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EXHIBIT 4.1
Series A Preferred Stock and Warrants Purchase Agreement, among
BH Capital Investments, L.P., Excalibur Limited Partnership and
Galaxy Nutritional Foods, Inc., dated as of April 6, 2001
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SERIES A PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
GALAXY NUTRITIONAL FOODS, INC.
THIS SERIES A PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT is
entered into effective as of April 6, 2001 (the "Agreement"), between the
Investors signatory hereto (each an "Investor" and together the "Investors"),
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 Investors,
and the Investors shall purchase in the aggregate (a) $3,500,000 face value of
shares of Series A Preferred 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 Investors 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.
"Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock purchased hereunder.
"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 Investors
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.
"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.
"Initial Warrants" shall mean the warrants issued at the Closing
pursuant to Section 2.1 hereof, in substantially the form of Exhibit E-1
attached hereto.
"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.
"Issue Date" shall mean the date on which Purchased Shares and the
Warrants are issued pursuant to Article II.
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"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, prospects 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.
"Preferred Stock" shall mean the preferred stock, par value $0.01 per
share, of the Company.
"Floor Price" shall have the meaning set forth in the Series A
Certificate of Designations.
"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
Series A Preferred Stock purchased at the Closing shall mean eight hundred
eighty percent (880%) of the lower of: (a) the Market Price of the Common Stock
on the Closing Date, or (b) $5.10.
"Purchased Shares" shall mean the Series A Preferred Stock purchased
pursuant to this Agreement.
"Redemption Warrants" shall mean the warrants, in substantially the
form of Exhibit E-2 attached hereto, issued to the Investors pursuant to Section
2.1(c) hereof , which warrants shall become exercisable only upon a redemption
of the Purchased Shares pursuant to this Agreement or the Series A Certificate
of Designations.
"Registrable Securities" shall mean the Conversion Shares and the
Warrant Shares until the earliest of (i) all Registration Statements have been
declared effective by the SEC, and all Conversion Shares and Warrant Shares have
been disposed of pursuant to the Registration Statements, (ii) all Conversion
Shares and 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 Conversion Shares and
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
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ownership for such securities not bearing a restrictive legend, (iv) such time
as, in the opinion of counsel to the Company, all Conversion Shares and 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 Investors, 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 Investors 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 Investors under the Securities Act of
Registrable Securities.
"Regulation D" shall have the meaning set forth in the recitals of this
Agreement.
"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.
"Section 4(2)" and "Section 4(6)" shall have the meanings set forth in
the recitals of this Agreement.
"Securities" shall mean collectively the Purchased Shares, the
Warrants, the Warrant Shares and the Conversion Shares.
"Securities Act" shall have the meaning set forth in the recitals of
this Agreement.
"Series A Certificate of Designations" shall mean the Certificate of
Designations relating to the Series A Preferred Stock attached hereto as Exhibit
D.
"Series A Preferred Stock" shall mean the Company's Series A Preferred
Stock, par value $0.01 per share, having the rights, terms, and privileges set
forth in the Company's Series A Certificate of Designations.
"Trading Day" shall mean any day during which the Principal Market
shall be open for business.
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"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement, the Series A Certificate of Designations, 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 to be issued or issuable to the
Investors hereunder for the purchase of shares of Common Stock, including the
Initial Warrants, the Redemption Warrants and the 30% Warrants.
"Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
"30% Warrants" shall mean the warrants, in substantially the form of
Exhibit E-3 attached hereto, issued to the Investors pursuant to Section 2.1(c)
hereof.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein,
on the Closing Date, the Company shall sell, and the Investors shall purchase,
(x) an aggregate of $3,080,000 of Purchased Shares at the applicable Purchase
Price and (y) the Warrants in an amount and with an exercise price as provided
in Section 2.1(c), allocated among the Investors as set forth on the signature
pages hereto.
(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
Investors certificates representing the Purchased Shares 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.
(c) The Initial Warrants. The aggregate number of Initial Warrants
to be issued to the Investors at the Closing shall be 120,000, and the initial
exercise price of the Initial Warrants shall be the lower of (i) 110% of the
Market Price on the Closing Date, or (ii) 110% of the average closing bid price
of the Common Stock on the Principal Market for the thirty (30) Trading Days
ending on the 270th day after the Closing Date (subject to the Floor Price, if
applicable).
The Redemption Warrants. The aggregate number of Redemption
Warrants to be issued to the Investors at the Closing shall be 120,000, which
warrants shall become exercisable simultaneous with and as a condition to any
redemption of the Purchased Shares by the
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Company pursuant to the Series A Certificate of Designations, this Agreement or
otherwise, pro rated for any partial redemptions.
The 30% Warrants. The aggregate number of 30% Warrants to be
issued to the Investors at the Closing shall be as described on Exhibit E-3,
which warrants shall only become exercisable if at any time on or after February
15, 2002 that both (i) all of the Purchased Shares have not been redeemed in
full, and (ii) the Registration Statement covering the resale of all of the
Registrable Securities is not then effective as required by the Registration
Rights Agreement.
(d) 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 each 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 each Investor with prior written
notice thereof:
(A) The Investors shall have executed each of
the Transaction Documents to be executed by them 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 Investors at
the Closing (less any amounts withheld pursuant to
the Escrow Agreement) by wire transfer of immediately
available funds pursuant to the written wire
instructions provided by the Company.
(C) The representations and warranties of the
Investors 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
Investors 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 them at
or prior to the Closing Date.
(D) The Series A Certificate of Designations
shall have been filed in Delaware and shall have
become effective under the Delaware General
Corporation Law.
(ii) The obligation of each Investor hereunder 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 each Investor's sole benefit and may be
waived by such Investor
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at any time in its sole discretion by providing the Company
with prior written notice thereof:
(A) The Company and each other Investor shall
have executed each of the Transaction Documents to be
executed by it and delivered the same to such
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 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. Such Investor shall have received a
certificate, executed by the Company's Chief
Executive Officer, dated as of the Closing Date, to
the foregoing effect and as to such other matters as
may be reasonably requested by such Investor,
including, without limitation, an update as of the
Closing Date regarding the representation contained
in Section 4.3 below.
(D) Such Investor shall have received the
opinion of the Company's counsel dated as of the
Closing Date, in form, scope and substance reasonably
satisfactory to such Investor and in substantially
the form of Exhibit F attached hereto.
(E) The Company shall have executed and
delivered (or shall have caused the Escrow Agent to
deliver to such Investor the stock certificates (in
such denominations as such Investor shall request)
representing the Purchased Shares being purchased by
such Investor at the Closing.
(F) The Company shall have executed and
delivered (or shall have caused the Escrow Agent to
deliver) to such Investor the Warrants (in such
denominations as such Investor shall request) being
purchased by such Investor at the Closing.
(G) The Board of Directors of the Company shall
have adopted resolutions consistent with Section 4.2
below and in a form reasonably acceptable to such
Investor (the "Resolutions").
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(H) As of the Closing Date, the Company shall
have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the
issuance of the shares of Common Stock issuable in
connection with this Agreement, a number of shares of
Common Stock equal to at least 200% of the number of
Conversion Shares issuable on the Closing Date and
200% of the number of Warrant Shares issuable under
this Agreement (assuming all the Purchased Shares
were fully convertible and all Warrants were fully
exercisable on such date regardless of any limitation
on the timing or amount of such conversions or
exercises).
(I) 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.
(J) The Company shall have delivered to such
Investor a certificate evidencing the due
incorporation and good standing of the Company and
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.
(K) The Company shall have delivered to
such 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.
(L) The Company shall have delivered to
such Investor such other documents relating
to the transactions contemplated by this
Agreement as such Investor or its counsel
may reasonably request.
(M) Each other Investor shall have
purchased its pro rata share of the
Purchased Shares and Initial Warrants to be
purchased by it at the Closing.
(N) Such Investor shall have received a
certificate, executed by the Company's Chief
Executive Officer, dated as of the Closing
Date to the effect that since December 31,
2000 (i) 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 Closing Date, and available on XXXXX,
and (ii) the Company has not taken any
steps, and does not currently expect to take
any steps, to seek protection pursuant to 11
U.S.C. xx.xx. 101 et seq. (the "Bankruptcy
Code") or any similar state bankruptcy law
nor does the Company have any knowledge or
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reason to believe that its creditors intend
to initiate involuntary proceeding under the
Bankruptcy Code or any such state law.
(O) The Series A Certificate of Designations
shall have been filed in Delaware and shall have
become effective under the Delaware General
Corporation Law.
(P) The Company shall have delivered to the
Investors the irrevocable written agreement and proxy
of Morini Investments Limited Partnership, in form
and substance satisfactory to the Investors, to vote
all shares of Common Stock or other securities over
which he has voting control in favor of a shareholder
proposal permitting the consummation of the
transactions contemplated by this Agreement.
(e) anything to the contrary notwithstanding, in the event the
Closing does not occur by April 30, 2001, the Investors 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 Investors, including legal fees), subject to the limitations on fees set
forth in Section 13.8 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 Investors 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. Such 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. Such 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, such 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.
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Section 3.2. Sophisticated Investor. Such 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 such Investor has such
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. Such
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 such Investor has
been duly authorized and validly executed and delivered by such Investor and is
a valid and binding agreement of such Investor enforceable against it in
accordance with its terms, subject to 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
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. Such 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. Such Investor has received
all documents, records, books and other publicly available information
pertaining to such Investor's investment in the Company as such Investor has
requested (the "Requested Information"). Such Investor acknowledges that the
Company is subject to the periodic reporting requirements of the Exchange Act,
and such Investor has reviewed the Requested Information and copies of all SEC
Documents deemed relevant by such Investor in order for it to make an informed
decision to purchase its allotment of the Securities.
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 Investors 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
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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 business as now being conducted. The
Company does not have any Subsidiaries and does not own more that fifty percent
(50%) of or control any other business entity except as set forth in the SEC
Documents. 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 Series A Preferred 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 shares of Common Stock sufficient in number for the issuance of
Common Stock upon conversion of the Purchased Shares into Common Stock and
exercise and conversion of the Warrants into Common Stock. 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 10,011,947 shares were issued and
outstanding as of April 4, 2001, 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," none 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. The Company is not a party to any
agreement granting preemptive, registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. 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.
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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 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.
Section 4.5. SEC Documents. The Company has not provided the Investors 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 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 information provided by or on behalf of the Company to the Investors 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 Investors' representations in Article III and substantially
similar representations to be made on exercise of the Warrants, the Company's
sale of the Purchased Shares and its issuance of the Warrants under this
Agreement do not, and the Company's issuance of (i) Common Stock on the exercise
of the Warrants, and (ii) Common Stock upon conversion of the Purchased Shares
will
14
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
the Warrants and validly converted in accordance with the Series A Certificate
of Designations, the Conversion 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. None of the Securities will
subject the Investors 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.
15
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, 2000, 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.
Section 4.10. No Undisclosed Events, Liabilities, Developments, or
Circumstances. 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. No Integrated Offering. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the Securities Act or cause this offering of Securities to
be integrated with prior offerings of securities by the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Principal Market; nor
will the Company or any of its Subsidiaries take any action or steps that would
require registration of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the
SEC Documents, 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 4.13. No Misleading or Untrue Communication. Neither Company nor any
person representing the Company, or any other person selling or offering to sell
the Securities in connection with the transaction contemplated by this
Agreement, has made, at any time, any oral communication in connection with the
offer or sale of the same which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.
16
Section 4.14. 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 4.15. 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 Company.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Company.
Section 4.16. Property. Neither the Company nor any of its Subsidiaries owns
any real property. Each of the Company and its Subsidiaries has good and
marketable title to all personal property that it owns, free and clear of all
liens, encumbrances and defects except as reflected in the SEC Documents or the
Requested Information or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company; and to the Company's knowledge, any real
property, mineral or water rights, and buildings that the Company holds under
lease as a tenant are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and intended to be made of such property, mineral or water rights, and buildings
by the Company and its Subsidiaries. The Disclosure Schedule sets forth a
complete and accurate listing of all material liens or security interests on the
assets of the Company and its Subsidiaries.
Section 4.17. 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
17
for its business as now conducted and as currently proposed to be conducted
without any conflict with and without infringement of the rights of others. The
Company has not received any 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 4.18 Proprietary Information; Noncompetition Covenants.
(a) The Company has done nothing to compromise in any material
respects the secrecy, confidentiality or value of any of its trade secrets,
know-how, inventions, prototypes, designs, processes or technical data required
to conduct its business as now conducted or as proposed to be conducted. The
Company has taken in the past and will take in the future reasonable security
measures to protect the secrecy, confidentiality and value of all its trade
secrets, know-how, inventions, prototypes, designs, processes, and technical
data which, in each case, is important to the conduct of its business.
(b) Each current employee of the Company has executed a
nondisclosure and assignment of inventions agreement at least as restrictive as
the form previously provided by the Company to the Investors. Each consultant to
the Company has executed a confidentiality and assignment agreement restricting
the disclosure of proprietary information of the Company and assigning to the
Company all inventions made by such consultant in the course of consulting for
the Company. The Company is not aware that any of the employees, officers or
consultants of the Company, past or present, is in violation of such agreements,
and the Company will use its best efforts to prevent any such violation.
4.19. Company Software.
(a) The Company has all technical and descriptive materials for
all software used in connection with the business of the Company other than
off-the-shelf software acquired for less than $10,000 per application (the
"Company Software") as is necessary to run its business in accordance with its
historical practices, except as would not have a Material Adverse Effect.
(b) The use of the Company Software does not breach any terms of
any contract or agreement. The Company either owns or has been granted under
license agreements relating to the Company Software (the "Company License
Agreements") valid and subsisting rights with respect to all software comprising
the Company Software and such rights may be exercised anywhere in the world. The
Company is in compliance with each of the terms and conditions of each of the
Company License Agreements except to the extent failure to so comply,
individually or in the aggregate, would not have a Material Adverse Effect. In
the case of any commercially available "shrink-wrap" software programs (such as
Lotus 1-2-3 or Microsoft Word), the Company has not made and is not using any
unauthorized copies of any such software programs and, to the knowledge of the
Company, none of the employees, agents or representatives of the Company have
18
made or are using any such unauthorized copies in the conduct of the Company's
business, except as would not have a material adverse effect on the Company.
(c) The Company Software and the related computer hardware used by
the Company in its operations (the "Company Hardware") are adequate in all
material respects, when taken together with the other assets, resources and
personnel of the Company, to run the business of the Company in the same manner
as such business has operated since inception. The Disclosure Schedule contains
a summary description of any unusual problems experienced by the Company in the
past twelve months with respect to the Company Software or Company Hardware that
would result in a Material Adverse Effect.
Section 4.20. 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 4.21. Payments and Contributions. Neither the Company, nor any
Subsidiary, nor any of their directors, officers or, to the Company's knowledge,
other employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.22. Acknowledgment Regarding Investors' Purchase of the
Securities. The Company acknowledges and agrees that each of the Investors 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 no Investor is 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 any of the Investors or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Investor's purchase of the
Securities. The Company further represents to each 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 4.23. 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
19
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. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as currently proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. To the best of
the Company's knowledge, no employee or consultant of the Company is in
violation in any material respect of any term of any employment contract,
proprietary information and inventions agreement, noncompetition agreement or
any other contract or agreement relating to the relationship of any such
employee or consultant with the Company or any previous employer. To the best of
the Company's knowledge, no officer of the Company nor any Key Employee (as
hereinafter defined) of the Company, the termination of whose employment, either
individually or in the aggregate, would have a materially adverse effect on the
Company, has any intention of terminating his or her employment with the
Company. The Company has no collective bargaining agreements with any of its
employees and to the best of the Company's knowledge there is no
labor-union-organizing activity pending or threatened with respect to 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 4.24. 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
20
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 affecting, in
any material respect, the Company, any of the Premises or any improvements
located thereon, or the businesses thereon conducted.
Section 4.25. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such items would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
Section 4.26. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement that
in the reasonable judgment of the Company's officers has or is expected to have
a Material Adverse Effect.
Section 4.27. Certain Transactions. Except as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof and available on XXXXX and
except for arm's-length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the Disclosure Schedule, none of the officers or directors
of the Company is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer or
director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
21
Section 4.28. 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 Investors 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.
Section 4.29. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents, except
as set forth in the Transaction Documents.
Section 4.30 Registration Rights. Except as provided in the Registration
Rights Agreement and except for the Company's obligation to register shares
issued or issuable to Finova Capital as disclosed in the SEC Documents, the
Company is not under any obligation to register any of its presently outstanding
securities or any of its securities that may hereafter be issued.
Section 4.31 Finders' Fees. The Company (a) represents and warrants that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement. The Company hereby agrees to indemnify and to
hold the Investors harmless of and from any liability for any commission or
compensation in the nature of a finder's fee (including any fee listed on the
Disclosure Schedule) to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its employees or representatives is responsible.
Section 4.32 Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants as follows.
Section 5.1 Best Efforts. Each 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. Each Investor agrees that any hedging
transactions with respect to the Common Stock will only be conducted in
compliance with Regulation S. Each 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 Investors understand
and acknowledge 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.
22
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 Conversion 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 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 Conversion 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 Conversion Shares and the
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Investors to cause the Conversion 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 Investors 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 Investors have disposed of all of their
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
Investors have disposed of all of their Registrable Securities.
23
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
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 Investors such shares of stock and/or securities as the Investors
are entitled to receive pursuant to this Agreement. Prior to or upon
consummation of any such consolidation or merger, the Investors will have the
option to either (a) cause the Company to redeem the Purchased Shares pursuant
to the Series A Certificate of Designations, or (b) exchange the Purchased
Shares into preferred stock of the surviving entity with substantially identical
rights, preferences and privileges of the Series A Preferred Stock.
Section 6.9. Issuance of Purchased Shares, Warrants, Warrant Shares and
Conversion Shares. The sale of the Purchased Shares and the Warrants and the
issuance of the Warrant Shares and Conversion Shares shall be made in accordance
with the provisions and requirements of Regulation S (or if that exemption shall
fail 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 Investors under Regulation S. If requested by the
Investors, the Company shall file a Form D with respect to the Securities as
required under Regulation D and provide a copy thereof to each 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 Investors, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 6.11. Use of Proceeds. The Company will use the proceeds from the
sale of the Securities for working capital and general corporate purposes, but
not for the repayment of any debt, except the Company may pay down revolving
credit lines (for cash management purposes) and trade debt with such proceeds.
Section 6.12 Limitation on Future Financing. The Company agrees that it
will not sell or enter into any agreement to sell any of its securities or incur
any indebtedness outside the ordinary course of business from the date hereof
until three (3) months after the Effective Date, except for (i) any sales
pursuant to any presently existing employee benefit plan which plan has been
24
approved by the Company's stockholders or directors, (ii) any sales pursuant to
any compensatory plan for a full-time employee or key consultant, (iii) with the
prior approval of holders of a majority of the Purchased Shares then
outstanding, which will not be unreasonably withheld, any sales in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not financing the Company's business operations, (iv) any
refinancing of existing senior and/or subordinated debt owed to Finova Capital
and South Trust Bank (but only to the extent such refinancing is in the form of
non-convertible debt).
Section 6.13 Proxy Statement. If required either now or later by the rules
and regulations of the Principal Market or otherwise and if at any time the
number of shares of Common Stock that the Investors hold, together with the
shares of Common Stock they are then entitled to receive, assuming conversion of
all the Purchased Shares and exercise of the Warrants (without regard to any
limitations thereon, other than the Floor Price, if applicable), exceeds 15% of
the Company's then outstanding shares of Common Stock, upon the request of a
majority of the Investors, the Company shall provide each stockholder entitled
to vote at the next meeting of stockholders of the Company, which shall be not
later than 90 days from the date of such request (the "Stockholder Meeting
Deadline"), a proxy statement in accordance with Section 14 of the Exchange Act,
which has been previously reviewed by the Investors and a counsel of their
choice, soliciting each such stockholder's affirmative vote at such stockholder
meeting for approval of the Company's issuance of all of the Purchased Shares,
Warrant Shares and Conversion Shares in excess of any limitation or cap imposed
by the Principal Market or otherwise, and the Company shall use its best efforts
to solicit its stockholders' approval of such issuance of the Securities and to
cause the Board of Directors of the Company to recommend to the stockholders
that they approve such proposal. If the Company fails to hold a meeting of its
stockholders by the Stockholder Meeting Deadline (unless such failure is the
result solely of the actions of the Investors), then, as partial relief (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each Investor an amount in cash per Purchased
Share equal to 2.5% of the Purchase Price applicable to such Purchased Share per
month until the stockholder meeting is held (pro rated for partial months). The
Company shall make the payments referred to in the immediately preceding
sentence within five days of the earlier of (a) the holding of the meeting of
the Company's stockholders and (b) the last day of each 30-day period beginning
on the day after the Stockholder Meeting Deadline. In the event the Company
fails to make such payments in a timely manner, such payments shall bear
interest at the rate of 2.5% per month (pro rated for partial months) until paid
in full.
Section 6.14 Transactions With Affiliates. So long as any Investor owns
Purchased Shares or Conversion Shares with an aggregate market value equal to or
greater than $500,000, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each, a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arm's-length basis on
25
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes of this Section means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"Control" or "controls" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
Section 6.15 Right of First Refusal. The Company shall not sell any of its
securities to Persons other than the Investors during the period commencing on
the date hereof and ending nine (9) months after the Effective Date unless the
Company shall first have satisfied its obligations under this Section 6.15.
(a) If the Company receives a written offer from any Person or
group of Persons other than the Investors to purchase any of the Company's
securities in connection with a financing transaction (other than one which is
used to finance a full redemption pursuant to and as permitted under the Series
A Certificate of Designations), the Company shall give the Investors a written
notice of such offer stating the type, terms, and purchase price of such
securities and the other material terms and conditions of the sale of such
securities and attaching a copy of any offer signed by the Person or Persons
making such offer.
(b)The Investors who purchased at least $500,000 in cash
purchase amount of Purchased Shares at the Closing shall have the right to
purchase all of such securities on the same terms and conditions as are set
forth in the Company's written notice. Each Investor may exercise its right to
purchase such securities by giving a written notice of exercise to the Company
within seven (7) days after such Investor's receipt of the Company's notice.
Each Investor shall have the right to purchase such securities pro rata in
accordance with the number of shares of Common Stock (assuming the exercise of
all warrants and the conversion of all Preferred Stock or other securities) that
it has purchased under this Agreement and the Purchase Agreement. Each Investor
may also notify the Company that it will purchase its pro rata share of any such
securities not purchased by the other Investors.
(c) If the Investors shall not have exercised their rights to
purchase all of such securities, then the Company shall have the right to sell
such securities on the same terms and conditions as those set forth in the
Company's notice. If the Company shall not have sold all such securities within
45 days after the expiration of the 7-day period in subparagraph (b) above, then
the Company shall not sell any such securities unless it first offers to sell
such securities to the Investors in accordance with the procedures set forth in
this Section 6.15.
Section 6.16 Suspension of Trading. In addition to any other remedies which
the Investors have under this Agreement and under applicable law, for each
business day on which trading in the shares of Common Stock is suspended or
prohibited on the Principal Market, the Company shall
26
pay the Investors an amount equal to 0.2% of the product of (1) the number of
shares of Common Stock (assuming the exercise of all warrants and the conversion
of all Preferred Stock or other securities) then held by the Investors and (2)
the closing sale price of the Common Stock on the trading day prior to such
suspension or prohibition; provided, however, that no such amounts shall be due
or payable for the first ten (10) days of any such suspension or prohibition if
such suspension or prohibition was not the direct or indirect result of actions
or omissions of the Company or its officers, directors, affiliates, employees or
agents. The cumulative amount of such amounts which have accrued shall be paid
by the Company to the Investors every seven (7) business days after the date of
such suspension or prohibition.
Section 6.17 Maintenance of Insurance. So long as any Purchased Shares
remain outstanding, the Company agrees to maintain in full force and effect all
of its policies of insurance as described in Section 4.15 hereof and to renew
all such policies with substantially the same coverage prior to the expirations
thereof.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made
by each of the Company and each Investor 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. 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 Investors, their
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
27
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
(iii) any action instituted against the Investors, or any
of them, 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) Each Investor, severally but not jointly, 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 such 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
28
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 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
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Amex, Nasdaq or
other filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review and for the purpose of
conducting ongoing due diligence, and cause the Company's officers, directors
and employees to supply all such publicly available information reasonably
requested by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement and due diligence efforts
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
29
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information
to the Investors, advisors to or representatives of the Investors unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, 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 Investors' advisors and
representatives to enter into a confidentiality agreement in form and content
reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
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
30
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. 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 any Conversion 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.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
Section 9.5. Transfers without Registration. If an Investor provides the
Company with an opinion of counsel, in generally acceptable form, that
registration of a resale by such Investor of any Securities is not required
under the Securities Act, the Company shall permit the transfer and, in the case
of the Conversion Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
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 Investors 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 Investors shall be entitled, in addition to all other available
remedies, to an injunction 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.
31
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 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.
32
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 Investors 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, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any Affiliate of the Investors, 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
33
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 Xxxxx Xxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Chief Financial Officer
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: Xxx Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
if to the Investors: 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
34
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 Series A
Certificate of Designations, 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. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. 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
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing any Securities and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
or (iii) in the case of any such mutilation, on surrender and cancellation of
such certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Subject to a cap of $30,000 ($6,000 of
which has already been paid to the Investors), the Company shall pay the
reasonable fees, expenses and disbursements of Xxxxxx Xxxxxxx Xxxxx & Xxxxxx
LLP, the Investors' counsel, pursuant to the
35
terms of the Escrow Agreement, and accounting fees, due diligence expenses and
other disbursements of the Investors. In addition, the Company shall reimburse
the Investors 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 13.8 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
Investors.
Section 13.9. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) trading days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
Section 13.10. 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 13.11. Termination. If the Closing shall not have occurred on or
before April 30, 2001 due to the Company's or an Investor's failure to satisfy
the conditions set forth in Article II above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 13.11, the Company shall remain obligated to reimburse the
non-breaching Investors for the expenses described in Section 13.8 above.
Section 13.12. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 13.13. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or the Investors enforce or
exercise their rights hereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
Section 13.14 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Company or the Investors or any
subsequent holder of any Securities
36
upon any breach, default or noncompliance of the Investors, any subsequent
holder of any Securities or 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 Investors of any breach, default or noncompliance
under this Agreement or any waiver on the Company's or the Investors' 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 Investors, shall be cumulative and not alternative.
Section 13.15 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 Investors or
their transferees holding at least sixty percent (60%) of the outstanding
Conversion Shares and Warrant Shares (assuming the exercise of all Warrants and
the conversion of all Series A Preferred Stock or other securities into Common
Stock), voting together as a single group; provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage required under this
Section 13.15. Any amendment or waiver effected in accordance with this Section
13.15 shall be binding upon the Investors 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 Investors (or their transferees) who
have not previously consented thereto in writing.
******
37
IN WITNESS WHEREOF, the parties hereto have caused this Series A
Preferred 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/ Xxxxx Xxxxx
---------------------------------------
Name: Xxxxx Xxxxx
-------------------------------------
Title: Vice President
------------------------------------
INVESTORS:
Address: 000 Xxxxx Xxxxxx Xxxx Xxxxxxxx: BH Capital Investments, L.P.
Xxxxx Xxxxx, 0xx Xxxxx By: HB and Co., Inc., its General Partner
Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0
Fax: 000-000-0000
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------------
Name: Xxxxx Xxxxxxxxx, President
Aggregate Purchase Price
and Number of Warrants purchased
at Closing:
Aggregate Purchase Price: $1,540,000
Initial Warrants: 60,000
Redemption Warrants: 60,000
30% Warrants: one-half of total
Address: 00 Xxxxxx Xxxxxx Xxxxxx Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R I B2 By: Excalibur Capital Management, Inc.
Fax: 000-000-0000
By: /s/ Xxxxxxx Xxxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxxx, President
Aggregate Purchase Price
and Number of Warrants purchased
at Closing:
Aggregate Purchase Price: $1,540,000
Initial Warrants: 60,000
Redemption Warrants: 60,000
30% Warrants: one-half of total
