheet from the Company or the Placement Agent and further agrees to include each supplement or amendment in all future deliveries of the Term Sheet.
5.6 In recommending to an investor the purchase of the Securities, the Placement Agent shall:
(a) have reasonable grounds to believe, on the basis of information obtained from the investor concerning his investment objectives, other investments, financial situation and needs, any and other information known by it, that:
(1) the investor is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the Term Sheet.
(2) the investor is an accredited investor and able to sustain the risks inherent in the investment in the Securities, including loss of investment and lack of liquidity; and
(3) the investment is otherwise suitable for the investor; and
(b) maintain in the Placement Agent's files for a period of six years following the Closing documents disclosing the basis upon which the determination of suitability was reached as to each investor.
5.7 The Placement Agent shall not execute any transaction relating to the Company in a discretionary account without prior written approval of the transaction by the customer.
5.8 The Placement Agent has reasonable grounds to believe, based on information made available to it by the Company through the Term Sheet or other materials, that all material facts are adequately and accurately disclosed and provide a basis for evaluating the Company.
5.9 Prior to executing a purchase transaction the Placement Agent shall inform the prospective investor of all pertinent facts relating to the liquidity and marketability of the Securities during the term of the investment.
6. CLOSING; CONDITIONS OF CLOSING.
6.1 CLOSING. The Closing shall be subject to this Section 6 and shall take place at such place as the parties shall mutually agree, as soon as practicable. At the Closing, payment for the Securities issued and sold by the Company shall be made against delivery of the Securities. In addition, a final Closing (if applicable) shall occur as soon as practicable following termination of the Offering.
6.2 CONDITIONS TO PLACEMENT AGENT'S OBLIGATIONS. The obligations of the Placement Agent hereunder shall be subject to the representations and warranties of the Company and each Subsidiary contained herein being true and correct in all material respects as of the date hereof and as of the Closing Date, to the performance by the Company of its obligations hereunder and to the following additional conditions:
6.2.1 NO MATERIAL MISSTATEMENTS. The Placement Agent shall not have notified the Company that the Blue Sky qualification materials or the Offering Documents, or any supplement thereto, contains an untrue statement of a fact which in its opinion is material, or omits to state a fact, which in its opinion is material and is necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
6.2.2 RECEIPT OF CONFIDENTIALITY AGREEMENTS FROM SUBSCRIBERS. The Company shall have received from each Subscriber prior to the delivery of the Offering Documents to any Subscriber, a confidentiality agreement from such Subscriber in form and substance satisfactory to the Company and its counsel and which confidentiality agreement shall meet the requirements of Regulation FD under the Exchange Act.
6.2.3 COMPLIANCE WITH AGREEMENTS. The Company shall have complied in all material respects with this Agreement and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing.
6.2.4 CORPORATE ACTION. The Company shall have taken all necessary corporate action, including, without limitation, obtaining the approval of the Company's board of directors, for the execution and delivery of this Agreement, the performance by the Company of its obligations hereunder and the offering of the Securities and Placement Agent Warrants.
6.2.5 CERTIFICATES. The Placement Agent shall receive a certificate of the Company, signed by the President and Chief Financial Officer thereof, that the representations and warranties contained in Section 4 hereof are true and accurate in all respects at the Closing with the same effect as though expressly made at the Closing.
6.2.6 BRING-DOWN CERTIFICATES. If there is more than one Closing, then at each such Closing there shall be delivered to the Placement Agent updated certificates as described in Section 6.2.5 above.
6.2.7 EXECUTION OF AGREEMENTS. The Company shall have delivered duly executed counterparts of the Registration Rights Agreement and the Placement Agent Warrants.
6.2.8 OPINION OF COUNSEL. On the Closing Date, the Placement Agent shall receive the opinion of either the Company's general counsel or the Company's securities counsel, in substantially the form attached hereto as EXHIBIT 6.2.8.
6.2.9. SUPPORTING DOCUMENTS. On or prior to the Closing Date, the Placement
Agent and its counsel shall have been furnished such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to review or pass upon the matters referred to in Section 6.2.8, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained.
6.2.10. NO ADVERSE CHANGES. On and prior to the Closing Date, there shall have been no transaction, not in the ordinary course of business, entered into by the Company from the latest date as of which the financial condition of the Company is set forth in the Offering Documents which is material to the Company which has not been disclosed to the Placement Agent in writing; (ii) the Company shall not be in default under any provision of any instrument relating to any outstanding indebtedness; (iii) no assets of the Company shall have been pledged or mortgaged as of the date hereof, except as disclosed in this Agreement or as indicated or contemplated in the Offering Documents; and (iv) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or affecting any of its respective properties or businesses before or by any court of federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding could materially adversely affect the business operations, prospects, financial condition or income of the Company, except as set forth in the Offering Documents.
6.3 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the Company hereunder shall be subject to the representations and warranties of the Placement Agent contained herein being true and correct in all respects as of the date hereof and as of the Closing Date, to the performance by the Placement Agent of its obligations hereunder and to the following additional conditions:
6.3.1 DUE QUALIFICATION OR EXEMPTION. The Offering contemplated by this Agreement and the Placement Agent Warrants shall be exempt from registration under Section 4(2) of the Securities Act and Rule 506 thereunder and from registration or qualification under the applicable Blue Sky laws as provided in Section 7 hereof not later than the Closing, all required filings shall have been made with the SEC and applicable Blue Sky administrators not applicable to a private placement.
6.3.2 RECEIPT OF CONFIDENTIALITY AGREEMENTS FROM SUBSCRIBERS. The Company shall have received from each Subscriber prior to the delivery of the Offering Documents to any Subscriber, a confidentiality agreement from each Subscriber in form and substance satisfactory to the Company and its counsel and which confidentiality agreement shall meet the requirements of Regulation FD under the Exchange Act.
6.3.3 COMPLIANCE WITH AGREEMENTS. The Placement Agent shall have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing.
7. BLUE SKY. Prior to the Closing, a summary Blue Sky survey shall be prepared by counsel to the Placement Agent for the states listed on SCHEDULE 7 (as it may be supplemented, summarizing the pre-filing and post-filing requirements of each such state in which the Securities are to be offered and it is understood that such survey may be based on or rely upon the
representations and warranties of the Subscribers as to their qualification as accredited investors.
8. PLACEMENT AGENT COMPENSATION. Upon the Closing, the Company shall pay to the Placement Agent the following compensation:
8.1 COMMISSIONS. Simultaneous with payment for and delivery of the Securities, at the Closing as provided in Section 6.1 above, the Company shall pay the Placement Agent an aggregate commission of 10% percent of the gross cash proceeds of the subscription for Securities accepted by the Company as of the Closing.
8.2 EXPENSES. The Company shall pay the actual reasonable legal fees and expenses of the counsel to the Placement Agent in an aggregate amount not to exceed (i) if the Offering closes $75,000 or (ii) if the Offering does not close, $40,000, in each case, upon provision of reasonable evidence of such fees and expenses.
8.3 BLUE SKY EXPENSES. The Placement Agent's attorneys shall prepare all forms to be filed with state securities regulators in connection with this Offering. The Company shall advance the Blue Sky filing fees as incurred and at the Closing of the Offering, the Company shall pay all related attorneys fees and expenses of Placement Agent's counsel incurred as in connection with Blue Sky filings up to a maximum of [$5,000].
8.4 PLACEMENT AGENT WARRANTS. At the Closing of this Offering, the Company shall grant to the Placement Agent (or their respective designees), Placement Agent Warrants to purchase a number of shares of Common Stock equal to 10% of the total number of shares of Common Stock into which the Series A Preferred Stock sold in the Offering is convertible as of the Closing (but not any of the Investor Warrants). The Placement Agent Warrants shall be exercisable at a price equal to 100% of the Closing Price.
9. COVENANTS OF THE COMPANY.
9.1 USE OF PROCEEDS. The Company shall not use any of the proceeds from the Offering to repay any indebtedness to any current executive officers or directors of the Company.
9.2 EXPENSES OF OFFERING. Whether or not the transactions contemplated hereunder are consummated, the Company shall be responsible for, and shall pay all costs and expenses directly incurred by it in connection with the proposed Offering including, but not limited to, its legal fees, the costs of preparing, printing or photocopying and binding, filing and distributing the Offering Documents and all amendments, supplements and exhibits thereto, and the filing fees in connection with Blue Sky Applications.
9.3 NOTIFICATION. The Company shall notify the Placement Agent immediately, and in writing (i) when any event shall have occurred during the period commencing on the date hereof and ending on the later of the Closing or the Termination Date as a result of which the Offering Documents would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, (ii) whenever it files any report or other document with the SEC or it receives notice that any person or entity has filed any Schedule 13D or
other documents with the SEC relating to the Company, and/or (iii) of the receipt of any notification with respect to the modification, rescission, withdrawal, suspension of any exemption from registration or qualification, in any jurisdiction. The Company shall use its best efforts to prevent the issuance of any such modification, rescission, withdrawal, or suspension and, if any such modification, rescission, withdrawal, stop order or suspension is issued and you so request, to obtain the lifting thereof as promptly as possible.
9.4 BLUE SKY. The Company shall use its best efforts to qualify or register the shares of common stock contained in the Securities and the Placement Agent Warrants for offering and sale under, or establish an exemption from such qualification or registration under, the securities or Blue Sky laws of such jurisdictions as the Placement Agent may reasonably request; PROVIDED, HOWEVER that the Company shall not be obligated to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified. The Company shall not consummate any sale of Securities or the Placement Agent Warrants in any jurisdiction in which it is not so qualified or in any manner in which such sale may not be lawfully made. The Company shall file such consents to service of process or other documents as may be requested by the Placement Agent and which, in the opinion of the Placement Agent or counsel to the Placement Agent, are necessary or advisable in order to effect such registration or qualification and continue the same in effect for so long a period as may be necessary to complete the distribution, PROVIDED, HOWEVER, in each jurisdiction where the Securities or Placement Agent Warrants shall have been registered or qualified as above, the Company shall make and file such statements and reports as are or may be required under the laws of such jurisdiction to continue such qualification in effect for so long a period as the Offering in such jurisdiction is in effect.
9.5 FORM D FILING. The Company shall file five copies of a Notice of Sales of Securities on Form D with the SEC prior to the Closing and shall file promptly such amendments thereto on Form D as shall become necessary. It shall also comply with any filing requirement imposed by the laws of any state or jurisdiction in which offers and sales of Securities or the Placement Agent Warrants are made prior to the Closing. The Company shall furnish the Placement Agent with copies of all such filings.
9.6 REPORTS. The Company shall furnish to the Placement Agent, during the period ending three YEARS from the Termination Date, that number of copies of such of the following documents as the Placement Agent may reasonably request: (i) as soon as they are available, a copy of all communications sent to holders of the Company's securities other than reports filed with SEC; and (ii) such other information of a public nature as a Placement Agent may from time to time reasonably request.
9.7 NO ADDITIONAL OFFERS OR SALES. Until the termination of the Offering, the Company shall not without the prior written consent of the Placement Agent, offer, issue, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of common stock, preferred stock or warrants (or any security or other instrument which by its terms is convertible into, exercisable for, or exchangeable for shares of common stock) except as permitted or authorized by this Agreement, except for shares of common stock issuable upon exercise of a previously outstanding warrant or option or the granting of options under the Stock Option Plan.
9.8 TRANSFER OF THE PLACEMENT AGENT WARRANTS. The Company shall upon the Closing or promptly following the Termination Date, cancel the Placement Agent Warrants upon presentment and transfer them to persons designated by the Placement Agent as instructed by the Placement Agent in writing.
10. INDEMNIFICATION.
10.1 The Company agrees to indemnify and hold harmless the Placement Agent and each Selected Dealer, if any (collectively, referred to as the Placement Agent in this Section 10.1) and Indemnified Parties against any and all losses, liabilities, claims, damages and expenses whatsoever, and to reimburse the Placement Agent for reasonable legal fees and related expenses as incurred, arising out of the following Covered Claims: (i) any breach or alleged breach of any representation or warranty of the Company under this Agreement or the Offering Documents; (ii) any untrue statement or alleged untrue statement of a material fact contained in the Offering Documents, or under any Blue Sky law or in any Blue Sky Application; or (iii) the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
10.2 Each Placement Agent agrees to indemnify and hold harmless the Company and each Indemnified Party of the Company to the same extent as the indemnity from the Company to such Placement Agent, pursuant to Section 10.1 hereof, but only with respect to (i) any breach or alleged breach of any representation or warranty of such Placement Agent in this Agreement; or (ii) any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon or in conformity with written information relating to such Placement Agent offering furnished by such Placement Agent or on its behalf expressly for use in connection with the Offering Documents or any Blue Sky Application as each may be amended or supplemented.
10.3 Promptly after receipt by a person entitled to indemnification pursuant to the foregoing Section 10.1 or 10.2, as applicable, of notice of the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be or has been made against an Indemnifying Party under Section 10.1 or 10.2, as applicable, promptly notify in writing the Indemnifying Party of the commencement thereof; but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to the Indemnified Party except to the extent the Indemnifying Party is prejudiced by the delay or failure to notify it. In case any such action is brought against an Indemnified Party, and it notifies the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in, and, to the extent that it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense thereof, subject to the provisions herein stated, with counsel reasonably satisfactory to the Indemnified Party, and after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to the Indemnified Party under this Section 10 for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Indemnifying Party if the Indemnifying Party has assumed the defense of the action with counsel reasonably satisfactory to the Indemnified Party; provided that the fees and
expenses of such counsel shall be at the expense of the Indemnifying Party if
(i) the employment of such counsel has been specifically authorized in writing
by the Indemnifying Party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Indemnified Party or parties
and the Indemnifying Party and, in the judgment of counsel for the Indemnified
Party, it is advisable because of conflicts of their respective interests for
the Indemnified Party or parties to be represented by separate counsel, in which
case the Indemnifying Party shall not have the right to assume the defense of
such action on behalf of the Indemnified Party or parties, it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the Indemnified Party or parties. No settlement of any action
against an Indemnified Party shall be made without the consent of the
Indemnified Party, which shall not be unreasonably withheld in light of all
factors of importance to the Indemnified Party.
11. CONTRIBUTION.
11.1 To provide for just and equitable contribution, if (i) an Indemnified Party makes a claim for indemnification pursuant to Section 10 but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agreement expressly provides indemnification in such case, or (ii) any Indemnified or Indemnifying Party seeks contribution under the Securities Act, the Exchange Act or otherwise, then the Indemnifying Party (including for this purpose any contribution made by or on behalf of any officer, director, employee or agent for an Indemnifying Party, or any Controlling Person of an Indemnifying Party), on the one hand, and the Indemnified Party (including for this purpose any contribution by or on behalf of any other Indemnified Party), on the other hand, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, in such proportions as are appropriate to reflect the relative benefits received by the Indemnifying Party, on the one hand, and the Indemnifying Party, on the other hand; PROVIDED, HOWEVER, that if applicable law does not permit such allocation, then other relevant equitable considerations such as the relative fault of an Indemnifying Party in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses shall also be considered. Notwithstanding the foregoing, in no case shall the Placement Agent, a Selected Dealer of either or any Controlling Person be responsible for a portion of the contribution obligation in excess of the compensation received by the Placement Agent or Selected Dealer pursuant to Section 8 hereof or the Selected Dealer Agreement, as the case may be. No person liable for a fraudulent misrepresentation shall be entitled to contribution from any person who is not liable for such fraudulent misrepresentation.
11.2 For purpose of this Section 11, each Person, if any, who controls the Placement Agent or a Selected Dealer within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each officer, director, stockholder, employee and agent of the Placement Agent or a Selected Dealer, shall have the same rights to contribution as the Placement Agent or the Selected Dealer, and each person, if any who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each officer, director, employee and agent of the Company, shall have the same rights to contribution as the Company, subject in each case to the provisions of this Section 11. Notwithstanding, anything in this Section 11 to the
contrary, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 11 is intended to supersede any right to contribution under the
Securities Act, the Exchange Act, or otherwise.
11.3 Notwithstanding any of the other provisions of this Agreement, the
aggregate indemnification or contribution obligations of a Placement Agent for
or on account of any losses, claims, damages, liabilities or actions under
Section 10, this Section 11 or other applicable section of this Agreement, shall
not exceed the amount of cash commissions actually received by the Placement
Agent.
12. TERMINATION.
12.1 This Agreement may be terminated by the Placement Agent at any time prior to the Termination Date, if (i) the Company sustains a loss that is material to the Company, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) the Company shall fail to meet any of the closing conditions set forth in this Agreement; (iii) trading in securities on the New York or American Stock Exchange or the Nasdaq Stock Market has been suspended or limited; (iv) material governmental restrictions have been imposed on trading in securities generally (not in force and effect on the date of this Agreement); (v) a banking moratorium has been declared by federal or New York state authorities; (vi) an outbreak of major international hostilities or other national or international calamity has occurred; (vii) any action, proceeding, investigation or inquiry has been instituted against (or relating to) the Company (or any subsidiary thereof) or by any federal, state or municipal commission, board or agency wherein any unfavorable decision would have a Material Adverse Effect, regardless of whether the possibility thereof shall have been disclosed in the Offering Documents; or (viii) the passage by the Congress of the United States or by any state legislative body of any action or measure, or the adoption of any orders, rules or regulations by any governmental body or any authoritative accounting institute, or board, or any governmental executive, which is reasonably likely to have a Material Adverse Effect or materially affects the marketing of the Securities.
12.2 This Agreement may be terminated by the Company on written notice to the Placement Agent on or after the Termination Date.
13. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. Except as the context otherwise requires, the respective indemnities, agreements, representations, warranties, and other statements of the Company set forth in or made pursuant to this Agreement regardless of any investigation made by or on behalf of the Placement Agent or any Controlling Person thereof, shall survive delivery of, and payment for, the Securities and the Placement Agent Warrants. PROVIDED, HOWEVER, no claim or indemnification shall be brought by or on behalf of the Placement Agent more than two years after the Closing.
14. SEVERABILITY. In the event any parts of this Agreement are found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void parts were deleted.
15. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.
16. ARBITRATION. Any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, application, implementation, breach or enforcement which the Parties are unable to resolve by mutual agreement, shall be settled by submission by either party of the controversy, claim or dispute to binding arbitration in New York County, New York (unless the Parties agree in writing to a different location), in accordance with the rules of the NASDR then in effect. In any such arbitration proceeding the Parties agree to provide all discovery deemed necessary by the arbitrators. The decision and award made by the arbitrator shall be final, binding and conclusive on all Parties hereto for all purposes, and judgment may be entered thereon in any court having jurisdiction thereof.
17. BENEFIT. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their legal representatives, successors and assigns.
18. NOTICES AND ADDRESSES. All notices, offers, acceptance and any other acts under this Agreement (except payment) shall be in writing, and shall be sufficiently given if delivered to the addresses in person, by Federal Express or similar receipted delivery, or by facsimile delivery as follows:
the Company: Elite Pharmaceuticals, Inc.
150 Northvale Avenue
Ludlow, New Jersey 07647
Facsimile: (201) 750-2755
Attention: Bernard Berk, Chief Executive Officer
with a copy to: Reitler Brown & Rosenblatt LLC
800 Third Avenue, 21st Floor
New York, New York 10022
Facsimile: (212) 371-5500
Attention: Scott H. Rosenblatt, Esq.
the Placement Agent: Indigo Securities, LLC
780 Third Avenue
Suite 2302
New York, NY 10017
Facsimile: (212) 298-9933
Attention: Eric Brachfeld
with a copy to: Wollmuth Maher & Deutsch LLP
500 Fifth Avenue
New York, New York 10110
Facsimile: (212) 382-0050
Attention: Rory M. Deutsch, Esq.
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or to such other address as either of them, by notice to the other may designate from time to time. The transmission confirmation receipt from the sender's facsimile machine shall be evidence of successful facsimile delivery. Time shall be counted to, or from, as the case may be, the delivery in person or by mailing.
19. ATTORNEY'S FEES. In the event that there is any controversy or claim arising out of or relating to this Agreement, or to the interpretation, breach or enforcement thereof, and any action or proceeding including an arbitration proceeding is commenced to enforce the provisions of this Agreement, the prevailing party shall be entitled to an award by the court or arbitrator, as appropriate, of reasonable attorney's fees, costs and expenses.
20. GOVERNING LAW. This Agreement and any dispute, disagreement, or issue of construction or interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of New York without regard to choice of law considerations.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between the Parties and supersedes all prior oral and written agreements between the Parties hereto with respect to the subject matter hereof. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, except by a statement in writing signed by the Party or Parties against which enforcement or the change, waiver discharge or termination is sought.
22. ADDITIONAL DOCUMENTS. The Parties hereto shall execute such additional instruments as may be reasonably required by their counsel in order to carry out the purpose and intent of this Agreement and to fulfill the obligations of the Parties hereunder.
23. SECTION OR PARAGRAPH HEADINGS. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement that date and year first above written.
Witnesses: ELITE PHARMACEUTICALS, INC.
------------------------ By: /s/ Bernard J. Berk
-------------------------------
Bernard J. Berk
Chief Executive Officer
------------------------
INDIGO SECURITIES, LLC
------------------------ By: /s/ Erich Brachfeld
-------------------------------
Erich Brachfeld
Managing Partner
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EXHIBIT A
FORM OF PLACEMENT AGENT WARRANTS