COMMON STOCK AND WARRANTS PURCHASE AGREEMENT
GALAXY NUTRITIONAL FOODS, INC.
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT is entered into effective as
of June 28, 2002 (the "Agreement"), between the Investor signatory hereto
("Investor") and Galaxy Nutritional Foods, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase in the aggregate (a) up to $1,500,000 worth of
shares of Common Stock of the Company and (b) warrants to purchase shares of the
Common Stock of the Company;
WHEREAS, such investment will be made in reliance upon the provisions of
Regulation S and/or Section 4(2) ("Section 4(2)") and/or 4(6) of the United
States Securities Act and/or Regulation D ("Regulation D") and the other rules
and regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions
The following capitalized terms shall have the meanings ascribed to them
below:
"CAPITAL SHARES" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for purchase or otherwise acquire Capital Shares or
any such convertible or exchangeable securities.
"CLOSING" shall mean the closing of the purchase and sale of the Purchased
Shares and the Warrants pursuant to Section 2.1.
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"CLOSING DATE" shall mean 10:00 a.m. on the date hereof, or such other time
as the Company and the Investor may mutually agree, provided all the conditions
thereto have been satisfied or waived on such date.
"COMMON STOCK" shall mean the Company's common stock, $0.01 par value per
share.
"DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs or expenses (including, without limitation,
reasonable attorneys' fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
"DISCLOSURE SCHEDULE" shall mean the written disclosure schedule, if any,
delivered on or prior to the date hereof by the Company to the Investor that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Agreement.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities as set forth in the Registration Rights Agreement.
"ENVIRONMENTAL LAWS" shall mean foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants.
"ESCROW AGENT" shall have the meaning set forth in the Escrow Agreement.
"ESCROW AGREEMENT" shall mean the Escrow Agreement in substantially the
form of Exhibit A hereto executed and delivered contemporaneously with this
Agreement.
"EXCALIBUR WARRANT" shall mean the warrant to purchase shares of Common
Stock issued by the Company to Excalibur Limited Partnership pursuant to the
Bridge Note (as defined in Section 2.1(b)).
"EXCALIBUR WARRANT SHARES" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Excalibur Warrant.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" shall mean United States generally accepted accounting principles as
shall be in effect from time to time.
"H&H SHARES" shall mean that number of shares of Common Stock equal to (i)
one and one half percent (1.5%) of the aggregate consideration received for the
Purchased Shares at the Closing, divided by (ii) Market Price at Closing.
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS" shall mean the Irrevocable
Transfer Agent Instructions, in the form of Exhibit B attached hereto, from the
Company to the Company's transfer agent.
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"ISSUE DATE" shall mean the date on which Purchased Shares and the Warrants
are issued pursuant to Article II.
"LEGEND" shall mean the legend set forth in Section 9. 1.
"MARKET PRICE" on any given date shall mean the average of the closing bid
price of the Common Stock on the Principal Market (as reported by Bloomberg
L.P.) during the five (5) Trading Days ending on the Trading Day immediately
prior to the date for which the Market Price is to be determined.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties or financial condition of the Company that is material
and adverse to the Company and its subsidiaries and affiliates, taken as a
whole, and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under the Transaction Documents in any material respect,
other than general economic conditions or general economic trends.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume, or if the Common Stock is not traded on an
exchange or market, the OTC Bulletin Board.
"PURCHASE PRICE" with respect to the issuance and sale of the shares of
Common Stock purchased at the Closing shall mean the lower of:
(a) the greater of (i) eighty-five percent (85%) of the Market Price
of the Common Stock on the Closing Date, or (ii) $4.05; or
(b) $4.25.
"PURCHASED SHARES" shall mean the Common Stock purchased pursuant to this
Agreement.
"REGISTRABLE SECURITIES" shall mean the Purchased Shares (including any
shares issuable pursuant to the antidilution provisions of Section 2.3 hereof),
the H&H Shares, the Xxxxxxxxxxx Shares, the Warrant Shares and the Excalibur
Warrant Shares until the earliest of (i) all Registration Statements have been
declared effective by the SEC, and all Purchased Shares and Warrant Shares have
been disposed of pursuant to the Registration Statements, (ii) all Purchased
Shares, H&H Shares, Xxxxxxxxxxx Shares, Warrant Shares and Excalibur Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Purchased Shares, H&H Shares,
Xxxxxxxxxxx Shares, Warrant Shares and Excalibur Warrant Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive
legend, (iv) such time as, in the opinion of counsel to the Company, all
Purchased Shares, H&H Shares, Xxxxxxxxxxx Shares, Warrant Shares and
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Excalibur Warrant Shares may be sold within a three-month period pursuant to
Rule 144 (or any similar provision then in effect) under the Securities Act,
assuming for this purpose only that the holders hereof are not officers,
directors, affiliates or control persons of the Company or (v) two years from
the date hereof.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement by and among the Investor, the Company and the other signatories
thereto regarding the filing of Registration Statements for the resale of the
Registrable Securities, substantially in the form attached hereto as Exhibit C.
"REGISTRATION STATEMENT" shall mean any registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the resale by the Investor of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor under the Securities Act of
Registrable Securities.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean each report, proxy statement and registration
statement filed by the Company with the SEC pursuant to the Exchange Act or the
Securities Act from the initial filing with the SEC through the date hereof.
"SECURITIES" shall mean collectively the Purchased Shares, the H&H Shares,
the Xxxxxxxxxxx Shares, the Warrants and the Warrant Shares.
"XXXXXXXXXXX SHARES" shall mean that number of shares of Common Stock equal
to (i) two and one half percent (2.5%) of the aggregate consideration received
for the Purchased Shares at the Closing, divided by (ii) the Market Price at
Closing.
"TRADING DAY" shall mean any day during which the Principal Market shall be
open for business.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and
each of the other agreements, documents and instruments entered into and
delivered by the parties hereto in connection with the transactions contemplated
by this Agreement.
"WARRANTS" shall mean the warrants issued at the Closing pursuant to
Section 2.1 hereof, in substantially the form of Exhibit E attached hereto.
"WARRANT SHARES" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.
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ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES AND WARRANTS
Section 2.1. Investment.
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(a) Upon the terms and subject to the conditions set forth herein, on the
Closing Date, the Company shall sell, and the Investor shall purchase, (i) an
aggregate number of shares of Common Stock equal to $1,500,000 divided by the
Purchase Price (rounded down to the nearest share) and (ii) Warrants for the
purchase of an aggregate number of shares of Common Stock equal to the one-third
(1/3) of the Purchased Shares (rounded down to the nearest share), such Warrants
to have an exercise price per share equal to one hundred fifteen percent (115%)
of the Market Price.
(b) The Closing shall occur on the Closing Date at the Escrow Agent's
offices, at which time the Escrow Agent (x) shall release to the Investor
certificates representing the Purchased Shares (or duly executed Irrevocable
Transfer Agent Instructions) and Warrants to be issued on the Closing Date and
(y) shall release to the Company the entire amount of the aggregate Purchase
Price in immediately available funds (after all fees have been paid as set forth
in the Escrow Agreement), in accordance with the terms of the Escrow Agreement;
provided, however, that the Company and Investor authorize and instruct the
Escrow Agent to retain $550,000 of the aggregate Purchase Price (the "Note
Repayment Amount") and pay same directly to Excalibur Limited Partnership in
full satisfaction and cancellation of the $550,000 Promissory Note dated June
26, 2002 issued by the Company to Excalibur Limited Partnership (the "Bridge
Note"), which original Bridge Note shall have been delivered to the Escrow Agent
for cancellation and the Escrow Agent shall thereupon release the cancelled
Bridge Note to the Company.
(c) The Closing shall be subject to the parties' satisfaction of the
conditions to Closing set forth below:
(i) The obligation of the Company hereunder to issue and sell the
Purchased Shares and the Warrants to Investor at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of
the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing Investor with prior written notice
thereof:
(A) The Investor shall have executed each of the Transaction
Documents to be executed by it and delivered the same to the
Company.
(B) The Escrow Agent shall have delivered to the Company the
Purchase Price for the Purchased Shares and the Warrants being
purchased by the Investor at the Closing (less the Note Repayment
Amount and less any amounts withheld pursuant to the Escrow
Agreement) by wire transfer of immediately available funds for
the balance of the Purchase Price pursuant to the written wire
instructions provided by the Company.
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(C) The representations and warranties of the Investor shall be
true and correct as of the date when made and as of the Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Investor
shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by Investor at or
prior to the Closing Date.
(ii) The obligation of Investor to purchase the Purchased Shares and
the Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided
that these conditions are for Investor's sole benefit and may be
waived by Investor at any time in its sole discretion by providing the
Company with prior written notice thereof:
(A) The Company shall have executed each of the Transaction
Documents to be executed by it and delivered the same to
Investor.
(B) The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC at any time
beginning on the date hereof and through and including the
Closing Date, and the Company shall not have been notified of any
pending or threatened proceeding or other action to delist or
suspend the Common Stock.
(C) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a
specific date), and the Company shall have performed, satisfied
and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
Investor shall have received a certificate, executed by the
Company's Chief Executive Officer, dated as of the Closing Date,
to the foregoing effect.
(D) The Company shall have executed and delivered (or shall have
caused the Escrow Agent to deliver) to Investor the Warrants (in
such denominations as Investor shall request) being purchased by
Investor at the Closing.
(E) The Company shall have delivered the Irrevocable Transfer
Agent Instructions to its transfer agent, and such transfer agent
shall have acknowledged receipt thereof in writing.
(F) The Company shall have delivered to Investor a certificate
evidencing the due incorporation and good standing of the Company
and
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each Subsidiary in such corporation's state of incorporation (and
in any states where such entities are required to be qualified to
do business) issued by the Secretary of State of such states as
of a date within ten (10) days of the Closing Date.
(G) The Company shall have delivered to Investor a certificate,
executed by the Company's Secretary dated the Closing Date, as to
(i) the Resolutions described in Section 4.2, (ii) the
Certificate of Incorporation, and (iii) the Bylaws, each as in
effect on the Closing Date.
(d) Anything to the contrary notwithstanding, in the event the Closing
does not occur by July 3, 2002, the Investor shall have no further obligation to
purchase and the Company shall have no further obligation to sell the Securities
and this Agreement shall be terminated (provided, however, the Company shall
remain responsible for the payment of all reasonable expenses of the Investor,
including legal fees), subject to the limitations on fees set forth in Section
13.5 hereof.
Section 2.2 LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that
the sums payable pursuant to this Agreement and the Registration Rights
Agreement shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
such sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investor in
connection with the failure by the Company to timely effect the registration of
the Registrable Securities or otherwise perform hereunder and (c) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
Section 2.3 Rights of Investor upon Dilutive Issuances.
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(a) Issuances at Less Than the Purchase Price. Until the earlier of the
date following the date on which the Company, through the offering of Capital
Shares or Capital Shares Equivalents, generates or raises $6 million in gross
proceeds, and December 31, 2002 (the "MFN Period"), upon the issuance or sale by
the Company of:
(i) Common Stock for a Per Share Selling Price less than the
Purchase Price (as adjusted for any stock splits, combinations, reorganizations
or similar events); or
(ii) any Stock Purchase Rights where the Per Share Selling Price
for which shares of Common Stock may at any time thereafter be issuable upon
exercise thereof (or, in the case of Stock Purchase Rights exercisable for the
purchase of Convertible Securities, upon the subsequent conversion or exchange
of such Convertible Securities) shall be less than the Purchase Price (as
adjusted for any stock splits, combinations, reorganizations or similar events);
or
(iii)any Convertible Securities where the consideration per
share for which shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of
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such Convertible Securities shall be less than the Purchase Price (as adjusted
for any stock splits, combinations, reorganizations or similar events);
other than an issuance of Common Stock pursuant to Section 2.3( f) below (any
such issuance shall be referred to hereinafter as a "Dilutive Issuance"), then
forthwith upon such issue or sale, the Purchase Price of the Purchased Shares
sold to the Investor hereunder and then owned by them or their permitted
assignees shall be adjusted downward to equal such lower Per Share Selling Price
and Investor shall be entitled to receive the additional shares of Common Stock
as provided by Section 2.3(c) below. The Company shall give to the Investor
written notice of any such sale within 24 hours of the closing of any such sale.
(b) DEFINITIONS. For purposes of this Section 2.3, the following
provisions will be applicable:
(i) "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities that are convertible into or
exchangeable for, with or without payment of additional consideration, shares of
Common Stock.
(ii) "Stock Purchase Rights" shall mean any warrants, options or
other rights to subscribe for, purchase or otherwise acquire any shares of
Common Stock or any Convertible Securities.
(iii)Convertible Securities and Stock Purchase Rights shall be
deemed outstanding and issued or sold at the time of such issue or sale.
(iv) The term "Per Share Selling Price" shall include the amount
actually paid by third parties for each share of Common Stock. In the event the
Company in connection with such transaction pays a fee in excess of 6%, any such
excess amount shall be deducted from the selling price pro rata to all shares
sold in the transaction to arrive at the Per Share Selling Price. A sale in a
capital raising transaction of shares of Common Stock shall include the sale or
issuance of rights, options, warrants or convertible securities under which the
Company is or may become obligated to issue shares of Common Stock, and in such
circumstances the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise or conversion price thereof (in addition to the
consideration received by the Company upon such sale or issuance less the excess
fee amount, if any, as provided above). In case of any such security issued
within the MFN Period in a "Variable Rate Transaction" or "MFN Transaction"
(each as defined below), the Per Share Selling Price shall be deemed to be the
lowest conversion or exercise price at which such securities are converted or
exercised or might have been converted or exercised in the case of a Variable
Rate Transaction, or the lowest adjustment price in the case of an MFN
Transaction, each over the life of such securities.
(v) "Variable Rate Transaction" means a transaction in which the
Company issues or sells (a) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (x) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the Common Stock at any time after the initial
issuance of such debt or equity securities, or (y) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such security or upon the
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occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock, or (b) any
securities of the Company issued or issuable pursuant to an "equity line"
structure which provides for the sale, from time to time, of securities of the
Company which are registered for resale pursuant to the Securities Act.
(vi) "MFN Transaction" means a transaction in which the Company
issues or sells any equity securities in a capital raising transaction or series
of related transactions (the "New Offering") which grants to an investor (the
"New Investor") the right to receive additional shares based upon future equity
raising transactions of the Company on terms more favorable than those granted
to the New Investor in the New Offering.
(vii) DETERMINATION OF CONSIDERATION. The "consideration actually
received" by the Company for the issuance, sale, grant or assumption of shares
of Common Stock, Stock Purchase Rights or Convertible Securities, irrespective
of the accounting treatment of such consideration, shall be valued as follows:
(A) CASH PAYMENT. In the case of cash, the net amount
received by the Company after deduction of any accrued interest or dividends and
before deducting any expenses paid or incurred and any underwriting commissions
or concessions paid or allowed by the Company in connection with such issue or
sale;
(B) NONCASH PAYMENT. If shares are issued for a
consideration other than cash, the Per Share Selling Price shall be the fair
market value of such consideration as determined in good faith by the Company's
Board of Directors; and
(C) STOCK PURCHASE RIGHTS AND CONVERTIBLE SECURITIES. The
total consideration, if any, received by the Company as consideration for the
issuance of the Stock Purchase Rights or the Convertible Securities, as the case
may be, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of such Stock Purchase Rights or upon
the conversion or exchange of such Convertible Securities, as the case may be,
in each case after deducting any accrued interest or dividends.
(c) ADJUSTMENT MECHANISM. If an adjustment of the Purchase Price is
required pursuant to Section 2.3(a), the Company shall deliver to the Investor
within three (3) business days of the closing of the transaction giving rise to
the adjustment (the "Delivery Date") such number of additional shares of Common
Stock equal to (i) to the aggregate Purchase Price paid by Investor divided by
the adjusted per share purchase price as required under Section 2.3(a), minus
(ii) the total number of shares of Common Stock previously delivered to Investor
hereunder which are being used as the basis for this adjustment.
(d) CAPITAL ADJUSTMENTS. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of Section 2.3 shall be applied in a fair,
equitable and reasonable manner so as to give effect to the purposes hereof.
(e) EXCLUSIONS. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of any Purchase Price in
the case of (i) the issuance or sale of Stock Purchase Rights, and Common Stock
issuable upon the exercise thereof, to directors,
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officers, employees or consultants of the Company pursuant to stock option or
stock purchase plans or agreements in existence on the date of this filing,
whether "qualified" for tax purposes or not, or pursuant to plans or
arrangements approved by the Board of Directors or stockholders, (ii) the
issuance of Common Stock pursuant to Stock Purchase Rights and Convertible
Securities outstanding as of the date of this Agreement, including upon the
conversion of the Series A Preferred Stock (so long as effected pursuant to the
conversion terms of the Series A Certificate of Designation as it exists on the
date hereof); (iii) the issuance of Capital Shares, Stock Purchase Rights or
Convertible Securities in the acquisition of another company or in connection
with any strategic alliance, joint venture or partnership with another company,
so long as the primary purpose thereof is not the raising of capital; (iv) the
issuance of Capital Shares, Stock Purchase Rights or Convertible Securities to
commercial lenders, equipment lessors, vendors, suppliers or providers of goods
or services to the Company (subject, in each case, to the good faith
determination by the Company's Board of Directors that any non-cash
consideration received in exchange for such securities of the Company is at
least equal to the fair market value of such securities), and (v) the issuance
of Capital Shares and Stock Purchase Rights in customary amounts to
underwriters, brokers, or finders in connection with fundraising (debt or
equity) activities. The issuances or sales described in the preceding clauses
(i), (ii), (iii), (iv) and (v) shall be ignored for purposes of calculating any
adjustment to the Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. INTENT. Investor is entering into this Agreement for its own
account and not with a view to, or for sale in connection with, any distribution
of the Securities. Investor has no present arrangement (whether or not legally
binding) at any time to sell the Securities to or through any person or entity;
provided, however, that by making the representations herein, Investor does not
agree to hold such Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
federal and state securities laws applicable to such disposition.
Section 3.2. SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has experience in business
and financial matters that it has the capacity to protect its own interests in
connection with this transaction and is capable of evaluating the merits and
risks of an investment in the Securities. Investor acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
The Investor has had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the sale of the Securities.
Section 3.3. DUE EXECUTION, POWER AND AUTHORITY. This Agreement and each of the
Transaction Documents that is required to be executed by Investor has been duly
authorized and validly executed and delivered by Investor and is a valid and
binding agreement of Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency,
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or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. The Investor has the requisite power and authority to enter into
the Agreement, to purchase the Securities and perform its obligations under the
terms of the Agreement.
Section 3.4. NOT AN AFFILIATE. Investor is not an officer, director or
"AFFILIATE" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company as Investor has requested (the "Requested
Information"). Investor acknowledges that the Company is subject to the periodic
reporting requirements of the Exchange Act, and Investor has reviewed the
Requested Information and copies of all SEC Documents deemed relevant by
Investor in order for it to make an informed decision to purchase the
Securities. Investor acknowledges that the Company will file its Annual Report
on Form 10-K after the Closing Date and that such Annual Report will contain
information that a potential purchaser of the Common Stock could determine is
material to such purchaser's investment decision. The Investor further
acknowledges that the Company has recommended and requested that the Investor
conduct a complete and comprehensive review of the Company's Annual Report
before making its investment decision and purchasing the Securities. In the
event the Investor elects to purchase the Securities prior to its comprehensive
review of the Company's Annual Report and thereby foregoing its opportunity to
obtain further information about the matters set forth therein, the Investor
agrees not to assert a claim or to initiate or maintain any lawsuit, action or
other proceeding against the Company, its officers, directors, or employees
arising out of the Investor's purchase of the Securities based on any theory of
securities laws violations, negligence, misrepresentation or fiduciary duty
related to the matters to be disclosed in the Company's Annual Report.
Section 3.6. MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as now being
conducted and as presently proposed to be conducted. The Company's Subsidiaries
are corporations duly organized, validly existing and in good standing under the
laws of the jurisdictions in which they are incorporated and have the requisite
corporate power and authority to own and operate their properties and assets and
to carry on their
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business as now being conducted. The Company and each of its Subsidiaries is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned or leased by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
Section 4.2. AUTHORITY. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under the
Transaction Documents and to issue the Securities pursuant to their respective
terms; (ii) the execution, issuance and delivery of the Transaction Documents,
the Common Stock certificates and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) the Transaction Documents, when executed and delivered by
the Company and the parties hereto, shall constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance the number shares of Common Stock required hereunder. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Securities. The Company further acknowledges that its
obligation to issue Common Stock under this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under the Bankruptcy Code.
Section 4.3. CAPITALIZATION. The authorized capital stock of the Company
immediately prior to the Closing will consist of (i) 85,000,000 shares of Common
Stock, $0.01 par value per share, of which 11,541,043 shares were issued and
outstanding as of June 27, 2002, and (ii) 1,000,000 shares of Preferred Stock,
$0.01 par value per share, of which 200,000 have been designated "Series A
Preferred Stock," 72,646 of which are issued and outstanding immediately prior
to the Closing. The Company has no authorized or outstanding shares of preferred
stock or other equity securities except as disclosed herein. Except for (i)
outstanding options and warrants as set forth in the SEC Documents and (ii) as
set forth in the Disclosure Schedule, there are no outstanding Capital Shares
Equivalents nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable and were issued in compliance with all
applicable federal and state securities laws.
Section 4.4. COMMON STOCK. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all material requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the American
Stock Exchange, and except as set forth in the SEC Documents, the Company has
not received any notice regarding, and to its knowledge there is no threat of,
the termination or discontinuance of the eligibility of the Common Stock for
such posting or listing.
12
Section 4.5. SEC DOCUMENTS. The Company has not provided the Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC Documents (taking
into accounts amendments thereto) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder, and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the rules and regulations of the SEC or other applicable rules
and regulations with respect thereto at the time of such inclusion. Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited interim statements, to normal year-end audit adjustments). Neither the
Company nor any of its Subsidiaries has any material indebtedness, obligations
or liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due) that would have been required to be reflected
in, reserved against or otherwise described in the financial statements or in
the notes thereto in accordance with GAAP, which were not fully reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto included in the SEC Documents or were not incurred in the ordinary
course of business consistent with the Company's past practices since the last
date of such financial statements. No other written information provided by or
on behalf of the Company to the Investor that is not included in the SEC
Documents, including, without limitation, information referred to in Section 3.5
of this Agreement and the representations and warranties contained herein or in
any schedule or exhibit hereto, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are or were made,
not misleading.
Section 4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Investor's representations in Article III and substantially
similar representations to be made on exercise of the Warrants, the Company's
sale of the Securities and its issuance of the Warrants under this Agreement do
not, and the Company's issuance of Common Stock on the exercise of the Warrants
will not, require registration under the Securities Act and/or any applicable
state securities law presently in effect. When issued and paid for in accordance
with this Agreement and the Warrants, the Purchased Shares, the H&H Shares, the
Xxxxxxxxxxx Shares and the Warrant Shares will be duly and validly issued, fully
paid, and non-assessable. Neither the sales of the Securities pursuant to, nor
the Company's performance of its obligations under, the Transaction Documents
will (i) result in the creation or imposition by the Company of any liens,
charges, claims or other encumbrances upon any of the Securities or, except as
contemplated herein, any of the assets of the Company, or (ii) be subject to
preemptive or other rights to subscribe for or acquire the Capital Shares or
other securities of the Company other than pursuant to anti-dilution
13
and similar rights granted by the Company. None of the Securities will subject
the Investor to personal liability to the Company or its creditors by reason of
an Investor's possession thereof.
Section 4.7. NO DIRECTED SELLING, GENERAL SOLICITATION OR ADVERTISING IN REGARD
TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (i) has engaged in or will engage in any
directed selling efforts in violation of the requirements of Regulation S, (ii)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale of
the Securities, or (iii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act.
Section 4.8. NO CONFLICTS. The Company's execution, delivery and performance of
the Transaction Documents, and the Company's consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or Bylaws or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the Principal
Market) applicable to the Company or by which any property or asset of the
Company is bound or affected. The Company is not otherwise in violation of any
term of or in default under its Certificate of Incorporation, or its Bylaws, or
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company (including, without limitation, all rules and regulations of the Food
and Drug Administration and the United States Department of Agriculture), except
for possible conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations that would not individually or in the aggregate
have a Material Adverse Effect. The Company's business is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate would not result
in a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required by the Securities Act and any applicable state or
non-U. S. securities or similar laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory organization,
in order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations that
the Company is required to obtain pursuant to the preceding sentence on or prior
to the date hereof have been obtained or effected. The Company is not in
violation of the listing or posting requirements of the Principal Market as in
effect on the date hereof and is not aware of any facts which would reasonably
lead to delisting of the Common Stock by the Principal Market in the foreseeable
future.
Section 4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 2001, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in any SEC Documents filed at least five (5) days prior to the date
hereof and available on XXXXX or to be
14
disclosed in the Company's 10-K for the year ended March 31, 2002 to be filed on
or before July 11, 2002.
Section 4.10. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS, OR
CIRCUMSTANCES. Except as may be disclosed in the Company's 10-K for the year
ended March 31, 2002 to be filed on or before July 11, 2002, no event,
liability, development or circumstance has occurred or exists with respect to
the Company or its Subsidiaries or their respective businesses, properties,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
Section 4.11. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC
Documents or on the Disclosure Schedule, there are no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any Subsidiary or any of their officers or directors in their capacities as
such, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which could reasonably be expected to
have a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, to
the knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect. There is no action,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate, other than in the ordinary course of its business.
Section 4.12. INSURANCE. The Company and each subsidiary maintains directors'
and officers' liability, property and casualty, general liability, workers'
compensation, environmental hazard, personal injury and other similar types of
insurance with financially sound and reputable insurers that is adequate,
consistent with industry standards and the Company's historical claims
experience. Neither the Company nor any Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
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 materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
Section 4.13. TAX MATTERS. The Company has accurately prepared and timely filed
all United States income tax returns and all state and municipal tax returns
that are required to be filed by it, if any, and has paid or made provision for
the payment of all taxes, if any, that have become due pursuant to such returns.
No deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending and there is no liability as
of the date hereof for any tax for which there is not an adequate reserve
reflected in the Company's publicly filed financial statements. All federal,
state, local and foreign franchise, sales, use, occupancy, excise, withholding
and other taxes and assessments (including interest and penalties) payable by,
or due from, the Company have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of the Company, except where
the failure to provide for or pay such taxes and assessments would not have a
Material Adverse Effect on the Company. No examination of any tax return of the
Company is currently in progress, except where such examinations would not have
a Material Adverse Effect on the
15
Company. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return of the Company.
Section 4.14. INTELLECTUAL PROPERTY RIGHTS. The Company has sufficient title and
ownership of or is licensed under all patents, patent applications, trademarks,
service marks, trade names, copyrights, and all registrations and applications
for registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs owned or licensed by the Company, documentation,
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business as now conducted and, except as set forth on the
Disclosure Schedule, without any conflict with and without infringement of the
rights of others. Except as set forth on the Disclosure Schedule, the Company
has not received any written communications alleging that it has violated or, by
conducting its businesses as currently proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Except as disclosed on
the Disclosure Schedule, the Company does not believe it is or will be necessary
to use any inventions of any of its employees (or people it currently intends to
hire) made prior to their employment by the Company (unless made prior to
employment as an independent contractor to the Company).
Section 4.15. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books and
records and internal accounting controls that provide reasonable assurance that
(i) all transactions to which the Company or any Subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP.
Section 4.16. ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE SECURITIES.
The Company acknowledges and agrees that each of the Investor is acting solely
in the capacity of arm's-length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that Investor is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated thereby is merely
incidental to Investor's purchase of the Securities. The Company further
represents to Investor that the Company's decision to enter into the Transaction
Documents has been based solely on the independent evaluation by the Company and
its representatives.
Section 4.17. EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict in any
material respect with such employee's obligation to use his best efforts to
promote the interests of the Company or that would conflict with the Company's
business as conducted or as proposed to be conducted. To the best of the
Company's knowledge, no officer of the Company nor any Key Employee (as
hereinafter
16
defined) of the Company, the termination of whose employment, either
individually or in the aggregate, would have a Material Adverse Effect, has any
intention of terminating his or her employment with the Company. For purposes of
this Agreement, "Key Employee" means and includes each officer of the Company
and each employee who contributes to any significant degree to the invention,
design or authorship of the Company's Intellectual Property. The Company has
complied in all material respects with all applicable laws relating to
employment of labor, including provisions relating to wages, hours, ERISA, equal
opportunity, collective bargaining and the payment of social security and other
taxes.
Section 4.18. Environmental Matters.
---------------------
(a) The Company has duly complied with, and, to the best knowledge of the
Company, all the real estate leased by it either currently or in the past
(hereinafter referred to collectively as the "Premises") are in compliance in
all material respects with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder.
(b) The Company has been issued, and will maintain, all federal, state and
local permits, licenses, certificates and approvals known to the Company to be
required relating to (i) air emissions, (ii) discharges to surface water or
ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v)
the use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (vi) other environmental, health and safety matters.
(c) The Company has not received notice of, nor does the Company know of
any facts that might constitute, any violation of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder, that relate to the use, ownership or
occupancy of any of the Premises, and the Company is not in violation of any
covenants, conditions, easements, rights-of-way or restrictions affecting any of
the Premises or any rights appurtenant thereto.
(d) Except in accordance with a valid governmental permit, license,
certificate or approval, the Company has not caused any emission, spill, release
or discharge into or upon (i) the air, (ii) soils or any improvements located
thereon, (iii) surface water or ground water, or (iv) the sewer, septic system
or waste treatment, storage or disposal system servicing any of the Premises, of
any toxic or hazardous substances or wastes at or from any of the Premises.
(e) There has been no complaint, order, directive (other than directives
applicable to the general public), claim, citation or notice by any governmental
authority or any other person or entity with respect to (i) air emissions, (ii)
spills, releases or discharges to soils or any improvements located thereon,
surface water, ground water or the sewer, septic system or waste treatment,
storage or disposal systems servicing any of the Premises, (iii) noise
emissions, (iv) solid or liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
or (vi) other environmental, health or safety matters
17
affecting, in any material respect, the Company, any of the Premises or any
improvements located thereon, or the businesses thereon conducted.
Section 4.19. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investor as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investor's ownership of the
Securities.
ARTICLE V
COVENANTS OF THE INVESTOR
Investor covenants as follows.
Section 5.1 BEST EFFORTS. Investor shall use its best efforts to timely satisfy
each of the conditions to be established by it as provided in Article II of this
Agreement.
Section 5.2 REGULATION S COMPLIANCE. Investor agrees that any hedging
transactions with respect to the Common Stock will only be conducted in
compliance with Regulation S. Investor certifies that it is not a U.S. Person
(as defined for purposes of Regulation S) and is not acquiring the Securities
for the account or benefit of a U.S. Person. The Investor understands and
acknowledges that the Company may refuse to register the transfer of any
Securities unless made in accordance with the registration or exemption
provisions of the Securities Act.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. BEST EFFORTS. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Article II
of this Agreement.
Section 6.2. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect, and the Company shall
comply with the terms thereof.
Section 6.3. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock in an amount not less
than 200% of the number of shares of Common Stock needed to provide for the
issuance of the Purchased Shares and the Warrant Shares (as may be adjusted from
time to time). The Company further agrees at if at any time 200% of the number
of shares of Common Stock issuable under the Agreement would cause the Company
to be obligated to issue a number of shares of Common Stock in excess of its
authorized capital (after taking into account all other Capital Shares
Equivalents then existing), it
18
shall promptly commence and effect all necessary corporate and shareholder
action necessary to increase its authorized capital so as to eliminate the
aforesaid condition.
Section 6.4. LISTING OF COMMON STOCK. The Company shall maintain the listing of
the Common Stock on a Principal Market and, as soon as required by the rules of
the Principal Market and any other national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are listed, shall
list the Purchased Shares and the Warrant Shares on the Principal Market and
each such other exchange or system. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Purchased Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investor to cause the Purchased Shares and the Warrant Shares to be listed on
such other Principal Market as promptly as possible. The Company will take all
action necessary to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investor with copies of any correspondence to
or from such Principal Market which questions or threatens delisting of the
Common Stock, within three (3) trading days of the Company's receipt thereof,
until the Investor have disposed of all of its Registrable Securities.
Section 6.5. EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all material respects with its reporting
and filing obligations under the Exchange Act, and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act until the Investor
has disposed of all of its Registrable Securities.
Section 6.6. LEGENDS. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.7. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will take
all steps necessary to preserve and continue its corporate existence. The
Company shall not enter into any agreement, the terms of which agreement would
materially restrict or impair the right or ability of the Company to perform any
of its obligations under this Agreement or any of the other Transaction
Documents.
Section 6.8. CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any 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 unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument or by operation of law the obligation to deliver
to the Investor such shares of stock and/or securities as the Investor is
entitled to receive pursuant to this Agreement.
Section 6.9. ISSUANCE OF PURCHASED SHARES, WARRANTS AND WARRANT SHARES. The sale
of the Purchased Shares and the Warrants and the issuance of the Warrant Shares
shall be made in accordance with the provisions and requirements of Regulation S
(or if that exemption shall fail
19
for any reason, then in accordance with Section 4(2), Section 4(6) or Regulation
D). The Company shall take such actions as necessary to qualify the sales made
hereunder to the Investor under Regulation S. If requested by the Investor, the
Company shall file a Form D with respect to the Securities as required under
Regulation D and provide a copy thereof to Investor promptly after such filing.
Section 6.10. RELIEF IN BANKRUPTCY. The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. ss. 362 in respect of the exercise of the Warrants. The Company agrees,
without cost or expense to the Investor, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. SURVIVAL. The representations, warranties and covenants made by the
Investor and the Company in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby for a period of two (2)
years. In the event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations, warranties or
covenants have been made shall have all rights and remedies for such breach or
violation available to it under the provisions of this Agreement, irrespective
of any investigation made by or on behalf of such party on or prior to the
Closing Date.
Section 7.2. Indemnity.
---------
(a) The Company shall indemnify and hold harmless the Investor, its
respective Affiliates and their respective officers, directors, partners and
members (each an "Indemnified Party"), from and against any and all Damages, and
shall reimburse the Indemnified Parties for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in each
case promptly as incurred by such Indemnified Party and to the extent arising
out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in any of the
Transaction Documents, the annexes, schedules or exhibits thereto
or any instrument, agreement or certificate entered into or
delivered by the Company pursuant hereto or thereto; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set
forth in any of the Transaction Documents, the annexes, schedules
or exhibits thereto or any
20
instrument, agreement or certificate entered into or delivered by
the Company pursuant hereto or thereto; or
(iii)any action instituted against the Investor by any stockholder of
the Company who is not an affiliate of an Investor, with respect
to any of the transactions contemplated by the Transaction
Documents.
(b) Investor shall indemnify and hold harmless the Company, its
Affiliates, directors and officers (each an "Indemnified Party"), from and
against any and all Damages, and shall reimburse the Indemnified Parties for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by such Indemnified Party and
to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of
Investor's representations or warranties contained in any of the
Transaction Documents, the annexes, schedules or exhibits thereto
or any instrument, agreement or certificate entered into or
delivered by the Investor pursuant hereto or thereto; or
(ii) any failure by the Investor to perform in any material respect
any of its covenants, agreements, undertakings or obligations set
forth in any of the Transaction Documents, the annexes, schedules
or exhibits thereto or any instrument, agreement or certificate
entered into or delivered by the Investor pursuant hereto or
thereto.
Section 7.3. NOTICE. Promptly after receipt by an Indemnified Party seeking
indemnification pursuant to Section 7.2 of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the other
party hereto (the "Indemnifying Party") of the commencement thereof; but the
omission so to notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnified Party and
the Indemnifying Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as
21
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. DIRECT CLAIMS. In the event an Indemnified Party should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnifying Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. NON-DISCLOSURE OF NON-PUBLIC INFORMATION. The Company shall not
disclose material non-public information to the Investor, advisors to or
representatives of the Investor unless prior to disclosure of such information
the Company identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Investor's advisors and representatives to enter into a confidentiality
agreement in form and content reasonably satisfactory to the Company and the
Investor.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "LEGEND"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS.
22
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT IN
ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION, SUPPORTED IN EACH CASE (OTHER THAN PURSUANT TO A REGISTRATION
STATEMENT) BY AN OPINION OF COUNSEL.
Section 9.2. TRANSFER AGENT INSTRUCTIONS. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
shall issue to any substitute or replacement transfer agent for its Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent) Irrevocable Transfer Agent Instructions substantially in the form of
EXHIBIT B hereto. Such Irrevocable Transfer Agent Instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be.
Section 9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX. After the Effective Date,
upon request of the Investor the Company will substitute certificates without
restrictive legend for certificates for the Purchased Shares issued prior to the
Effective Date which bear restrictive legends and remove any stop-transfer
restriction relating thereto promptly, but in no event later than three trading
days after request for removal, provided that in connection with any such event,
the Investor shall confirm in writing to the Company or its transfer agent, that
(i) the Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer the shares represented thereby in a bona fide
transaction to a third party that is not an affiliate of the Investor, and (ii)
the Investor confirms to the transfer agent that the Investor has complied with
the prospectus delivery requirement.
Section 9.4. INVESTOR'S COMPLIANCE. Nothing in this Article shall affect in any
way Investor's obligations to comply with all applicable securities laws upon
resale of the Common Stock.
Section 9.5. TRANSFERS WITHOUT REGISTRATION. If Investor provides the Company
with an opinion of counsel, in generally acceptable form, that registration of a
resale by Investor of any Securities is not required under the Securities Act,
the Company shall permit the transfer and promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by Investor and, if such opinion provides that such legends can be
removed, without any restrictive legends.
Section 9.6. INJUNCTIVE RELIEF. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article IX will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Article
IX, that the Investor shall be entitled, in addition to all other available
remedies, to an injunction
23
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made in Delaware by persons domiciled in Delaware and without regard to its
principles of conflicts of laws. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders.
Section 10.2. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. In the event of any conflict between those Rules and this
Agreement, this Agreement will govern.
Arbitration will be conducted by a panel of three (3) arbitrators (the
"Panel"). Within fifteen (15) days after the commencement of arbitration, each
party shall select one person to act as arbitrator and the two selected shall
select a third arbitrator within ten (10) days of their appointment. The members
of the Panel shall decide on one member to act as Chair. If the arbitrators
selected by the parties are unable or fail to agree on a third arbitrator, the
third arbitrator shall be selected by the American Arbitration Association.
The place of arbitration shall be New York, New York. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of
Delaware unless the matter at issue is the corporation law of the company's
state of incorporation, in which event the corporation law of that jurisdiction
shall govern that particular issue. Either party may, without waiving any remedy
under this Agreement, seek from any Court having jurisdiction any interim or
provisional relief that is necessary to protect the rights or property of that
party, pending the Panel's determination of the merits of the controversy. If
any such provisional relief is sought, the non-prevailing party shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with that proceeding.
Consistent with the expedited nature of arbitration, each party will, upon
the written request of the other party, promptly provide the other with copies
of documents relevant to the issues raised by any claim or counterclaim. Any
dispute regarding discovery, or the relevance or scope thereof, shall be
determined by the Chair of the Panel, which determination shall be conclusive.
Document exchange shall be completed within forty-five (45) days following
selection of the last member of the Panel. At the request of a party, the Panel,
through its Chair, shall have the discretion to order examination by deposition
of witnesses to the extent the Panel deems such discovery relevant and
appropriate. Depositions shall be limited to a maximum of three per party and
shall be held within thirty (30) days of authorization by the Panel. Additional
depositions may be scheduled only with the permission of the Chair of the Panel
for good cause
24
shown. Each deposition shall be limited to one day's duration. All objections
are reserved for the arbitration hearing except for objections based on
privilege.
The award of the arbitrators shall be accompanied by a written reasoned
opinion, which, to the extent practical, shall be rendered no more than thirty
(30) calendar days following the close of the Panel's adjudicatory hearing on
the issues submitted for arbitration. The decision of the Panel will be final,
binding, conclusive and non-appealable. The decision of the Panel will be
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The Panel (or the sole arbitrator selected,
if there is no timely response by the responding party) is authorized and
directed to enter a default judgment against a party who fails to take action or
to participate in any proceeding hereunder within the time periods prescribed by
this Agreement, and by the AAA Rules and/or the Panel.
The Panel shall award to the prevailing party, as determined by the Panel,
all that party's costs and expenses. "Costs and expenses" means all reasonable
pre-award expenses of arbitration, including discovery and deposition expenses,
witness fees, costs and expenses, and attorneys' fees. If the Panel is unable to
determine which party is the "prevailing party," the Panel shall apportion the
costs and expenses as it deems appropriate.
ARTICLE XI
ASSIGNMENT
Neither this Agreement nor any rights of the Investor or the Company hereunder
may be assigned by either party to any other person. Notwithstanding the
foregoing, the provisions of this Agreement shall inure to the benefit of, and
be enforceable by, any permitted transferee of any Securities; provided,
however, Investor's interest in this Agreement may be assigned at any time, in
whole or in part, to any Affiliate of the Investor, who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement, provided that such transfer otherwise
complies with applicable securities laws.
ARTICLE XII
NOTICES
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if
25
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of sending
by reputable courier service, fully prepaid, addressed to such address, or (c)
upon actual receipt of such mailing, if mailed. The addresses for such
communications shall be:
If to the Company: Galaxy Nutritional Foods, Inc.
0000 Xxxxxxxx Xxx
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, CEO
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to
(shall not constitute notice): Xxxxx & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx Xxx., Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
if to the Investor: As set forth on the signature pages hereto
with a copy to: Xxxxx X. Xxxxxx, Esq.
(shall not constitute notice) Xxxxxx Xxxxxxx Xxxxx & Xxxxxx LLP
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Article XII by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Article XII.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. COUNTERPARTS/ FACSIMILE/ AMENDMENTS. This Agreement may be
executed in multiple identical counterparts, each of which may be executed by
fewer than all of the parties and shall be deemed to be an original instrument
that shall be enforceable against the parties actually executing such
counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the
26
original. This Agreement may be amended only by a writing executed by the party
against whom enforcement is sought.
Section 13.2. ENTIRE AGREEMENT. This Agreement, the other Transaction Documents,
which include, but are not limited to, the Warrants, the Registration Rights
Agreement, the Escrow Agreement and the Irrevocable Transfer Agent Instructions
set forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersede all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written,
relating to the subject matter hereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein. Nothing in this Agreement,
express or implied, is intended to confer upon any third party any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
Section 13.3. SEVERABILITY. Any invalidity, illegality or limitation of the
enforceability with respect to any one or more of the provisions of this
Agreement, or any part thereof, shall in no way affect or impair the validity,
legality or enforceability of any other provisions of this Agreement. In case
any provision of this Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
Section 13.4. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given trading day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written agreement of the Investor
and the Company shall be required to employ any other reporting entity.
Section 13.5. FEES AND EXPENSES. Subject to a cap of $20,000, the Company shall
pay the reasonable fees, expenses and disbursements of Xxxxxx Xxxxxxx Xxxxx &
Xxxxxx LLP, the Investor's counsel, pursuant to the terms of the Escrow
Agreement, and accounting fees, due diligence expenses and other disbursements
of the Investor. In addition, the Company shall reimburse the Investor for any
reasonable expenses and legal fees incurred enforcing its rights under the
Agreement or in connection with any modification or waiver with respect thereto
requested by the Company. The Company's obligations under this Section 13.5
shall arise and remain in force whether or not any closing occurs hereunder,
unless such failure to close is solely the result of default by the Investor.
Section 13.6. FURTHER ASSURANCES. 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.
Section 13.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to the Company or the Investor or any subsequent holder
of any Securities upon any breach, default or noncompliance of the Investor, any
subsequent holder of any Securities or
27
the Company under this Agreement, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investor of any breach, default or noncompliance under this Agreement or
any waiver on the Company's or the Investor's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investor, shall be cumulative and not alternative.
Section 13.8 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and the Investor or its
transferees holding at least fifty percent (50%) of the outstanding Purchased
Shares and Warrant Shares (assuming the exercise of all Warrants), voting
together as a single group; provided, however, that no such amendment or waiver
shall reduce the aforesaid percentage required under this Section 13.8. Any
amendment or waiver effected in accordance with this Section 13.8 shall be
binding upon the Investor and each transferee of the Securities. Upon the
effectuation of each such amendment or waiver, the Company shall promptly give
written notice thereof to the Investor (or its transferees) who have not
previously consented thereto in writing.
* * * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Common Stock and
Warrants Purchase Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
GALAXY NUTRITIONAL FOODS, INC.
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
---------------------------------
Title: Chairman, President, and CEO
---------------------------------
INVESTOR:
Address: 000 Xxxx Xxxxxx Xxxx Xxxxxxxxxxx Limited Partnership
Suite 201 By: Xxxxxxxxxxx Corporation,
Markham, Ontario, Canada L3R BH8 its General Partner
Fax:
By: /s/ X. Xxxxxxxxxxx
---------------------------------
Name: X. Xxxxxxxxxxx
---------------------------------
Aggregate Purchase Price: $1,500,000
Number of Purchased Shares: 367,647
Warrants: 122,549
29
