EXHIBIT 2
================================================================================
SUBSCRIPTION AGREEMENT
by and between
Vital Living, Inc.
and
SkyePharma PLC
Dated as of August 20, 2003
================================================================================
TABLE OF CONTENTS
1. Certain Filings...........................................................1
2. Purchase and Sale of Securities; Closing..................................2
2.1 Authorization of Preferred Shares....................................2
2.2 Purchase and Sale....................................................2
2.3 The Closing..........................................................2
2.4 Delivery of Convertible Preferred Shares.............................2
2.5 Delivery of the Registration Rights Agreement........................2
3. Representations and Warranties of the Corporation.........................3
3.1 Organization Standing and Power......................................3
3.2 Authorization of Preferred Shares....................................3
3.3 Authorization of Reserved Common Shares..............................3
3.4 Capitalization.......................................................4
3.5 Authority............................................................5
3.6 No Undisclosed Liabilities...........................................6
3.7 Deferred Compensation................................................6
3.8 No Changes...........................................................7
3.9 Taxes................................................................8
3.10 Title to Properties; Absence of Liens and Encumbrances; Condition
of Equipment and Inventory ..........................................8
3.11 Intellectual Property................................................9
3.12 Agreements, Contracts and Commitments................................9
3.13 Interested Party Transactions........................................11
3.14 Governmental Authorization...........................................11
3.15 Litigation...........................................................12
3.16 Brokers' and Finders' Fees...........................................12
3.17 Employee Benefit Plans and Compensation..............................12
3.18 Environmental Matters................................................13
3.19 Insurance............................................................14
3.20 Compliance with Laws.................................................14
3.21 Disclosure...........................................................14
3.22 Stock Exchange Documents; Corporation Financial Statements; Other
Representations......................................................14
3.23 Acknowledgement Regarding Securities.................................15
3.24 Agreements Regarding Confidential Information, Proprietary
Information and Intellectual Property 15
3.25 Registration Rights..................................................15
3.26 Rights of First Refusal; Voting and Registration Rights..............16
3.27 Issuances Exempt.....................................................16
3.28 No Integrated Offering...............................................16
3.29 Securities Offerings.................................................17
3.30 Investment Company Act...............................................17
3.31 Nevada Corporate Statutes............................................17
3.32 Use of Proceeds......................................................18
4. Representations and Warranties of the Purchaser...........................18
4.1 Due Organization.....................................................18
4.2 Authorization; Execution and Delivery of Agreement...................18
4.3 No Consent or Approval Required......................................18
4.4 Brokers' and Finders' Fees...........................................18
4.5 Access to Information................................................18
4.6 Acquisition For Own Account..........................................19
4.7 Accredited Investor..................................................19
5. Conditions to Obligations of the Purchaser at the Closing under
this Agreement............................................................19
5.1 Corporate Proceedings; Consents; Etc.................................20
5.2 Blue Sky Matters.....................................................20
5.3 Registration Rights Agreement........................................20
5.4 Merger Agreement.....................................................20
5.5 Filings and Documents................................................20
5.6 Regulatory Approvals.................................................20
5.7 Representations, Warranties and Covenants............................21
5.8 No Litigation........................................................21
5.9 No Prohibition.......................................................21
5.10 Opinion of Counsel...................................................21
6. Conditions to Obligations of Corporation at the Closing under
this Agreement............................................................21
6.1 Representations and Warranties.......................................21
6.2 Registration Rights Agreement........................................21
6.3 No Litigation........................................................22
6.4 No Prohibition.......................................................22
7. Covenants.................................................................22
7.1 Insurance............................................................22
7.2 Ongoing Filing Requirements..........................................22
7.3 Public Disclosure of Transactions....................................22
7.4 Information Rights...................................................22
7.5 Nevada Corporate Statutes............................................24
8. Indemnification; Survival.................................................24
8.1 Indemnification by the Corporation...................................24
8.2 Indemnification by the Purchaser.....................................24
8.3 Procedures Relating to Third Party Claims............................24
8.4 Survival of Representations, Warranties and Agreements...............25
9. Expenses..................................................................25
10. Notices...................................................................25
11. Successors and Assigns....................................................27
12. Amendments................................................................27
13. Entire Agreement..........................................................27
14. Termination...............................................................27
15. Counterparts..............................................................27
16. Headings..................................................................27
17. Governing Law; Submission to Jurisdiction; Selection of Forum.............28
VITAL LIVING, INC.
SUBSCRIPTION AGREEMENT
----------------------
SUBSCRIPTION AGREEMENT (this "Agreement") dated as of August 20, 2003
by and between Vital Living, Inc., a Nevada corporation (the "Corporation"), and
SkyePharma PLC, a company incorporated under the laws of England and Wales (the
"Purchaser").
WHEREAS, the Purchaser will acquire 14,204,548 shares of the
Corporation's Common Stock pursuant to the merger of e-nutriceuticals, Inc.
("ENI") with the Corporation (the "Merger"), subject to the terms and conditions
set forth in the Agreement and Plan of Merger (the "Merger Agreement") between
the Corporation, VLEN Acquisition Corp., Inc., a wholly-owned subsidiary of the
Corporation, and ENI, dated as of the date hereof;
WHEREAS, the Purchaser wishes to purchase from the Corporation, and the
Corporation wishes to sell to the Purchaser, 1,000,000 shares of the
Corporation's Series D Convertible Preferred Stock, at a price of US$1.00 per
share of Convertible Preferred Stock, subject to the terms and conditions set
forth herein; and
WHEREAS, the Purchaser and the Corporation are entering into this
Agreement to provide for such purchase and sale and to establish various rights
and obligations in connection therewith.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CERTAIN FILINGS
---------------
The Corporation has filed with the Secretary of State of the State of
Nevada (a) the Amended and Restated Articles of Incorporation of the Corporation
in the form of EXHIBIT A attached hereto (the "Articles of Incorporation"),
pursuant to which the Board of Directors of the Corporation is authorized to
establish a series of preferred stock consisting of 1,000,000 shares, par value
$0.001 per share, to be designated as Series D Convertible Preferred Stock of
the Corporation (the "Convertible Preferred Stock") and (b) a Certificate of
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights of Series D Convertible Preferred Stock of the Corporation, in the form
of EXHIBIT B attached hereto (the "Certificate of Designations"), designating
the voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions of the Convertible Preferred Stock.
2. PURCHASE AND SALE OF SECURITIES; CLOSING
----------------------------------------
2.1 Authorization of Preferred Shares
---------------------------------
On the terms and subject to the conditions hereof the Corporation has
authorized the issuance of an aggregate of 1,000,000 shares of Convertible
Preferred Stock (the "Preferred Shares") and has authorized the reservation of
that number of shares of common stock of the Corporation (the "Common Stock")
which will be issuable upon conversion of the Preferred Shares (the "Reserved
Common Shares").
2.2 Purchase and Sale
-----------------
At the Closing (as defined herein), upon the terms and subject to the
conditions hereinafter set forth, the Corporation will sell to the Purchaser and
the Purchaser shall purchase from the Corporation, one million newly-issued
shares of Convertible Preferred Stock at a purchase price of $1.00 per share and
$1,000,000 in the aggregate.
2.3 The Closing
-----------
The closing (the "Closing") hereunder with respect to the Preferred
Shares will take place at the offices of Xxxxxx Xxxxx Xxxxxxx & Xxxxxx LLP, New
York, New York on the date of the execution of this Agreement, subject to the
prior satisfaction or waiver of all conditions set forth in Sections 5 and 6
hereof (other than any such conditions which, by their terms, cannot be
satisfied until the Closing), or at such other time and place as the Corporation
and the Purchaser may agree. The date on which the Closing occurs is referred to
as the "Closing Date".
2.4 Delivery of Convertible Preferred Shares
----------------------------------------
At the Closing, the Corporation shall deliver to the Purchaser a stock
certificate representing one million shares of Convertible Preferred Stock,
registered in the name of the Purchaser, or at the direction of the Purchaser,
in the name of one of its affiliates, and dated the Closing Date, against
payment in full of the Purchase Price (defined below) to be satisfied by receipt
by the Corporation of a certified or official bank check payable to the
Corporation, or a wire transfer of immediately available funds, to an account
designated by the Corporation at least one business day prior to the Closing
Date of $1,000,000 (the "Purchase Price").
2.5 Delivery of the Registration Rights Agreement
---------------------------------------------
At the Closing, the Corporation and the Purchaser shall deliver to the
other duly executed copies of even date herewith of the Registration Rights
Agreement, by and between the Corporation and the Purchaser, in the form
attached hereto as EXHIBIT C (the "Registration Rights Agreement").
2
3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
-------------------------------------------------
For the purpose of inducing the Purchaser to enter into this Agreement
and to approve the Merger contemplated in the Merger Agreement, the Corporation
represents and warrants to the Purchaser subject to the exceptions specifically
disclosed in the disclosure schedule, set forth as Exhibit D hereto (referencing
the appropriate section number) supplied by the Corporation (the "Disclosure
Schedule"), as follows:
3.1 Organization Standing and Power
-------------------------------
The Corporation is a corporation duly organized, validly existing and
in good standing under the laws of Nevada. The Corporation has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in Arizona and each
other jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of the Corporation to consummate the transactions
contemplated hereby.
3.2 Authorization of Preferred Shares
---------------------------------
The issuance, sale and delivery of the Preferred Shares have been duly
authorized by all requisite corporate action of the Corporation; and the
Preferred Shares have been duly authorized and duly reserved for issuance
pursuant to this Agreement, and when issued, sold and delivered in accordance
with the terms of this Agreement and the Certificate of Designations, the
Preferred Shares will be validly issued and outstanding, fully paid and
nonassessable and will not create or vest any preemptive or other similar
rights, or cause any adjustment in the number of securities issuable pursuant
to, or the conversion or exercise price of, any outstanding rights to purchase,
acquire or subscribe to shares in the Corporation or securities convertible into
shares of the Corporation by any of the beneficial holders of shares of the
Corporation or any securities convertible into, or exercisable for, shares of
the Corporation, and will be free and clear of all liens, pledges, charges,
claims, security interests or other encumbrances of any sort ("Liens").
3.3 Authorization of Reserved Common Shares
---------------------------------------
The Reserved Common Shares have been duly authorized and duly reserved
for issuance upon conversion of the Preferred Shares. When and if issued, sold
and delivered in accordance with the terms of the Certificate of Designations,
the Reserved Common Shares will be duly authorized, validly issued and
outstanding, fully paid and nonassessable and will not create or vest any
preemptive or other similar rights, or cause any adjustment in the number of
securities issuable pursuant to, or the conversion or exercise price of, any
outstanding rights to purchase, acquire or subscribe to shares in the
Corporation or securities convertible into shares of the Corporation by any of
the beneficial holders of shares of the Corporation or any securities
convertible into, or exercisable for, shares of the Corporation, and will be
free and clear of all Liens.
3
3.4 Capitalization
(a) The authorized capital stock of the Corporation consists solely
of 100,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Stock"), of which 21,267,116 shares are issued and
outstanding, and 50,000,000 shares of Preferred Stock, par value
$0.001 per share ("Preferred Stock"), of which 5,592,488 shares
are issued and outstanding. All of the outstanding shares of
Common Stock and Preferred Stock of the Corporation have been
duly authorized, validly issued, fully paid and non-assessable
and are not subject to preemptive rights.
(b) Section 3.4(b) of the Disclosure Schedule sets forth the capital
structure of the Corporation (computed without taking into account
the full-ratchet anti-dilution adjustments for the warrants issued
to Xxxxxx Xxxxxx (i) which will be cancelled and of no further
force and (ii) in place of which a finite number of warrants shall
be established as set forth in Section 3.4(c) of the Disclosure
Schedule, as of the Effective Time as defined in the Merger
Agreement). Except as set forth in Section 3.4(b) of the
Disclosure Schedule there are no (i) outstanding warrants,
options, agreements, convertible securities or other commitments
or instruments pursuant to which the Corporation is or may become
obligated to issue or sell any shares of capital stock or other
securities of the Corporation, (ii) equity interests, stock
appreciation rights, phantom stock, profit participation rights or
other equity or equity derivative security of any kind of the
Corporation, (iii) preemptive or similar rights to purchase or
otherwise acquire shares of capital stock of the Corporation
pursuant to any provision of law, the Articles of Incorporation or
Bylaws of the Corporation or any agreement to which the
Corporation is a party or otherwise, (iv) obligation (contingent
or otherwise) of the Corporation to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any other distribution in respect
thereof or (v) voting trusts, voting agreements, proxies or other
agreements or instruments with respect to the voting of the
Corporation's Common Stock or other securities to which the
Corporation is a party, or to the best knowledge of the
Corporation, among or between any individual, corporation,
partnership, limited liability company, joint venture association,
joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof (any
"Persons") other than the Corporation.
(c) Section 3.4(c) of the Disclosure Schedule sets forth the
post-merger capital structure of the Corporation, on a fully
diluted basis, as it will exist upon consummation of the Closing.
Upon consummation of the Closing, the Corporation will have
54,965,726 shares of Common Stock issued and outstanding and
6,592,488 shares of Preferred Stock issued and outstanding. If
all of the shares of Common Stock issuable after consummation of
the Merger Agreement and assuming the conversion of all
securities convertible at any time into shares of Common Stock
and the exercise of all options or warrants or other rights to
4
purchase or receive shares of the Common Stock, whether or not
immediately exercisable, as described in Section 3.4(c) of the
Disclosure Schedule, were issued, the Corporation would have
81,379,212 shares of Common Stock issued and outstanding, not
including the Contingent Equity Issuances (as defined in Section
3.4(b) of the Disclosure Schedule) and options exercisable into
600,000 shares of Common Stock under the Christopher's Original
Formulas, Inc. incentive compensation arrangements. Upon the
purchase and sale of the Preferred Shares described herein, in
combination with the shares of Common Stock to be acquired by the
Purchaser pursuant to the Merger Agreement, the Purchaser will
hold at least 18.68% of the fully diluted Common Stock, assuming
for purposes of this Section 3.4(c) the conversion of all
securities convertible at any time into shares of Common Stock
and the exercise of all options or warrants or other rights to
purchase or receive shares of the Common Stock, whether or not
immediately exercisable, as set forth in the third sentence of
this paragraph. It shall not be a breach of this Section 3.4(c)
if the number of shares of Common Stock listed in the third
sentence of this paragraph is inaccurate up to a maximum of
100,000 shares of Common Stock in the aggregate.
(d) Except for its ownership of 100% of the capital stock of Nature
Systems Inc. and VLEN Acquisition Corp., Inc. and 100% of the
limited liability company interests of MAF BioNutritionals, LLC
(the "Subsidiaries"), the Corporation does not own and has not
owned any interest, beneficially or of record, in any
corporation, partnership, joint venture or organization, whether
incorporated or unincorporated.
3.5 Authority
---------
The Corporation has all requisite power and authority to enter into
this Agreement, the Registration Rights Agreement, the Merger Agreement and the
Assignment and Assumption Agreement executed on the date hereof by ENI, the
Purchaser and the Corporation (collectively, the "Transaction Agreements"), as
applicable, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of the Transaction Agreements and the consummation of
the transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Corporation. The Corporation's Board of
Directors has duly approved the Transaction Agreements, as applicable. This
Agreement has been duly executed and delivered, and the other Transaction
Agreements, when delivered, will have been duly executed and delivered by the
Corporation and constitute valid and binding obligations of the Corporation,
enforceable in accordance with their terms except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of the Transaction Agreements by
the Corporation and the consummation of the transactions contemplated thereby do
not conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
5
the Articles of Incorporation of the Corporation or the Subsidiaries, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
material agreement or instrument applicable to the Corporation or the
Subsidiaries or its or their properties or assets. No consent, waiver, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other federal, state, county,
local or foreign governmental authority, instrumentality, agency or Commission
("Governmental Entity") or any third party or any shareholder or shareholders of
the Corporation, including a party to any agreement with the Corporation or the
Subsidiaries (so as not to create or cause any Conflict), is required by or with
respect to the Corporation or the Subsidiaries in connection with the execution
and delivery of the Transaction Agreements or the consummation of the
transactions contemplated thereby (including in order so that the securities
issued by the Corporation pursuant to the Transaction Agreements shall be free
and clear of any restrictions imposed on the Purchaser under the laws of Nevada
or any other statute that are not imposed generally upon the holders of each
security and that the Purchaser shall have available to it all rights and
privileges of the securities which any other stockholder of the Corporation
could exercise) except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations, and filings as may be required
under applicable securities laws thereby.
3.6 No Undisclosed Liabilities
--------------------------
Except as set forth in Section 3.6 of the Disclosure Schedule, to the
best knowledge of the Corporation, except for obligations incurred in the
ordinary course of business which are not material and not required under U.S.
generally accepted accounting principles ("GAAP") to be set forth or reflected
on a balance sheet or the notes thereto, neither the Corporation nor the
Subsidiaries have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate, (i) has not been reflected in the Corporation's financial statements
as filed in the Corporation's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 2002 (the "Annual Report") and the Corporation's
Quarterly Report on Form 10-Q for the six months ended June 30, 2003 (the
"Quarterly Report"), or (ii) has not been specifically described in this
Agreement and specifically identified herein as not being included in such
financial statements.
3.7 Deferred Compensation
---------------------
Other than Xxxx Xxxxx, Xxxxxx Xxxxxx, Xxxxxx Xxxxx and Xxx Xxxxxx,
there are no employees, directors and consultants who are eligible for any
deferred compensation, bonuses, profit participation or expenses payable to the
employee, director or consultant. No compensation is owed by the Corporation or
the Subsidiaries to such individuals or to any other employees, directors or
consultants of the Corporation or the Subsidiaries other than ordinary payroll
payable by the Corporation at the end of each pay period. Additionally, each of
the individuals set forth above are eligible by the terms of their employment
agreements to participate in a plan allocating 6% of the
6
Corporation's pre-tax profit, if and when such a plan is adopted by the
Corporation's Board of Directors.
3.8 No Changes.
-----------
Except as set forth in Section 3.8 of the Disclosure Schedule, since
June 30, 2003, neither the Corporation nor any Subsidiary has suffered any
change or development which has had a material adverse effect or has conducted
their respective businesses other than in the ordinary and usual course
consistent with past practices and has not:
(a) sold, leased, transferred or otherwise disposed of any of the
assets (other than dispositions in the ordinary course of business
consistent with past practices);
(b) terminated or amended in any material respect any material
contract or lease to which the Corporation or any Subsidiary is a party or
to which the Corporation or any Subsidiary is bound or to which the
Corporation's or any Subsidiary's properties are subject;
(c) suffered any loss, damage or destruction, whether or not covered
by insurance, which has had a material adverse effect;
(d) made any change in the accounting methods or practices the
Corporation or any Subsidiary follows, whether for general, financial or
tax purposes;
(e) incurred any liabilities (other than in the ordinary course of
business or contractual liabilities) which, individually or in the
aggregate, have had a material adverse effect;
(f) incurred, created or suffered to exist any Liens (other than
non-material Liens) on the Corporation's or any Subsidiary's assets;
(g) increased the compensation payable, or to become payable, to any
of the Corporation's or any Subsidiary's officers or employees or increased
any bonus, severance, accrued vacation, insurance, pension or other
employee benefit plan, payment or arrangement made by the Corporation or
any Subsidiary for or with any such officers or employees out of the
ordinary course of business;
(h) suffered any labor dispute, strike, or other work stoppage;
(i) made or obligated the Corporation or any Subsidiary to make any
capital expenditures in excess of $50,000 individually;
(j) entered into any contract or other agreement requiring the
Corporation or any Subsidiary to make payments in excess of $50,000
individually;
7
(k) other than as disclosed in the Registration Statement on Form
SB-2/A of the Corporation filed on July 22, 2003 (the "Registration
Statement"), paid any dividends, whether in cash or property, on account
of, or repurchased any of, the Common Stock; or
(l) entered into any agreement to do any of the foregoing.
3.9 Taxes
-----
The Corporation and each Subsidiary have filed all Tax Returns and paid
all Taxes shown thereon to be due, if any, that are required to have been filed
on or before the Closing with appropriate federal, state, foreign, county and
local governmental agencies or instrumentalities, except where the failure to do
so would not have a material adverse effect upon the business of the Corporation
or any Subsidiary. As of the date hereof, there are not pending or, to the best
knowledge of the Corporation threatened, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters. There
are not, to the best knowledge of the Corporation, any unresolved questions or
claims concerning the Corporation's Tax liability that are reasonably likely to
have a material adverse effect on the business of the Corporation. Neither the
Corporation nor any Subsidiary has any liability with respect to any income,
payroll, withholding, franchise or similar Taxes.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state and local income, profits, franchise, gross receipts, environmental,
customs duty, capital stock, severances, stamp, payroll, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.10 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment and Inventory
-------------------------------------------------------
(a) The Registration Statement contains a true, accurate and complete
list of all real property currently leased by the Corporation and any
Subsidiary, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease. All such leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a
default). Neither the Corporation nor any of its Subsidiaries owns any real
property.
(b) Each of the Corporation and the Subsidiaries has good and valid
title to, or, in the case of leased properties and assets, valid leasehold
interests in,
8
all of its tangible properties and assets as defined below free and clear
of any Liens, except (i) as reflected in the Registration Statement, (ii)
for liens for taxes not yet due and payable and such imperfections of
title, (iii) for encumbrances, if any, which are not material in character,
amount or extent, and which do not materially detract from the value, or
materially interfere with the present use, of the property subject thereto
or affected thereby, and (iv) all Liens on any asset of the Corporation, as
set forth on Section 3.10(b) of the Disclosure Schedule.
3.11 Intellectual Property
---------------------
Section 3.11 of the Disclosure Schedule sets forth a complete list of
all patents or patents pending or any trademark, trade names, service marks and
copyrights of the Corporation and its Subsidiaries (the "Intellectual Property
Rights" and individually, an "Intellectual Property Right"), and any
applications therefor in respect of any of the foregoing, included in the
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Intellectual Property Right has been issued or registered or
in which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners. No claims with respect to the Intellectual Property
Rights have been asserted against the Corporation or any Subsidiary, nor are
threatened against the Corporation or any Subsidiary or have been asserted or
threatened against a third party, nor is the Corporation or any Subsidiary
aware, except as disclosed on Section 3.11 of the Disclosure Schedule, of any
reasonable basis for any claims (i) against the use by the Corporation or any
Subsidiary of any distribution rights, trademarks, service marks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the Corporation's or any Subsidiary's business
as currently conducted or (ii) challenging the validity, effectiveness, or
ownership by the Corporation or any Subsidiary of any of the Intellectual
Property Rights. All registered patents, trademarks, service marks and
copyrights held by the Corporation and each Subsidiary are valid and subsisting.
To the knowledge of the Corporation and its Subsidiaries, there is no
unauthorized use, infringement or misappropriation of any of the Intellectual
Property Rights owned by the Corporation or any Subsidiary by any third party,
including any employee or former employee of the Corporation or any Subsidiary.
No Intellectual Property Right or product of the Corporation or any Subsidiary
is subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the licensing thereof by the Corporation or any
Subsidiary. Neither the Corporation nor any Subsidiary has entered into any
agreement under which the Corporation or any Subsidiary is restricted from
selling, licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market other than as described in the Registration Statement.
3.12 Agreements, Contracts and Commitments.
--------------------------------------
Except as set forth in Section 3.12 of the Disclosure Schedule, neither
the Corporation nor any of its Subsidiaries has continuing obligations under, is
not a party to nor is it bound by:
9
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations;
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(d) any employment, sales or consulting agreement, contract or
commitment with an employee, individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(e) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by the Transaction Agreements or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by the Transaction Agreements, except as provided
herein;
(f) any fidelity or surety bond;
(g) any lease of personal property having annual lease payments
individually in excess of $50,000;
(h) any agreement of indemnification or guaranty other than in the
ordinary course of business;
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Corporation or any Subsidiary to engage in any
line of business or to compete with any Person;
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $50,000;
(k) any agreement, contract or commitment relating to the disposition
or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Corporation's business;
(l) any purchase order or contract for the purchase of raw materials
involving $50,000 or more;
(m) any construction contracts;
(n) any agreement, contract or commitment, including distribution or
agency or sales representative agreements, with any party which, during the
last two fiscal years of the Corporation, accounted for, or is expected to
account
10
during the Corporation's current fiscal year, for more than five
percent (5%) of the Corporation's revenue or trade payables;
(o) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit.
Each of the Corporation and its Subsidiaries has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the material terms or conditions of (i) any agreement,
contract or commitment set forth in Section 3.12 of the Disclosure Schedule, or
(ii) any other material agreement, contract or commitment to which it is a party
or by which it is bound (any such agreement, contract or commitment, a
"Contract"). Each Contract is in full force and effect and, except as otherwise
disclosed in Section 3.12 of the Disclosure Schedule, is not subject to any
default thereunder of which the Corporation is aware by any party obligated to
the Corporation or any Subsidiary pursuant thereto, other than late payments.
Each of the Corporation and its Subsidiaries has obtained all necessary
consents, waivers and approvals of parties to any Contract as are required in
connection with the transactions contemplated by the Transaction Agreements, or
as are required or advisable in order to remain in effect without modification
after the transactions contemplated by the Transaction Agreements. Each Contract
requiring any consent, waiver or third-party approval as a result of the
transactions contemplated by the Transaction Agreements is disclosed in Section
3.12 of the Disclosure Schedule. Neither the execution of the Transaction
Agreements nor consummation of the transactions contemplated thereby will cause
any default or breach under any Contract, including without limitation any key
man clause in any Contract, or the acceleration of any payment obligation of the
Corporation or any Subsidiary.
3.13 Interested Party Transactions
-----------------------------
Except as disclosed in the section entitled "Certain Transactions and
Related Transactions" in the Registration Statement, no officer, director or
employee or stockholder (nor any spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products that the
Corporation or any Subsidiary furnishes or sells, or proposes to furnish or
sell, or (ii) any interest in any entity that purchases from or sells or
furnishes to, the Corporation or any Subsidiary any goods or services or (iii) a
beneficial interest in any contract or agreement with the Corporation or any
Subsidiary, other than Xxxxxx Xxxx, who will be receiving a portion of the
proceeds of the compensation arrangements with HCFP Xxxxxxx Securities described
in Section 3.16, in his capacity as a principal of Aegis Capital Corp.
3.14 Governmental Authorization
--------------------------
Each material consent, license, grant, permit or other authorization
issued to the Corporation or any Subsidiary by any Governmental Entity (i)
pursuant to which
11
the Corporation or any Subsidiary currently operates or holds any interest in
any of its properties or (ii) which is required for the operation of its
business or the holding of any such interest (herein collectively called
"Corporation Authorizations") are in full force and effect. The Corporation
Authorizations constitute all Corporation Authorizations required to permit the
Corporation and its Subsidiaries to operate or conduct their business or hold
any interest in their properties or assets.
3.15 Litigation
----------
There is no action, suit, claim or proceeding of any nature pending, or
threatened against the Corporation or any Subsidiary, its properties or any of
its officers or directors, in their capacities as agents of the Corporation or
any Subsidiary. To the best knowledge of the Corporation, there is no
investigation pending or threatened against the Corporation or any Subsidiary,
its properties or any of its officers or directors, in their capacities as
agents of the Corporation or any Subsidiary by or before any Governmental
Entity. No Governmental Entity has at any time challenged or questioned the
legal right of the Corporation or any Subsidiary to manufacture, offer or sell
any of its products in the present manner or style thereof.
3.16 Brokers' and Finders' Fees
--------------------------
Other than the issuance to HCFP Xxxxxxx Securities of 1,150,000 shares
of Common Stock and $150,000 as payment for advisory services, and $60,000 which
remains owing to HCFP Xxxxxxx Securities as payment for previously delivered
advisory services and will be paid upon the Closing, neither the Corporation nor
any Subsidiary has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Transaction Agreements or any transaction
contemplated thereby or hereby.
3.17 Employee Benefit Plans and Compensation
---------------------------------------
(a) No employee of the Corporation or any Subsidiary is in violation
of any term of any employment contract, patent disclosure agreement or any
other contract or agreement relating to the relationship of any such
employee with the Corporation or any Subsidiary or any other party as a
result of the nature of the business presently conducted or proposed to be
conducted by the Corporation or any Subsidiary. Neither the Corporation nor
any Subsidiary has any collective bargaining agreement covering any of its
employees.
(b) Neither the Corporation nor any Subsidiary has any employee
benefit plan covering employees, whether subject to ERISA or otherwise.
(c) Neither the Corporation nor any entity which is considered one
employer with the Corporation under Section 4001 of ERISA or Section 414 of
the Code has ever maintained or contributed to any employee benefit plan
subject to Title IV of ERISA. All contributions required to be made under
the terms of any plan have been timely made or have been reflected on the
Corporation's financial statements.
12
(d) Neither the Corporation nor any Subsidiary has any obligations for
retiree health and life benefits under any benefit plan.
(e) The consummation of the transactions contemplated by this
Agreement and the Transaction Agreements will not (x) entitle any employees
to severance pay or (y) accelerate the time of payment or vesting or
trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Corporation's or
Subsidiary's employee benefit plans.
3.18 Environmental Matters
---------------------
(a) Except as would not, individually or in the aggregate, have a
material adverse effect on the Corporation:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint
has been filed, no penalty has been assessed, and no
investigation, action, claim, suit, proceeding or review is
pending or, to the best knowledge of the Corporation or its
Subsidiaries, is threatened by any governmental entity or
other Person relating to or arising out of any Environmental
Law (as defined below);
(ii) each of the Corporation and any Subsidiary is and has been
in compliance with all Environmental Laws and all
Environmental Permits (as defined below); and
(iii) there are no liabilities of or relating to the Corporation
or any Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise
arising under or relating to any Environmental Law and there
are no facts, conditions, situations or set of circumstances
which could reasonably be expected to result in or be the
basis for any such liability.
(b) "Environmental Laws" means any federal, state, local or foreign
law (including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or
governmental restriction or requirement or any agreement with any
governmental authority or other third party, relating to human health and
safety or the environment and arising from the use, presence, disposal,
discharge or release of pollutants, contaminants, wastes or chemicals or
any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials. "Environmental Permits" means,
with respect to any Person, all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
13
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business of such Person as currently conducted.
3.19 Insurance
---------
The Corporation maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Corporation and its Subsidiaries that provide full
and adequate coverage for its business. There is no claim by the Corporation or
any Subsidiary pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Corporation and any Subsidiary are otherwise in material compliance
with the terms of such policies and bonds. The Corporation has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
3.20 Compliance with Laws
--------------------
Each of the Corporation and each Subsidiary has complied with, is not
in violation of, and has not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation.
3.21 Disclosure
----------
Neither this Agreement nor any exhibit or schedule hereto nor any
statement, document, list or certificate delivered or shown to Purchaser
pursuant hereto or pursuant to any request therefor, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances in which they were made, not misleading. Nothing contained in this
Section 3.21 shall diminish or derogate from any of the other representations
and warranties of the Corporation contained in this Section 3.
3.22 Stock Exchange Documents; Corporation Financial
Statements; Other Representations
-----------------------------------------------
The Corporation has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the United States
Securities and Exchange Commission (the "SEC") pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder, (the "Exchange Act"), (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "Exchange Documents"). The Corporation has
furnished to the Purchaser true and complete copies of the Annual Report and the
Quarterly Report. As of their respective filing dates, the Exchange Documents
complied in all material respects with the requirements of the Exchange Act and
none of the Exchange Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were
14
made, not misleading, except to the extent corrected by a subsequently
filed document with the SEC. The financial statements of Corporation, including
the notes thereto, included in the Exchange Documents comply as to form in all
material respects with applicable accounting requirements in effect at the time
of filing of such Exchange Documents and with the published rules and
regulations of the SEC with respect thereto in effect at the time of filing of
such Exchange Document, and have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Corporation at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
There have been no material adverse changes in the business, operations, or
financial condition of the Corporation that are not reflected in such Exchange
Documents or that have occurred since the period covered by the most recent of
such Exchange Documents.
3.23 Acknowledgement Regarding Securities
------------------------------------
The Corporation acknowledges that its obligation to issue Common Stock
upon conversion of the Preferred Shares, in accordance with the terms of this
Agreement and the Certificate of Designations, is absolute and unconditional,
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders of the Corporation. Taking the foregoing into
account, the Corporation's Board of Directors has determined in its good faith
business judgment that the issuance of the Preferred Shares hereunder and the
consummation of the other transactions contemplated hereby are (a) in the best
interests of the Corporation and its stockholders and (b) do not breach (with or
without the passage of time or the giving of notice) any obligations of the
Corporation the result of which would have, individually or in the aggregate, a
material adverse effect on the condition (financial or otherwise), operations,
prospects, business, assets, liabilities or earnings of the Corporation. The
Corporation's Board of Directors has approved the terms of this Agreement and
the Certificate of Designations and the transactions contemplated hereby and
thereby. There are no adjustments, Liens or rights that would be triggered by
the issuance of the Preferred Shares pursuant to agreements between the
Corporation and any lender or holder of an equity interest or other securities
of the Corporation.
3.24 Agreements Regarding Confidential Information,
Proprietary Information and Intellectual Property
-------------------------------------------------
The Corporation has caused employees and consultants of the Corporation
or any Subsidiary to execute and deliver such agreements with the Corporation or
any Subsidiary with respect to non-disclosure, non-competition and assignment of
Intellectual Property Rights that provide full and adequate coverage for the
Intellectual Property Rights.
3.25 Registration Rights
-------------------
Except as provided in the Registration Rights Agreement, and in the
registration rights agreement, dated as of November 20, 2002, between the
Corporation
15
and the holders of the Series A Preferred Stock, copies of which
have been previously delivered to Purchaser, the Corporation is not under any
contractual obligation to register any of its outstanding securities.
3.26 Rights of First Refusal; Voting and Registration Rights
-------------------------------------------------------
To the best of the Corporation's knowledge, no party has any right of
first refusal, right of first offer, right of co-sale, preemptive right or other
similar right regarding the Corporation's securities. There are no provisions of
the Articles of Incorporation or the Bylaws of the Corporation, no agreements to
which the Corporation is a party and no agreements by which the Corporation, or
the Preferred Shares are bound, which (a) may affect or restrict the voting
rights of the Purchaser with respect to the Preferred Shares in its capacity as
a stockholder of the Corporation, (b) restrict the ability of the Purchaser, or
any successor thereto or assignee or transferee thereof, to transfer the
Preferred Shares, (c) would adversely affect the Corporation's or the
Purchaser's right or ability to consummate the transactions contemplated by the
Transaction Agreements or to comply with the terms of the transactions
contemplated hereby or thereby, (d) require the vote of more than a majority of
the Corporation's issued and outstanding Common Stock, voting together as a
single class, to take or prevent any corporate action, other than those matters
requiring a class vote under Nevada law, or (e) entitle any party to nominate or
elect any director of the Corporation or require any of the Corporation's
stockholders to vote for any such nominee or other person as a director of the
Corporation in each case.
3.27 Issuances Exempt
----------------
All shares of Common Stock and other securities issued by the
Corporation prior to or on the Closing Date have been issued in transactions
either registered under the Securities Act of 1933, as amended (the "Securities
Act") or exempt from the registration requirements under the Securities Act and
all applicable state securities or "blue sky" laws, and in compliance with all
applicable corporate laws. The Corporation has not offered any of its Common
Stock or any other securities for sale, or solicited any offers to buy, any of
the foregoing from the Corporation or otherwise approached or negotiated with
any other Person in respect thereof in such a manner as to require registration
under the Securities Act. No holder of any of the Corporation's capital stock
has any rescission or pre-emptive rights.
3.28 No Integrated Offering
----------------------
Neither the Corporation nor any other Person acting on the
Corporation's behalf has directly or indirectly engaged in any form of general
solicitation or general advertising with respect to the Preferred Shares nor
have any of such Persons made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would require
registration of the Preferred Shares under the Securities Act or cause this
offering of Preferred Shares to be integrated with any prior offering of
securities of the Corporation for purposes of the Securities Act.
16
3.29 Securities Offerings
--------------------
Subject to the accuracy of the Purchaser's representations and
warranties made in Section 4 hereof to the Corporation, (i) the offer, sale and
issuance of the Preferred Shares to the Purchaser in conformity with the terms
of this Agreement, and (ii) the issuance to the Purchaser of the Reserved Common
Shares, each constitute or will constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act and the
registration or qualification requirements of any applicable state securities or
"blue sky" laws.
3.30 Investment Company Act
----------------------
The Corporation is not now, and after giving effect to the sale of the
Preferred Shares 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.
3.31 Nevada Corporate Statutes
-------------------------
(a) The provisions of Nevada Revised Statutes 78.378-3793 (the "Nevada
Acquisition Statute") are or have been made inapplicable to the Corporation
and to the Purchaser, and, after the Closing and the consummation of the
Merger and the other transactions contemplated by the Transaction
Agreements, the Purchaser shall not be an "acquiring person" or hold a
"controlling interest" under, and shall no way be prohibited in the
exercise of its rights, privileges, power or authority with respect to
voting any of its shares of the Corporation's capital stock, by the Nevada
Acquisition Statute.
(b) The provisions of Nevada Revised Statutes 78.411-444 (the "Nevada
Moratorium Statute") are or have been made inapplicable to the Purchaser,
and, after the Closing and the consummation of the Merger and the other
transactions contemplated by the Transaction Agreements, the Purchaser
shall not be an "interested stockholder" for purposes of the Nevada
Moratorium Statute.
(c) The securities issued by the Corporation pursuant to the
Transaction Agreements shall be free and clear of any restrictions imposed
on the Purchaser under the laws of Nevada or any other statute that are not
imposed generally upon the holders of each security, and the Purchaser
shall have available to it all rights and privileges of the securities
which any other stockholder of the Corporation could exercise. The
Corporation has taken all necessary corporate action prior to the Closing,
including but not limited to, amending the Articles of Incorporation and
Bylaws and convening any required stockholders' meetings, to effect the
foregoing representation and warranty contained in this Section 3.31.
17
3.32 Use of Proceeds
---------------
The Corporation will utilize the net proceeds from the sale of the
Preferred Shares for general corporate purposes.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby represents and warrants to the Corporation as
follows:
4.1 Due Organization
----------------
The Purchaser is a company duly organized and validly existing under
the laws of England and Wales.
4.2 Authorization; Execution and Delivery of Agreement
--------------------------------------------------
The Purchaser has all requisite power and authority to execute this
Agreement and the Registration Rights Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary actions on the part of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and this Agreement constitutes the
legal, valid, binding and enforceable obligation of the Purchaser, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
4.3 No Consent or Approval Required
-------------------------------
Other than as a result of the reporting requirements of the Exchange
Act, no consent, approval, order or authorization of, or registration,
declaration, filing with or notice to, any authority is required to be made or
obtained by the Purchaser in order to execute or deliver this Agreement or to
consummate the transactions contemplated hereby.
4.4 Brokers' and Finders' Fees
--------------------------
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Purchaser, for which the Corporation will become liable.
4.5 Access to Information
---------------------
The Purchaser has had adequate opportunity to ask questions of, and
receive answers from, the Corporation's officers, employees, agents,
accountants, and representatives concerning the Corporation's business,
operations, financial condition, assets, liabilities, and all other matters
relevant to its investment in the Preferred Shares.
18
The foregoing, however, does not limit or modify the representations and
warranties of the Corporation in Section 3 of this Agreement or the right of the
Purchaser to rely thereon.
4.6 Acquisition For Own Account
---------------------------
(a) The Purchaser, by reason of its business and financial experience,
has such knowledge, sophistication and experience in business and financial
matters as to be capable of evaluating the merits and risks of its
investment in the Preferred Shares, and is purchasing the Preferred Shares
hereunder for its own account, for investment and not with a view to, or
any present intention of, effecting a distribution of such securities or
any part thereof. The Purchaser acknowledges that the Preferred Shares to
be purchased hereunder and the shares of common stock issuable upon the
conversion thereof have not been registered under the Securities Act, or
the securities laws of any state or other jurisdiction and cannot be
disposed of unless they are subsequently registered under the Securities
Act and any applicable state laws or exemption from such registration is
available. Furthermore, the Purchaser acknowledges that the Corporation
shall place upon each certificate representing the Preferred Shares and
such shares of common stock, a legend substantially in the following form;
provided, however, that the Preferred Shares and such shares of common
stock will not be required to bear a legend more restrictive than the
legend provided for or for a longer period of time than as provided in the
Registration Rights Agreement.
"The securities represented by this certificate have
been issued without registration or qualification under
the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws (the
"State Acts"). Such securities may not be sold,
assigned, transferred or otherwise disposed of,
beneficially or on the records of the company, unless
the securities represented by this certificate have
been registered or qualified under the Securities Act
and the applicable State Acts or an exception therefrom
is available."
4.7 Accredited Investor
-------------------
The Purchaser is an "accredited investor" (as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act).
5. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AT THE CLOSING
UNDER THIS AGREEMENT
---------------------------------------------------------
The obligation of the Purchaser to consummate the Closing is subject to
the satisfaction of the following conditions on or prior to the Closing:
19
5.1 Corporate Proceedings; Consents; Etc.
-------------------------------------
All corporate and/or other proceedings to be taken by the Corporation,
its officers, directors and stockholders and all waivers, filings and consents
to be obtained by the Corporation in connection with the transactions
contemplated by the Transaction Agreements shall have been taken or obtained,
other than those filings which must be made after the Closing.
5.2 Blue Sky Matters
----------------
All consents, approvals, qualifications and/or registrations required
to be obtained or effected under any applicable state securities or "blue-sky"
laws in connection with the execution and delivery of the Preferred Shares shall
have been obtained or effected.
5.3 Registration Rights Agreement
-----------------------------
The Registration Rights Agreement, in the form of Exhibit C attached
hereto, shall have been executed and delivered by the Corporation.
5.4 Merger Agreement
----------------
The Merger shall have been consummated pursuant to Section 1.2 of the
Merger Agreement.
5.5 Filings and Documents
---------------------
(a) The Certificate of Designations in the form of Exhibit B hereto
shall have been duly authorized by the Board of Directors of the
Corporation, duly executed on behalf of the Corporation and filed with the
Secretary of State of the State of Nevada.
(b) The Corporation shall have delivered to the Purchaser a
certificate of the Secretary of the Corporation at the Closing certifying
that attached thereto is: (i) a true and complete copy of the Corporation's
Articles of Incorporation, as in effect at the Closing; (ii) a true and
complete copy of its Bylaws, as in effect at the Closing; (iii) a true and
complete copy of the Certificate of Designations; and (iv) a true and
complete copy of all resolutions duly adopted by its Board of Directors (x)
authorizing the execution, delivery and performance of this Agreement, and
(y) authorizing the consummation of the transactions contemplated hereby.
5.6 Regulatory Approvals
--------------------
All approvals and authorizations of, filings and registrations with,
and notifications to, all Governmental Entities required for the consummation of
the transactions contemplated by this Agreement shall have been obtained or made
and shall be in full force and effect.
20
5.7 Representations, Warranties and Covenants
-----------------------------------------
Each representation and warranty of the Corporation shall be true and
correct in all respects as of the Closing Date (other than representations and
warranties that expressly speak only as of a prior date); the Corporation shall
have complied in all respects with its covenants and agreements to be performed
at or prior to the Closing; and the Corporation shall have delivered to the
Purchaser a certificate of the Chief Executive Officer of the Corporation in a
form previously agreed between the parties, certifying as to the foregoing
matters.
5.8 No Litigation
-------------
No litigation or other formal proceeding shall have been instituted or
threatened seeking to enjoin any of the transactions contemplated hereby or
seeking damages in respect thereof, and no injunction or temporary restraining
order shall have been issued with respect to any of the transactions
contemplated hereby.
5.9 No Prohibition
--------------
There shall be no federal and state statutes, laws, rules, regulations,
codes and ordinances of any Governmental Entity in effect that prohibits the
purchase of the Preferred Shares by the Purchaser or that would otherwise impose
a material penalty upon the Purchaser in respect of the purchase of the
Preferred Shares.
5.10 Opinion of Counsel
------------------
The Purchaser shall have received an opinion, dated as of the Closing
Date, of Xxxxx Xxxxxx & Xxxx LLP in the form attached hereto as Exhibit D.
6. CONDITIONS TO OBLIGATIONS OF CORPORATION AT THE
CLOSING UNDER THIS AGREEMENT
-----------------------------------------------
The obligations of the Corporation to consummate the Closing is subject
to the satisfaction of the following conditions on or prior to the Closing:
6.1 Representations and Warranties
------------------------------
Each representation and warranty of the Purchaser shall be true and
correct in all respects as of the Closing Date (other than representations and
warranties that expressly speak only as of a prior date).
6.2 Registration Rights Agreement
-----------------------------
The Registration Rights Agreement, in the form of Exhibit C attached
hereto, shall have been executed and delivered by the Purchaser.
21
6.3 No Litigation
-------------
No litigation or other formal proceeding shall have been instituted or
threatened seeking to enjoin any of the transactions contemplated hereby or
seeking damages in respect thereof, and no injunction or temporary restraining
order shall have been issued with respect to any of the transactions
contemplated hereby.
6.4 No Prohibition
--------------
There shall be no federal and state statutes, laws, rules, regulations,
codes and ordinances of any Governmental Entity in effect that prohibits the
sale of the Preferred Shares by the Corporation or that would otherwise impose a
material penalty upon the Corporation in respect of the sale of the Preferred
Shares.
7. COVENANTS
---------
7.1 Insurance
---------
The Corporation shall as promptly as practicable after the date hereof
purchase professional liability, errors and omissions, general liability,
property and casualty and business interruption insurance as the Board of
Directors deems adequate. The Corporation shall also use its best efforts to
purchase any other type of insurance reasonably requested by the Purchaser. Such
insurance policies shall provide full and adequate coverage for all normal risks
incident to the business of the Corporation and its directors, officers and
other personnel, properties and assets, and shall be in character and amount at
least equivalent to that carried by Persons engaged in similar businesses and
subject to the same or similar perils or hazards.
7.2 Ongoing Filing Requirements
---------------------------
Corporations shall file any Exchange Documents required to be filed
when and as required by the Securities and Exchange Commission.
7.3 Public Disclosure of Transactions
---------------------------------
Neither the Corporation nor the Purchaser shall, without the prior
consent of the other party, directly or indirectly issue any public disclosure
with respect to the Transaction Agreements or the investment by the Purchaser
pursuant to, or the other transactions contemplated by, the Transaction
Agreements, except as may be required by applicable law (or under the rules and
regulations of any securities exchange on which the Purchaser's capital stock is
listed), in which case the Corporation and the Purchaser, as the case may be,
shall issue any required statement only after consulting with the other party
and furnishing such disclosure to the other party prior to such consultation.
7.4 Information Rights
------------------
(a) From the date hereof and thereafter for so long as the Purchaser
owns any Preferred Shares issued hereunder the Corporation shall, and shall
cause
22
each Subsidiary to, afford to the Purchaser, the affiliates of the
Purchaser and each of their respective officers, directors, employees,
advisors, counsel and other authorized representatives (collectively the
"Representatives"), during normal business hours, reasonable access, upon
reasonable advance notice, to all of the books, records and properties of
the Corporation and any Subsidiary or future subsidiaries and all officers
and employees of the Corporation and any Subsidiary or future subsidiaries.
The Purchaser shall keep confidential information obtained by it in
connection with any such inspection, except that the Purchaser shall be
permitted to disclose the information relating to the Corporation's
business (i) to such of its representatives as need to know such
information relating to the Corporation's business for the sole purpose of
evaluating the business of the Corporation, provided such Persons are
informed of the confidential nature of the information relating to the
Corporation's business and the restrictions imposed hereby; (ii) to the
extent required by law, rule or regulation or legal process; (iii) to the
extent such information relating to the Corporation's or any Subsidiary's
or future subsidiary's breach is or becomes publicly available other than
as a result of a breach of this Section 7.4(a); or (iv) to the extent the
Corporation shall have consented to such disclosure.
(b) From the Closing Date and thereafter for so long as the Purchaser
owns at least ten percent (10%) of the Preferred Shares issued pursuant to
this Agreement or ten percent (10%) of the Reserved Common Shares, the
Corporation shall furnish promptly to the Purchaser:
(A) notification in writing of the existence of any default
under any material agreement or instrument to which the
Corporation or any Subsidiary or future subsidiary is a
party or by which any of their assets are bound;
(B) upon specific request, copies of all financial
statements, reports, press releases, notices, proxy
statements and other documents sent by the Corporation or
any Subsidiary or future subsidiary to its stockholders
generally or released to the public and copies of all
regular and periodic reports, if any, filed by the
Corporation or any Subsidiary or future subsidiary with the
SEC, any securities exchange or the NASD and copies of all
reports prepared for or delivered to the management of the
Corporation or any Subsidiary or future subsidiary by its
accountants; and
(C) upon specific request, any other routinely collected
financial or other information available to management of
the Corporation or any Subsidiary or future subsidiary
(including without limitation, routinely collected
statistical data).
23
7.5 Nevada Corporate Statutes
-------------------------
(a) The Corporation shall at all times maintain provisions of its
Articles of Incorporation and Bylaws to ensure that the Nevada Acquisition
Statute and the Nevada Moratorium Statute are inapplicable to the
Purchaser.
8. INDEMNIFICATION; SURVIVAL
-------------------------
8.1 Indemnification by the Corporation
----------------------------------
The Corporation hereby agrees to indemnify and hold harmless the
Purchaser and its respective affiliates, directors, officers and employees
(collectively, the "Purchaser Indemnified Parties") from and against any and all
liabilities, judgments, claims, settlements, losses, damages (including any
diminution in value of its investment in the Corporation), reasonable fees
(including attorneys' and other experts' fees and disbursements), Liens, Taxes,
penalties, obligations and expenses (collectively, "Losses") incurred or
suffered by any such Person arising from, by reason of or in connection with any
misrepresentation or breach of any representation, warranty or covenant of the
Corporation pursuant to this Agreement (for the period such representation,
warranty or covenant survives) or any certificate or other document delivered by
the Corporation under this Agreement. This indemnification provision shall be in
addition to the rights of the Purchaser to bring an action against the
Corporation for breach of any term of the Transaction Agreements.
8.2 Indemnification by the Purchaser
--------------------------------
The Purchaser hereby agrees to indemnify and hold harmless the
Corporation and its affiliates, directors, officers and employees (the
"Corporation Indemnified Parties"), from and against any and all Losses incurred
or suffered by any such Person arising from, by reason of or in connection with
any misrepresentation or breach of any representation, warranty or covenant of
the Purchaser contained in this Agreement (for the period such representation,
warranty or covenant survives) or any certificate or other document delivered by
the Purchaser under this Agreement. Notwithstanding anything else to the
contrary, the Purchaser's maximum liability in the Agreement under this Section
8.2 shall not exceed the amount of the purchase price paid by the Purchaser
hereunder. This indemnification provision shall be in addition to the rights of
the Corporation to bring an action against the Purchaser for breach of any term
of this Agreement and the Registration Rights Agreement.
8.3 Procedures Relating to Third Party Claims
-----------------------------------------
A party seeking indemnification pursuant to Section 8.1 or 8.2 (an
"Indemnified Party") shall give prompt notice to the party from whom such
indemnification is sought (the "Indemnifying Party") of the assertion of any
claim or assessment, or the commencement of any action, suit or proceeding, by a
third party in respect of which indemnity may be sought hereunder (a "Third
Party Claim") and will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but no failure to give
such notice shall relieve the
24
Indemnifying Party of any liability hereunder (except to the extent the
Indemnifying Party has suffered actual and material prejudice thereby). The
Indemnifying Party shall have the right, exercisable by written notice (the
"Notice") to the Indemnified Party within 14 days of receipt of notice from the
Indemnified Party of commencement of or assertion of any Third Party Claim, to
assume the defense of such Third Party Claim, using counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party; provided,
that the Indemnifying Party shall not have the right to assume a Third Party
Claim if the Indemnified Party shall have been advised in writing by counsel
that a conflict will arise in the event both the Indemnified Party and the
Indemnifying Party are represented by the same counsel with respect to the Third
Party Claim, in which case such Indemnified Party shall have the right to
control the defense of such Third Party Claim and all Losses in connection
therewith shall be reimbursed by the Indemnifying Party from time to time upon
demand of the Indemnified Party. In addition, if the Indemnifying Party fails to
give the Indemnified Party the Notice complying with the provisions stated above
within the stated time period, the Indemnified Party shall have the right to
assume control of the defense of the Third Party Claim and all Losses in
connection therewith shall be reimbursed by the Indemnifying Party from time to
time upon the demand of the Indemnified Party. In no event may any Indemnifying
Party settle or compromise any Third Party Claim without the prior written
consent of an Indemnified Party.
8.4 Survival of Representations, Warranties and Agreements
------------------------------------------------------
Notwithstanding any investigation conducted or notice or knowledge
obtained by or on behalf of any party hereto, each representation and warranty
in this Agreement and each agreement or covenant in this Agreement shall survive
the execution and delivery of this Agreement, the Closing and any termination of
this Agreement pursuant to Section 14 until 90 days after the filing of audited
accounts for the year to December 31, 2005.
9. EXPENSES
--------
The Corporation, on the one hand, and Purchaser on the other hand, each
shall bear its own expenses in connection with the preparation for and
consummation of the transactions contemplated by this Agreement.
10. NOTICES
-------
All notices, advice and communications to be given or otherwise made to
any party to this Agreement shall be deemed to be sufficient if contained in a
written instrument delivered in person or by telecopier or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
or by overnight courier, or by electronic mail, with a copy thereof to be sent
by mail (as aforesaid) within 24 hours of such electronic mail, addressed to
such party at the address set forth below or at such other address as may
hereafter be designated in writing by the addressee to the addresser listing all
parties:
25
(a) if to the Corporation, to:
Vital Living, Inc.
0000 Xxxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx, CEO
Telecopier: x0 000 000 0000
with a copy to:
Xxxxx Xxxxxx & Xxxx LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telecopier: x0 000 000 0000
-and-
(b) if to the Purchaser, to:
SkyePharma PLC
000 Xxxxxxxxxx
Xxxxxx, Xxxxxxx, X0X 0XX
Attention: Company Secretary
Telecopier: x00 00 0000 0000
with a copy to:
Xxxxxxxx & Xxxxxxxx XXX
0 Xxx Xxxxxx Xxxx
Xxxxxx, Xxxxxxx, XX0X 0XX
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopier: x00 00 0000 0000
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery, delivery by telecopier or transmittal by
electronic mail, on the date of such delivery, (ii) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent and (iii) in the case of mailing, on the third business day following
that on which the piece of mail containing such communication is posted. As used
in this Section 10, "business day" shall mean any day other than a day on which
banking institutions in the State of New York are legally closed, or authorized
to close, for business.
26
11. SUCCESSORS AND ASSIGNS
----------------------
Except as otherwise expressly provided herein, this Agreement shall
bind and inure to the benefit of the parties hereto and the respective
successors and permitted assigns of the parties hereto. Neither this Agreement,
nor the rights and obligations hereunder, is assignable by any party hereto
(except to a successor-in-interest by operation of law) without the prior
written consent of the other. Any such purported assignment made without such
prior written consent shall be null and void. No Person other than the parties
hereto, the Purchaser Indemnified Parties (in respect of Section 8 only) and the
Corporation Indemnified Parties (in respect of Section 8 only) and their
respective successors and permitted assigns shall have any rights or claims
under this Agreement.
12. AMENDMENTS
----------
The terms and provisions of this Agreement may only be amended or
waived either (a) with the written consent of the parties hereto or (b) in a
writing by the party against whom such amendment or waiver is sought to be
enforced.
13. ENTIRE AGREEMENT
----------------
This Agreement and the other writings or documents referred to herein
or delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
14. TERMINATION
-----------
This Agreement may be terminated by either party if the other party is
in material breach of this Agreement and such breach is not cured within
twenty-one days following the delivery of written notice thereof. Such
termination right may be exercised only by the delivery of written notice of
such termination by the terminating party to the other party and such
termination will not relieve any party of liability for its prior breach. This
Agreement may also be terminated by the mutual written consent of the parties
hereto except that each representation and warranty in this Agreement and each
agreement or covenant in this Agreement shall survive such termination.
15. COUNTERPARTS
------------
This Agreement may be executed in any number of separate counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
16. HEADINGS
--------
The headings of the various sections of and schedules to this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
27
17. GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM
-------------------------------------------------------------
This Agreement shall be construed in accordance with the laws of the
State of New York, without regard to conflict of law provisions thereof. Each
party hereto agrees that it shall bring up any action or proceeding in respect
of any claim arising out of or related to this Agreement or the transactions
contained in and contemplated by this Agreement, whether in tort or contract or
at law or in equity, exclusively in the United States District Court for the
Southern District of New York or, if such court is not available, the Supreme
Court of the State of New York for the county of New York (the "Chosen Courts")
and solely in connection with claims arising under this Agreement or the
transactions contained in or contemplated by this Agreement (i) irrevocably
submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any
objection to laying venue in any such action or proceeding in the Chosen Courts
and agrees not to commence any action in respect of any such claim in any other
court or forum, (iii) waives any objection that the Chosen Courts are an
inconvenient forum or do not have jurisdiction over any party hereto, (iv)
waives any right to a trial by jury and (v) agrees that service of process upon
such party in any such action or proceeding shall be effective if notice is
given in accordance with Section 10 of this Agreement. Without limiting the
foregoing, each of the Corporation and the Purchaser hereby appoints, in the
case of any such action or proceeding brought in the courts of or in the State
of New York, CT Corporation system with its offices at 000 0xx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, X.X. 00000 to receive, for it and on its behalf, service of
process in the State of New York with respect thereto, provided the Corporation
and the Purchaser may appoint any other Person, reasonably acceptable to the
other party, with offices in the State of New York to replace such agent for
service of process upon delivery to the other party of a reasonably acceptable
agreement of such new agent agreeing to act.
28
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
VITAL LIVING, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx Xxxxx
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx Xxxxxx
Title: President
SKYEPHARMA PLC
By: /s/ Xxxxxx Xxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: Finance Director
29
