AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT, is
dated as of the 24th day of August, 2005, by and between PacificHealth
Laboratories, Inc., a Delaware corporation (the "COMPANY"), Hormel Health Labs,
LLC ("INVESTOR") and any Additional Investor (as defined in the Purchase
Agreement) that becomes a party to this Agreement by executing and delivering to
the Company a counterpart signature page hereto (which such person shall
thereupon be deemed an "Investor" for all purposes of this Agreement), and
amends and restates the Investors' Rights Agreement dated as of January 28, 2005
by and between the Company and Investor.
RECITALS
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WHEREAS, the Investor is investing in a Secured Convertible
Promissory Note issued by the Company and the parties desire to amend and
restate the Original Agreement to include the shares of common stock issuable
upon conversion of the Secured Convertible Promissory Note;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement:
1.1. The term "AFFILIATE" shall mean with respect to any
individual, corporation, partnership, association, trust, or any other entity
(in each case, a "PERSON"), any Person which, directly or indirectly, controls,
is controlled by or is under common control with such Person, including, without
limitation any general partner, officer or director of such Person and any
venture capital fund now or hereafter existing which is controlled by or under
common control with one or more general partners or shares the same management
company with such Person.
1.2. The term "COMMON STOCK" shall mean shares of the
Company's common stock, par value $0.01 per share.
1.3. The term "EXCHANGE ACT" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
1.4. The term "FORM S-3" means such form under the
Securities Act as in effect on the date hereof or any registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.5. The term "GAAP" shall mean generally accepted
accounting principles.
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1.6. The term "HOLDER" shall mean any Person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 2.12 hereof.
1.7. The Term "IMMEDIATE FAMILY MEMBER" shall mean a
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of a person referred to herein.
1.8. The term "INITIATING HOLDERS" means, collectively,
any Holders who properly initiate a registration request under this Agreement.
1.9. The term "KEY EMPLOYEE" means any executive-level
employee (including division director and Vice President level positions) as
well as any employee who either alone or in concert with others develops,
invents, programs or designs any Company Intellectual Property (as defined in
Section 2.8 of the Purchase Agreement)
1.10. Intentionally Left Blank.
1.11. The term "NEW SECURITIES" shall mean equity
securities of the Company, whether now authorized or not, or rights, options, or
warrants to purchase said equity securities, or securities of any type
whatsoever that are, or may become, convertible into or exchangeable into or
exercisable for said equity securities (collectively "NEW SECURITIES").
1.12. The term "PREFERRED STOCK" shall mean,
collectively, shares of the Company's Series A Preferred Stock.
1.13. The term "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement or document.
1.14. The term "REGISTRABLE SECURITIES" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock
or other convertible security include the Secured Convertible Promissory Note
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in clause (i) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under Section 2 hereof are not assigned or any shares for which
registration rights have terminated pursuant to Section 2.14 of this Agreement.
1.15. The term "REGISTRABLE SECURITIES THEN OUTSTANDING"
means the number of shares determined by adding the number of shares of Common
Stock outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
1.16. The term "SEC" means the Securities and Exchange
Commission.
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1.17. The term "SEC RULE 144" means Rule 144 promulgated
by the SEC under the Securities Act.
1.18. The term "SEC RULE 144(K)" means Rule 144(k)
promulgated by the SEC under the Securities Act.
1.19. The term "SEC RULE 145" means Rule 145 promulgated
by the SEC under the Securities Act.
1.20. The term "SECURED CONVERTIBLE PROMISSORY NOTE"
means the secured convertible promissory note issued pursuant to the Securities
Purchase Agreement dated August 24, 2005 between the Company and Investor.
1.21. The term "SECURITIES ACT" means the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
1.22. The term "SERIES A PREFERRED STOCK" means shares
of the Company's Series A Preferred Stock, par value $0.01 per share.
1.23. The term "VIOLATION" means losses, claims,
damages, or liabilities (joint or several) to which a party hereto may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations: (i) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by any other
party hereto, of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities Act, the Exchange Act
or any state securities law.
2. Registration Rights. The Company covenants and agrees as
follows:
2.1. Request for Registration.
(a) If the Company shall receive at any time after
the date of this Agreement a written request from the Holders of 33% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration for resale of the
Registrable Securities if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would equal or exceed $1,000,000, then
the Company shall:
(i) within ten (10) days of the receipt
thereof, give written notice of such request to all Holders;
(ii) as soon as practicable, and in any event
within 45 days of the receipt of such request, file a registration statement
under the Securities Act covering all Registrable Securities which the Holders
request to be registered, subject to the limitations of subsection 2.1(b),
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 5.5; and
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(iii) use its best efforts to cause such
registration statement to be declared effective by the SEC as soon as
practicable but in no event later than 120 days after such request.
(b) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
subsection 2.1(a) and the Company shall include such information in the written
notice referred to in subsection 2.1(a). The underwriter will be selected by the
Initiating Holders subject only to the reasonable approval of the Company. In
such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 2.3(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2.1, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders of Registrable Securities,
including the Initiating Holders, in proportion (as nearly as practicable) to
the number of Registrable Securities of the Company owned by each Holder;
provided, however, that the number of shares of Registrable Securities held by
the Holders to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
(c) The Company shall not be obligated to effect,
or to take any action to effect, any registration
(i) pursuant to this Section 2.1:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act;
(ii) After the Company has effected one
registration pursuant to this Section 2.1 and such registration has been
declared or ordered effective;
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 2.11 below; or
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(iv) If the Registrable Securities to be
included in the registration statement could be sold without restriction under
SEC Rule 144 within a three-month day period and the Company is currently
subject to the periodic reporting requirements of Sections 12(b),12(g) or 15(d)
of the Exchange Act, or
(v) If the Registrable Securities to be
included in the registration statement could be sold without restriction under
SEC Rule 144(k) and the Company is currently subject to the periodic reporting
requirements of Sections 12(b), 12(g) or 15(d) of the Exchange Act, or
(ii) pursuant to any other provision of this
Agreement:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act; or
(ii) If the Registrable Securities to be
included in the registration statement could be sold without restriction under
SEC Rule 144(k) within a ninety (90) day period and the Company is currently
subject to the periodic reporting requirements of Sections 12(b), 12(g) or 15(d)
of the Exchange Act.
(d) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement pursuant to this
Section 2.1 a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be materially detrimental to the Company and its stockholders for such
registration statement to become effective or to remain effective as long as
such registration statement would otherwise be required to remain effective
because such action (x) would materially interfere with a significant
acquisition, corporate reorganization or other similar transaction involving the
Company, (y) would require premature disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or (z)
would render the Company unable to comply with requirements under the Securities
Act or Exchange Act, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve-month period and
provided further that the Company shall not register any securities for the
account of itself or any other stockholder during such one hundred twenty (120)
day period other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction, a registration on any
form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered).
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A registration statement shall not be counted until such time as such
registration statement has been declared effective by the SEC (unless the
Initiating Holders withdraw their request for such registration other than as a
result of information concerning the business or financial condition of the
Company which is made known to the Investors after the date on which such
registration was requested and elect not to pay the registration expenses
therefor pursuant to Section 2.5). A registration statement shall not be counted
if, as a result of an exercise of the underwriter's cut-back provisions, fewer
than 50% of the total number of Registrable Securities that Holders have
requested to be included in such registration statement are actually included.
2.2. Company Registration. If the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 5.5, the Company shall, subject to the provisions of
Section 2.7, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered. The
Company shall have the right to terminate or withdraw any registration initiated
by it under this Section 2.2 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration. The expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.6 hereof.
2.3. Obligations of the Company. Whenever required under
this Section 2 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible,
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective, and,
except for registrations solely under Section 2.2, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred eighty
(180) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed; provided, however, that (i) such
180-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, subject to
compliance with applicable SEC rules, such 180-day period shall be extended for
up to one year, if necessary, to keep the registration statement effective until
all such Registrable Securities are sold;
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(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement;
(f) cause all such Registrable Securities
registered pursuant to this Agreement hereunder to be listed on a national
securities exchange or trading system and each securities exchange and trading
system on which similar securities issued by the Company are then listed;
(g) use its reasonable best efforts to furnish, at
the request of any Holder requesting registration of Registrable Securities
pursuant to this Section 2, on the date on which such Registrable Securities are
sold to the underwriter, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (ii) a "comfort" letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any.
2.4. Furnish Information. (a) It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 2 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
such Holder's Registrable Securities.
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2.5. Expenses of Demand Registration. All expenses other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.1, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 2.1 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses pro rata based upon the number of
Registrable Securities that were to be included in the withdrawn registration),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 2.1; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness after learning of such
information, then the Holders shall not be required to pay any of such expenses
and shall retain their rights pursuant to Section 2.1.
2.6. Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.2 hereof for each Holder (which right may be assigned as
provided in Section 2.12 hereof), including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities.
2.7. Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock
pursuant to Section 2.2, the Company shall not be required to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and its underwriters, and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
number of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that the underwriters determine in their
reasonable discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters and the
Company determine in their sole discretion will not jeopardize the success of
the offering. In no event shall any Registrable Securities be excluded from such
offering unless all other securities held by officers, directors or greater than
5% stockholders (as determined in accordance with Rule 13d-1 of the Exchange
Act) also having registration rights are also reduced on a pro rata basis along
with the holders of the Registrable Securities. In the event that the
underwriters determine that less than all of the Registrable Securities
requested to be registered can be included in such offering, then the
Registrable Securities that are included in such offering shall be apportioned
pro rata among the selling Holders based on the number of Registrable Securities
held by all selling Holders or in such other proportions as shall mutually be
agreed to by all such selling Holders. Notwithstanding the foregoing, in no
event shall ( the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included in such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a Holder of
Registrable Securities and which is an investment fund, partnership, limited
liability company or corporation, the partners, members, retired partners,
retired members, stockholders and Affiliates of such Holder, or the estates and
family members of any such partners, retired partners, members and retired
members and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder", and any pro-rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling Holder," as defined in this sentence.
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2.8. Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
registration pursuant to this Agreement as the result of any controversy that
might arise with respect to the interpretation or implementation of this Section
2.
2.9. Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners, members, officers,
directors and stockholders of each Holder, legal counsel and accountants for
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any Violation and the
Company will pay to each such Holder, underwriter, controlling person or other
aforementioned person, any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action as such expenses are incurred; provided, however, that the
indemnity agreement contained in this subsection 2.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter, controlling person or
other aforementioned person.
(b) To the extent permitted by law, each selling
Holder will severally and not jointly indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Securities Act, legal counsel and accountants for the Company, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this subsection 2.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 2.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, further, that, in no event shall any indemnity under this
subsection 2.9(b) exceed the net proceeds from the offering received by such
Holder, except in the case of fraud or willful misconduct by such Holder.
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(c) Promptly after receipt by an indemnified party
under this Section 2.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.9.
(d) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.9 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.9, then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission; provided however, that, in any
such case, (I) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
and sold by such Holder pursuant to such registration statement, and (II) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation;
provided further, that in no event shall a Holder's liability pursuant to this
Section 2.9(d), when combined with the amounts paid or payable by such holder
pursuant to Section 2.9(b), exceed the proceeds from the offering (net of any
underwriting discounts or commissions) received by such Holder, except in the
case of willful fraud by such Holder.
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(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) Unless otherwise superceded by an underwriting
agreement entered into in connection with the underwritten public offering, the
obligations of the Company and Holders under this Section 2.9 shall survive the
completion of any offering of Registrable Securities in a registration statement
under this Section 2, and otherwise and shall survive the termination of this
Agreement.
2.10. Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Sec Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, so long as the Company
is subject to the periodic reporting requirements under Sections 13 or 15(d) of
the Exchange Act;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), and (ii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
2.11. Form S-3 Registration. In case the Company shall
receive from Holders of at least 17% of all Registrable Securities then
outstanding a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
11
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such
registration and all such qualifications and compliances as may be reasonably
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 2.11: (1) if Form S-3 is not then available for such
offering by the Holders; (2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1 million; (3) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the request of the Holder or
Holders under this Section 2.11; provided, however, that the Company shall not
utilize this right more than once in any twelve month period and provided
further that the Company shall not register any securities for the account of
itself or any other stockholder during such sixty day period (other than a
registration relating solely to the sale of securities of participants in a
Company stock plan, a registration relating to a corporate reorganization or
transaction under Rule 145 of the Securities Act, a registration on any form
that does not include substantially the same information as would be required to
be included in a registration statement covering the sale of the Registrable
Securities, or a registration in which the only Common Stock being registered is
Common Stock issuable upon conversion of debt securities that are also being
registered); (4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two registrations on Form
S-3 for the Holders pursuant to this Section 2.11; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in connection with
a registration requested pursuant to Section 2.11, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements of counsel for the Company, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company. Registrations effected pursuant to
this Section 2.11 shall not be counted as demands for registration or
registrations effected pursuant to Sections 2.1.
(d) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to this
Section 2.11 and the Company shall include such information in the written
notice referred to in Section 2.11(a). The provisions of Section 2.1(b) shall be
applicable to such request (with the substitution of Section 2.11 for references
to Section 2.1).
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2.12. Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 2
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities that (i) is a subsidiary, Affiliate,
parent, partner, member, limited partner, retired partner, retired member or
stockholder of a Holder, (ii) is a Holder's family member or trust for the
benefit of an individual Holder, or (iii), after such assignment or transfer,
holds at least 250,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 2.14 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act. For the purposes of determining
the number of shares of Registrable Securities held by a transferee or assignee,
the holdings of transferee or assignee (i) that is a subsidiary, parent,
partner, limited partner, retired partner, member, retired member or stockholder
of a Holder; (ii) that is an Affiliate of the Holder, which means with respect
to a limited liability company or a limited liability partnership, a fund or
entity managed by the same manager or managing member or general partner or
management company or by an entity controlling, controlled by, or under common
control with such manager or managing member or general partner or management
company, (iii) who is a Holder's Immediate Family Member, or (iv) that is a
trust for the benefit of an individual Holder or such Holder's Immediate Family
Member, shall be aggregated together and with those of the assigning Holder;
provided that all assignees and transferees who would not qualify individually
for assignment of registration rights shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
under this Section 2.
2.13. Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders of a majority of the Registrable Securities
then outstanding, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of such
securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of any securities held
by such holder or prospective holder.
2.14. Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any
right provided for in this Section 2 after three (3) years following January 28,
2005.
(b) The rights set forth in this Section 2 shall
terminate (i) upon a Deemed Liquidation Event, as such term is defined in the
Company's Certificate of Incorporation and (ii) as to any Holder upon the
earlier of, when the Registrable Securities held by such Holder (together with
any Affiliate of such Holder with whom such Holder must aggregate its sales
under SEC Rule 144) could be sold without restriction under (x) SEC Rule 144
within a three-month period or (y) Rule 144(k).
13
3. Right of First Offer.
3.1. Right of First Offer. Subject to the terms and
conditions specified in this Section 3.1, and applicable securities laws, in the
event the Company proposes to offer or sell any New Securities, the Company
shall first make an offering of such New Securities to each Investor in
accordance with the following provisions of this Section 3.1. An Investor shall
be entitled to apportion the right of first offer hereby granted it among itself
and its partners, members and Affiliates in such proportions as it deems
appropriate.
(a) The Company shall deliver a notice, in accordance
with the provisions of Section 5.5 hereof, (the "OFFER NOTICE") to each of the
Investors stating (i) its bona fide intention to offer such New Securities, (ii)
the number of such New Securities to be offered, and (iii) the price and terms,
if any, upon which it proposes to offer such New Securities.
(b) By written notification received by the Company,
within twenty (20) calendar days after mailing of the Offer Notice, each of the
Investors may elect to purchase or obtain, at the price and on the terms
specified in the Offer Notice, up to that portion of such New Securities which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion of the Preferred Stock (and any other securities
convertible into, or otherwise exercisable or exchangeable for, shares of Common
Stock) then held, by such Investor bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion and exercise of
all convertible or exercisable securities). The Company shall promptly, in
writing, inform each Investor that elects to purchase all the shares available
to it (each, a "FULLY-EXERCISING INVESTOR") of any other Investor's failure to
do likewise. During the ten (10) day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the New Securities for which Investors were entitled to subscribe but
which were not subscribed for by the Investors which is equal to the proportion
that the number of shares of Common Stock issued and held, or issuable upon
conversion of Preferred Stock and the Secured Convertible Promissory Note then
held, by such Fully-Exercising Investor bears to the total number of shares of
Common Stock issued and held, or issuable upon conversion of the Preferred Stock
and the Secured Convertible Promissory Note then held, by all Fully-Exercising
Investors who wish to purchase such unsubscribed shares.
(c) If all New Securities referred to in the Offer
Notice are not elected to be purchased or obtained as provided in Section 3.1(b)
hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in Section 3.1(b) hereof, offer the remaining
unsubscribed portion of such New Securities (collectively, the "REFUSED
SECURITIES") to any person or persons at a price not less than, and upon terms
no more favorable to the offeree than, those specified in the Offer Notice. If
the Company does not enter into an agreement for the sale of the New Securities
within such period, or if such agreement is not consummated within thirty (30)
days of the execution thereof, or 90 days after the Offer Notice, whichever is
later, the right provided hereunder shall be deemed to be revived and such New
Securities shall not be offered unless first reoffered to the Investors in
accordance with this Section 3.1.
14
(d) The right of first offer in this Section 3.1 shall
not be applicable to: (i) securities issuable upon conversion of any of the
Preferred Stock, or as a dividend or distribution on the Preferred Stock; (ii)
securities issued upon the conversion of any debenture, warrant, option, or
other convertible security; (iii) Common Stock issuable upon a stock split,
stock dividend, or any subdivision of shares of Common Stock; (iv) shares of
Common Stock (or options to purchase such shares of Common Stock) issued or
issuable to employees or directors of, or consultants to, the Company pursuant
to any plan approved by the Company's Board of Directors, (v) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, approved by the Board of Directors; (vi) shares of Common
Stock issuable in connection with lease lines, bank financing or other similar
transactions that are primarily of a non-equity financing nature and are
approved by the Board of Directors; and (vii) securities issued in connection
with joint ventures, strategic alliances or other agreements or arrangements
primarily intended for business or commercial purposes.
(e) The right of first offer set forth in this Section
3.1 may not be assigned or transferred except that (i) such right is assignable
by each Investor to any Affiliate of such Investor, and (ii) such right is
assignable by any Investor to any other Investor. Notwithstanding the foregoing,
the right of first offer set forth in this Section 3.1 shall terminate with
respect to any Investor who fails to purchase, in any transaction subject to
this Section 3.1, all of such Investor's pro rata amount of the New Securities
allocated (or if less than such Investor's pro rata amount is offered by the
Company, such lesser amount so offered) to such Investor pursuant to this
Section 3.1. Following any such termination, such Investor shall no longer be
deemed a "Investor" for any purpose of this Section 3.1
(f) In lieu of complying with the provisions of this
Section 3.1, the Company may elect to give notice to the Investors within thirty
(30) days after the issuance of New Securities. Such notice shall describe the
type, price and terms of the New Securities. Each Investor shall have twenty
(20) days from the date of receipt of such notice to elect to purchase up to the
number of New Securities that would, if purchased by such Investor, maintain
such Investor's percentage ownership position, calculated as set forth in
Section 3.1(b) prior to giving effect to the issuance of such New Securities.
The closing of such sale shall occur within sixty (60) days of the date of
notice to the Investors.
3.2. Termination. The provisions of this Section 3 shall
terminate three (3) years after the date of this Agreement or earlier upon a
Deemed Liquidation Event, as such term is defined in the Company's Certificate
of Incorporation or upon a change of control resulting from the transfer to a
third party of more the 50% of the outstanding voting power at such time.
15
4. Additional Covenants.
4.1. Director Designees. While at least 50% of the Series A
Preferred is outstanding, an Investor holding at least 50% of the Series A
Preferred is entitled to designate an individual to be nominated by the Board of
Directors, subject to such individual satisfying the requirements of an
independent director as set forth in the Securities Exchange Act of 1934, as
amended, and other applicable requirements of the exchange or quotation system
upon which the Company's common stock is listed or quoted.
5. Miscellaneous.
5.1. Transfers, Successors and Assigns. Subject to
paragraph 3.1(e) of this Agreement, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
5.2. Governing Law. This Agreement shall be governed by and
construed in accordance with the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and as to all other matters
shall be governed by and construed in accordance with the internal laws of the
state of New Jersey, without regard to its principles of conflicts of laws.
5.3. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and delivered by facsimile signature and in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4. Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5. Notices. All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed electronic mail or facsimile if sent during normal
business hours of the recipient, and if not so confirmed, then on the next
business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the respective parties at their address as set forth on the signature
page or Schedule A hereto, or to such email address, facsimile number or address
as subsequently modified by written notice given in accordance with this Section
5.5. If notice is given to the Company, a copy shall also be sent to Xxxx X.
Xxxxxx, Xxxxxx Xxxxxxx Xxxxxx & Xxxxxxx, LLC, 0000 Xxxxxx Xxxxxx, Xxxxx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000. If notice is given to Hormel Health Labs, LLC,
a copy shall also be sent to Xxxxxxxxx X. Xxxxxxxx, Xxxxxx & Xxxxxxx LLP, 0000
Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000.
5.6 Costs of Enforcement. If any Party to this Agreement
seeks to enforce its rights under this Agreement by legal proceedings, the
non-prevailing Party shall pay all costs and expenses incurred by the prevailing
Party, including, without limitation, all reasonable attorneys' fees.
16
5.7 Amendments and Waivers. 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 and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company. Notwithstanding the foregoing,
this Agreement may not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Investor without the written
consent of such Investor, unless such amendment, termination or waiver applies
to all Investors in the same fashion (it being agreed that a waiver of the
provisions of Section 4 with respect to a particular transaction shall be deemed
to apply to all Investors in the same fashion if such waiver does so by its
terms, notwithstanding the fact that certain Investors may nonetheless, by
agreement with the Company, purchase securities in such transaction). The
Company shall give prompt written notice of any amendment or termination hereof
or waiver hereunder to any party hereto that did not consent in writing to such
amendment, termination or waiver. Any amendment, termination or waiver effected
in accordance with this Section 5.7 shall be binding on all parties hereto, even
if they do not execute such consent. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
5.8 Severability. The invalidity of unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
5.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by Affiliates shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
5.10 Entire Agreement. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with respect to the subject matter hereof, and any
other written or oral agreement relating to the subject matter hereof existing
between the parties are expressly canceled.
5.11 Transfers of Rights. Each Investor hereto hereby
agrees that it will not, and may, not assign any of its rights and obligations
hereunder, unless such rights and obligations are assigned by such Investor to
(a) any person or entity to which Registrable Securities are transferred by such
Investor, or (b) to any Affiliate of such Investor, and, in each case, such
transferee shall be deemed an "Investor" for purposes of this Agreement;
provided that such assignment of rights shall be contingent upon the transferee
providing a written instrument to the Company notifying the Company of such
transfer and assignment and agreeing in writing to be bound by the terms of this
Agreement.
17
5.12 Dispute Resolution. Any unresolved controversy or
claim arising out of or relating to this Agreement, except as (i) otherwise
provided in this Agreement, or (ii) any such controversies or claims arising out
of either party's intellectual property rights for which a provisional remedy or
equitable relief is sought, shall be submitted to arbitration by one arbitrator
mutually agreed upon by the parties, and if no agreement can be reached within
30 days after names of potential arbitrators have been proposed by the American
Arbitration Association (the "AAA"), then by one arbitrator having reasonable
experience in corporate finance transactions of the type provided for in this
Agreement and who is chosen by the AAA. The arbitration shall take place in
Newark, New Jersey, in accordance with the AAA rules then in effect, and
judgment upon any award rendered in such arbitration will be binding and may be
entered in any court having jurisdiction thereof. There shall be limited
discovery prior to the arbitration hearing as follows: (a) exchange of witness
lists and copies of documentary evidence and documents relating to or arising
out of the issues to be arbitrated, (b) depositions of all party witnesses and
(c) such other depositions as may be allowed by the arbitrators upon a showing
of good cause. Depositions shall be conducted in accordance with the New Jersey
Code of Civil Procedure, the arbitrator shall be required to provide in writing
to the parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings, with such record constituting the official
transcript of such proceedings. The prevailing party shall be entitled to
reasonable attorney's fees, costs, and necessary disbursements in addition to
any other relief to which such party may be entitled. Each of the parties to
this Agreement consents to personal jurisdiction for any equitable action sought
in the U.S. District Court for the District of New Jersey or any court of the
State of New Jersey having subject matter jurisdiction.
5.13 Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
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. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
[Remainder of Page Intentionally Left Blank]
18
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
PacificHealth Laboratories, Inc.
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
-----------------------------------
Title: CFO/COO
-----------------------------------
Address: 000 Xxxxxxx Xxxx, Xxxxx 000
-----------------------------------
Xxxxxxx, XX 00000
-----------------------------------
INVESTOR:
Hormel Health Labs, LLC
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxx
-----------------------------------
Title: Vice President
-----------------------------------
Address: 1 Hormel Place
-----------------------------------
Xxxxxx, XX 00000
-----------------------------------
19
SCHEDULE A
INVESTORS
Hormel Health Labs, LLC
0 Xxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, General Counsel
1
