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
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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
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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, Xxxxx 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;
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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)
(3) Principal residence address and telephone number:
(____)
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Email Address:
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(4) Secondary residence address and telephone number:
(____)
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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:
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(i) Nature of business
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(ii) Position and nature of responsibilities
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(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
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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
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(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
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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.
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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
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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.
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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
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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
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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.
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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
13
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.
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2.5.24 XXXXXXXX-XXXXX. 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
Xxxxxxxx-Xxxxx 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
15
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
"XXX." 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.
16
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
17
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 xxxx 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.
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"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
19
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.
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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.
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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.
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(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 Xxxxx & Xxxxxxxxxx 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
23
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
24
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.
25
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.
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxxx Xxxx,
Chairman and Chief Executive Office
With a copy to: Reitler Xxxxx & Xxxxxxxxxx LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxxx
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.
26
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.
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Individual Investors:
---------------------------------------------------------------------
Social Security Number Print Name of Investor No. 1
------------------------------------------
Signature of Investor No. 1
---------------------------------------------------------------------
Social Security Number Print Name of Investor No. 2
------------------------------------------
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
DATED: _______________, 2004
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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
Xxxxxxx Xxxx,
Chief Executive Officer
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EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Bank of NYC
ABA No. 000000000
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
