As filed with the Securities and Exchange Commission Registration No. 33-_______
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
SAY YES FOODS, INC.
---------------------
Nevada 2121 88-030-8576
------- -------- --------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
6380 South Eastern Avenue #2
Las Vegas, Nevada 89119
(702) 262-6474
-------------------------
(Address and telephone number of principal executive offices)
6380 South Eastern Avenue #2
Las Vegas, Nevada 89119
-------------------------
(Address of principal place of business or intended principal place of business)
Roy D. Toulan, Jr., Esquire
Stibel & Toulan, LLP
183 State Street
Boston, Massachusetts 02109
(617) 523-6000
-------------------------
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Dollar amount Proposed Proposed Amount of
class of maximum maximum registration
securities offering aggregate fee
to be price offer
registered per unit (1) price (2)
- ----------- ----------- ------------ ---------- -------------
Common stock, $16,736265 $2.50 $16,736,265 $4,938.00
$.001 par value
(1) Pursuant to Rule 416 under the Securities Act of 1933, also includes an
indeterminate number of additional shares issuable pursuant to
antidilution provisions relating tot he securities that are convertible
or exercisable into the Shares of Common Stock being registered hereby.
<PAGE>
(2) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based upon the average closing bid prices of the Company's
Common Stock on the NASD OTC Bulletin Board for the five trading days
ending January 15, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold not may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities law of any such state.
PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY ____, 1998.
SAY YES FOODS, INC.
6,694,506 SHARES
OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
Up to Six Million Six Hundred Ninety-Four Thousand Five Hundred Six
(6,694,506)1 shares (the "Shares") of the Common Stock, par value $.001 per
share (the "Common Stock"), of Say Yes Foods, Inc. (the "Company"), are being
offered for sale from time to time on behalf of JNC Opportunity Fund Ltd. (the
"Purchaser") and CDC Consulting, Inc. ("CDC") ( the Purchaser and CDC are
sometimes being collectively referred to herein as the "Selling Shareholders")
or, subject to applicable law, by pledges, donees, distributes, transferees or
other successors in interest. See "Selling Shareholders." The Company has been
advised that the Selling Shareholders expect to offer the Shares from time to
time in transactions on NASDAQ or such national exchange on which the Company's
Common Stock may become listed, in the over the counter market, which may
include crosses and block transactions, privately negotiated transactions or
otherwise in a combination of such transactions at then current market prices
and at terms then prevailing or at privately negotiated prices. See "Plan of
Distribution." The closing bid price of the Company's Common Stock on the NASD
OTC Bulletin Board on December 31, 1997 was $ 2.06.
The Shares are authorized for issuance by the Company upon the (i)
conversion of certain shares of the Company's 7% Series B Convertible Preferred
Stock having an aggregate Stated Value in the amount of $3,750,000 (the "Series
B Shares" or the "Series B Stock"); (ii) conversion of certain shares of the
Company's 7% Series C Convertible Preferred Stock having an aggregate Stated
Value in the amount of $1,250,000 (the "Series C Shares" or the "Series C
Stock"); and (iii) the exercise of Warrants to purchase an aggregate amount of
500,000 Shares of Common Stock at an exercise price of $2.50 per share held by
the Selling Shareholders (the "Warrants"). The Series B Shares and Series C
Shares were issued by the Company, as well as the shares of the Company's Common
Stock issuable upon conversion of the Series B shares and the Series C shares
and upon exercise of the Warrants, in connection with a private offering of the
Shares for an aggregate of $5,000,000 (the "Private Offering") concluded with
the Purchaser under two Convertible Preferred Stock Purchase Agreements, dated
December 24, 1997 and December 31, 1997 respectively, by and between the
Purchaser and the Company (the "Purchase Agreements").
(1) Pursuant to Rule 416 under the Securities Act of 1933, also includes an
indeterminate number of additional shares issuable pursuant to
antidilution provisions relating tot he securities that are convertible
or exercisable into the Shares of Common Stock being registered hereby.
<PAGE>
Six Million Six Hundred Ninety-Four Thousand Five Hundred Six
(6,694,506) Shares are being registered for resale pursuant to an Amended and
Restated Registration Rights Agreement, dated December 31, 1997, by and between
the Company and the Purchaser. The number of Shares registered assumes a 200%
reserve for an indeterminent number of additional shares of Common Stock that
may be issued upon the conversion of Series B Shares and Series C Shares, the
payment of dividends on such Preferred Shares, based upon fluctuations in the
stated Conversion Price, and the exercise of the Warrants.
The Company received approximately $4,500,000 in net proceeds from the
Private Offering, after deduction of fees and other expenses, and may receive up
to an additional $1,250,000 in proceeds from the exercise of the Warrants. All
or the proceeds from the sale of any of the Shares being offered pursuant to
this Prospectus will inure to the benefit of the Selling Shareholders and none
of such proceeds will be for the benefit of the Company. The Selling
Shareholders will bear all discounts and commissions paid in connection with
sales of the Shares. The Company will not bear any fees or expenses of the
Selling Shareholders but will bear all of the expenses of the registration of
the Shares.
The Selling Shareholders may effect such transactions by selling the
Shares to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions).
THE BUSINESS OF THE COMPANY, AND AN INVESTMENT IN THE SHARES, ARE SUBJECT
TO CERTAIN RISKS, INCLUDING WITHOUT LIMITATION THE RISKS SET FORTH IN THE
SECTION ENTITLED "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January ____, 1998.
AVAILABLE INFORMATION
<PAGE>
As of the filing of the Registration Statement of which this Prospectus
is a part, the Company has not filed periodic reports with the Securities and
Exchange Commission (the "SEC") pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends to
file a Form 10 to assume reporting obligations under the Exchange Act. The
Company also intends to register its Common Stock with the NASDAQ SmallCap Stock
Market ("NASDAQ") but as of this Prospectus, the Company has not completed its
application and there can be no assurance that it will be approved for listing
on NASDAQ. Information is available from the Company's executive offices and its
principal place of business located at 6380 South Eastern Avenue, #2, Las Vegas,
Nevada 89119. The Company's telephone number at that address is (702) 262-6474.
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................... 4
RISK FACTORS ............................................................... 8
USE OF PROCEEDS .......................................................... 11
SELLING SHAREHOLDERS ........................................................ 11
PLAN OF DISTRIBUTION................................................... 13
LEGAL PROCEEDINGS ..................................................... 15
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS ....................................................... 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ....................................................... 18
DESCRIPTION OF SECURITIES ............................ ...................... 20
EXPERTS .............................................................. 22
COUNSEL ............................................................. 22
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES ........................................... 22
ORGANIZATION WITH THE LAST FIVE YEARS .................................. 23
THE BUSINESS OF THE COMPANY ........................................... 24
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
OPERATIONS ................................................................. 29
DESCRIPTION OF PROPERTY .................................................... 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................... 30
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ....................................................... 31
EXECUTIVE COMPENSATION ................................................... 32
FINANCIAL STATEMENTS ........................................................ 32
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................... ............... 32
FINANCIAL STATEMENTS ...................................................... F-1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "RISK FACTORS" and the Financial Statements of the
Company and the Notes thereto, appearing elsewhere in this Prospectus. The
discussion in this Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "RISK FACTORS,"
"MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" and "THE BUSINESS OF
THE COMPANY" as well as those discussed elsewhere in this Prospectus.
THE COMPANY
Say Yes Foods, Inc. (the "Company") was organized under the laws of the
State of Nevada on March 23, 1989 as Moneyline Financial Group, Inc. Initially,
the Company issued 25,000 shares of its capital common stock at a par value of
$1.00, for a total of $25,000.00. Prior to February of 1996, the Company had no
business operations and was considered a development stage company.
On September 12, 1995, the Company amended its Articles of
Incorporation changing the $1.00 par value per share of the common stock to a
par value of $.001 per share. In addition, the Company increased its authorized
shares of common stock to 50,000,000 and its preferred shares to 10,000,000,
with a par value of $.001 each. Contemporaneous with the aforesaid amendment,
the Company forward split its common stock resulting in eighty (80) new shares
for each one (1) share outstanding, changing the outstanding shares of common
stock from 25,000 to 2,000,000.
<PAGE>
Thereafter, on January 31, 1996, the Company approved a reverse split
of its outstanding shares of common stock on the basis of one (1) share for two
(2), changing the issued and outstanding shares of common stock from 2,000,000
to 1,000,000 shares. The Company also approved decreasing the authorized shares
of preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2, 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares of Common Stock at par value. At the time of this
acquisition, the Company amended its Articles of Incorporation and changed its
name to Say Yes Foods, Inc.
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended (the "Act"). A total of 11,500,000 Shares
of the Company's Common Stock were issued at that time representing additional
paid in capital of $103,500. Contemporaneous with the aforesaid exempt offering,
the Company obtained approval for listing on the NASD OTC Bulletin Board
pursuant to the filing of a so called "2-11" application with NASD. The
Company's unrestricted Common Stock began trading on the Bulletin Board in early
February 1996.
In April 1996, the Company completed a limited public offering pursuant
to an exemption in accordance with Regulation D, Rule 506 of the Act. A total of
1,088,000 Shares of the Company's Common Stock were issued at that time
representing additional paid in capital of $1,549,300.
The Company's business is derived from its exclusive licensing
agreement with Global Dairy Products Ltd., in Nassau, Bahamas. The Company, as
Licensee, has the exclusive right to use a dairy based concentrate supplied by
the Licensor for the production and distribution of fat free dairy products in
the United States. The Company holds an option for similar rights, renewable at
the Licensor's discretion, for worldwide production and distribution until 2005.
The Company markets and sells products in both concentrate and finished product
forms. The Company currently contracts with dairy processors who either (a)
produce finished product for the Company to market, (b) purchase concentrate
from the Company to manufacture co-packaged material for the Company and its'
partner or (3) purchase concentrate from the Company and subsequently
manufacture and distribute through the processor's lines of distribution. As
such, the Company's main source of revenue is derived from the sale of its
concentrate and finished products.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Shares should consider carefully the discussion
RISK FACTORS contained on pages 8 to 11 of this Prospectus. The risks of
investment in the Shares include the following factors:
<PAGE>
The Company began its current operations in 1996 and has a limited history of
operations. There can be no assurance that management of the Company will be
successful in attaining sufficient revenues to meet its expenses or to achieve
or maintain profitability.
The Company may have the need to seek additional financing or to materially
curtail its expansion plans. There can be no assurance that such financing would
be available to the Company on satisfactory terms or at all. Failure to obtain
such financing could materially affect the Company's ability to increase sales
and sustain profitability.
The Company may be required or may choose to sell equity securities to obtain
financing in the future including the sale of additional preferred stock of the
Company to the Selling Shareholders. If the Company sells additional equity
securities at a price per share less than the purchase price hereunder,
investors purchasing shares of Common Stock in this offering would incur
additional dilution.
The Company will be dependent on its current management team for the foreseeable
future. The loss of the services of any member of the management team could have
a material adverse effect on the operations and prospects of the Company. At
this time, the Company has no employment agreements with any of these
individuals. The Company does not currently have any "key man" life insurance on
any of its employees.
The Company has paid no dividends on its Common Stock to date, nor does it
anticipate doing so in the foreseeable future. The Company intends to use all
proceeds of any financing activities and all cash proceeds, if any, from
operations to finance the growth of the Company's sales and to repay debt. The
Series B and Series C Preferred Shares pay a cumulative dividend of seven
percent (7%) per annum, which is payable upon conversion of the Preferred
Shares, or earlier, at the Company's option, in either cash or shares of Common
Stock (at the option of the Company) and on the Conversion Date in shares of
Common Stock. The holders of the Series B Shares and Series C Shares are
entitled to dividends prior to any such payment to holders of Common Stock.
<PAGE>
There has to date been a limited market for the Common Stock. Sale of
substantial numbers of the Shares and into the market may have a depressive
effect on the market price of the Company's Common Stock. Such depressive effect
could reduce the price per share of the Common Stock below that required for
initial and/or continued listing of the Company's Common Stock for trading on
NASDAQ or a national stock exchange.
The Company intends to apply to list its Common Stock for trading on a national
stock exchange. If the Company is not successful in listing its Common Stock for
trading on such exchange and if the price per share of the Common Stock on the
NASD OTC Bulletin Board continued to be traded at below $5.00 per share, the
Common Stock would most likely come within the definition of "penny stock," as
contained in certain rules and regulations of the SEC. If an exception from the
penny stock rules were not available for the Common Stock, the ability of
purchasers in this Offering to sell any shares of Common Stock in the market
could be impeded and could have a material adverse effect on the liquidity of
the Common Stock, materially increasing the risk of an investment in the Shares.
The Company's Articles of Incorporation and by-laws contain certain provisions
eliminating the liability of directors to the Company for monetary damages to
the fullest extent allowed under the laws of the State of Nevada, which under
certain circumstances could eliminate liability for such directors' breach of
their fiduciary duty to the Company and its shareholders.
<PAGE>
THE OFFERING
Common Stock offered by
the Selling Shareholders 6,694,506
Common Stock to be outstanding
after the offering There are currently 19,598,410 shares of
Common Stock issued and outstanding. A
total of 500,000 shares are reserved for
issuance pursuant to the exercise of the
Warrants. The remaining Shares to be
offered pursuant to this Prospectus are to
be issued pursuant to conversion of the
Convertible Series B Shares and Series C
Shares which may occur from time to time.
As the conversion prices are to be
determined by reference to the market
price of the Common Stock at the time of
conversion it is not possible to determine
at this time the number of Shares that
will actually be offered or the number of
Shares to be outstanding after the
completion of the offering.
<PAGE>
This assumes a 200% reserve
for an indeterminent number
of additional shares of
Common Stock that may be
issued upon the conversion
of Series B Shares and
Series C Shares, or the
payment of dividends on
such Preferred Shares,
based upon fluctuations in
the stated Conversion
Price, the total number of
shares of the Company's
Common Stock issued and
outstanding would be
25,809,563, if (a) all
Series B Shares and Series
C Shares were converted,
(b) dividends were paid in
Common Stock for a two year
period, and (c) all of the
Warrants were exercised.
Use of Proceeds The Company will not receive any proceeds of the
resales of the Shares being offered
pursuant to this Prospectus, all of which
will be paid to the Selling Shareholders.
The Company received approximately
4,500,000 in net proceeds of the Private
Offering and may receive up to an
additional $1,250,000 in proceeds from the
exercise of the Warrants.
Trading Symbol for the Common
Stock on the NASD OTC
Bulletin Board SYES
RISK FACTORS
Prospective purchasers of the Shares offered for resale pursuant to
this Prospectus should consider carefully all of the information set forth or
incorporated by reference in this Prospectus and, in particular, should evaluate
the following risks in connection with an investment in the Shares.
LIMITED OPERATING HISTORY
The current business of the Company commenced in early 1996. Prior to
that time, the Company had no operations upon which an evaluation of the Company
and its prospects could be based. There can be no assurance that management of
the Company will be successful in completing the Company's product development
programs, implementing the corporate infrastructure to support operations at the
levels called for by the Company's business plan, conclude a successful sales
and marketing plan to attain significant penetration of the market or that the
Company will generate sufficient revenues to meet its expenses or to achieve or
maintain profitability.
<PAGE>
In the period from the commencement of operations in 1996 through
December 1996 the Company had sales of $66,000. As of December 31, 1996 the
Company had an accumulated deficit of $1,578,200. In the nine months ended
September 30, 1997, the Company had net sales of $369,500 and a net loss of
$3,229,100.
POSSIBLE NEED FOR ADDITIONAL FINANCING; DILUTION
While the Company has been successful to date in raising sufficient
investment capital to support its marketing and development efforts, there can
be no assurance that additional financing will not be necessary or that such
other financing would be available to the Company on satisfactory terms or at
all. Failure to obtain such financing could materially slow the Company's
production and impair its ability to increase sales and sustain profitability.
The Company may be required or may choose to sell equity securities to
obtain financing in the future including the sale of additional preferred stock
of the Company to the Selling Security holders. If the Company sells additional
equity securities at a price per share less than the purchase price hereunder,
investors purchasing shares of Common Stock in this offering would incur
additional dilution. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS."
DEPENDENCE ON KEY PERSONNEL
The Company will be dependent on its current management team for the
foreseeable future. The loss of the services of any member of the management
team could have a material adverse effect on the operations and prospects of the
Company. At this time, the Company has no employment agreements with any of
these individuals. The Company does not currently have any "key man" life
insurance on any of its employees.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate of Incorporation and By-Laws include
provisions that eliminate the personal liability of the directors of the Company
for monetary damages to the fullest extent possible under the laws of the State
of Nevada or other applicable law. These provisions eliminate the liability of
directors to the Company and its stockholders for monetary damages arising out
of any violation of a director of his fiduciary duty of due care. Under Nevada
law, however, such provisions do not eliminate the personal liability of a
director for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of law, (iii) payment of dividends or repurchases of stock other than
from lawfully available funds, or (iv) any transaction from which the director
derived an improper benefit. These provisions do not affect a director's
liabilities under the federal securities laws or the recovery of damages by
third parties.
<PAGE>
LIMITED MARKET FOR THE COMMON STOCK
In February of 1996, the Company's Common Stock began trading in the
over-the-counter market as quoted on the National Association of Securities
Dealers OTC Bulletin Board and now trades under the new trading symbol "SYES."
Prior to that time there was no public market for the Company's Common Stock.
Since it has begun trading, there has been a limited market for the Common
Stock. The Company is applying for listing of its Common Stock on a nationally
recognized stock exchange. There can be no assurance, however, that the Company
will meet the listing requirements of such exchange or that its Common Stock
will be approved for trading on such exchange. Sales of substantial numbers of
the Shares into the market could have a depressive effect on the market price of
the Company's Common Stock. Such depressive effect could reduce the price per
share of the Common Stock below that required for initial or continued listing
of the Company's Common Stock for trading on such exchange. There can be no
assurance that a broader market for the Common Stock will develop subsequent to
this Offering. Failure of such a market to develop could have a material adverse
effect on the liquidity of the Common Stock and, therefore, on an investment in
the Shares. This would significantly increase the risks of such an investment.
POTENTIAL RISKS OF LOW PRICED STOCKS
If the Company is not successful in listing its Common Stock for
trading on NASDAQ and if the price per share of the Common Stock on the NASD OTC
Bulletin continues to trade at below $5 per share, the Common Stock would most
likely come within the definition of "penny stock," as contained in certain
rules and regulations of the SEC. Under those regulations, any broker-dealer
seeking to effect a transaction in a penny stock not otherwise exempt from the
rules must first deliver to the potential customer a standardized risk
disclosure document in a form prepared by the SEC which provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salespersons in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. This
information must be given to the customer orally or in writing before the
transaction and in writing before or with delivery of the customer's
confirmation of the transaction. Under the penny stock rules, the broker-dealer
must make a special determination of the suitability of the suggested investment
for the individual customer and must receive the customer's written consent to
the transaction. If an exception from the penny stock rules were not available
for the Common Stock and it were to come within the penny stock rules, the penny
stock rules could have the effect of limiting the trading market for the Common
Stock and the ability of purchasers in this Offering to sell any shares of
Common Stock in the market. If the trading market for the Common Stock were so
limited, it could have an adverse effect on the liquidity of the Common Stock
and could have the effect of materially increasing the risks of an investment in
the Shares.
<PAGE>
FUTURE SALES OF COMMON STOCK OR SENIOR SECURITIES
Current shareholders of the Common Stock own all of the 19,598,410
Shares of Common Stock issued and outstanding prior to this Offering. The
conversion of Series B Shares and Series C Shares and the issuance of dividends
thereunder and the issuance of Common Stock pursuant to the exercise of Warrants
could have the effect of depressing the market price of the Company's Common
Stock. While the Company cannot predict the impact of the public resale into the
market of any of such shares on the public trading price of the Company's Common
Stock, sales of substantial amounts of such shares of Common Stock or the
availability of substantial amounts of such shares for sale could adversely
affect prevailing market prices.
It is anticipated that the Selling Shareholders will offer for resale
all of the Shares convertible or exercisable, as the case may be, from the
Series B Shares and C Shares (and the issuance of dividends thereunder) and the
Warrants. Because it is possible that a significant number of Shares could be
sold at the same time hereunder, such sales, or the possibility thereof, may
have a depressive effect on the market price of the Company's Common Stock.
USE OF PROCEEDS
The Company previously received approximately $4,500,000 in net
proceeds from the Private Offering and may receive proceeds from the exercise of
the Warrants, which would total an additional $1,250,000 if all the Warrants
were exercised. All Shares offered by this Prospectus are being sold by the
Selling Shareholders and all proceeds of the sales of such Shares will inure to
the benefit of the Selling Shareholders. No proceeds of this Offering will inure
to the benefit of the Company.
SELLING SHAREHOLDERS
The following table sets forth the name of each Selling Shareholder,
the number of shares of Common Stock beneficially held by each such Selling
Shareholder prior to the commencement of the Offering, the number of Shares that
may be offered by each such Selling Shareholder, and the number of Shares to be
owned by each such Selling Shareholder assuming the sale of all Shares acquired
upon conversion or exercise of the Series B Shares and C Shares (and the
issuance of dividends thereunder), and/or Warrants, issued to each such Selling
Shareholder upon the initial closing of the Purchase Agreements. See "SECURITIES
BEING OFFERED." The number of Shares that may actually be sold by each of the
Selling Shareholders will be determined by each such Selling Shareholder and may
depend upon a number of factors, including, among other things, the market price
of the Common Stock. The table below sets forth information as of January 15,
1998 concerning the beneficial ownership of Common Stock of each of the Selling
Shareholders. All information concerning beneficial ownership has been furnished
by the Selling Shareholders.
shares Shares
Offered Owned
Shares Owned in the Offering(1)
Before Offering Offering After
Number (2) Percent(3) Number (4) Number(2) Percent(3)
---------- ---------- ---------- -------- --------
Shareholder
JNC Opportunity 0 0% 6,444,506 6,444,506 24.74%
Fund Ltd.
CDC Consulting, Inc. 0 0% 250,000 255,000 *
* Less than one percent (1%).
/1/ Assumes that all Shares offered herein are sold.
/2/ Represents those Shares held by the Selling Shareholder, if any, together
with those shares that such Selling Shareholder has the right to acquire
immediately (including the maximum number of Shares issuable upon the conversion
of the Series B Shares and C Shares, and exercise of Warrants held by such
Selling Shareholder), assuming that such conversion and exercise occurred as of
January 15, 1998. See "SECURITIES BEING OFFERED."
/3/ The percentages indicated are based on 19,115,563 shares of Common Stock
issued and outstanding as of January 15, 1998 and, with respect to each Selling
Shareholder, the shares of Common Stock underlying the Series B and C Shares and
Warrants held by such Selling Shareholder. See "SECURITIES BEING OFFERED." The
percentage calculations do not include any Shares of Common Stock issuable upon
the exercise of currently outstanding options, warrants, or other rights to
acquire Shares of Common Stock, other than those relating to the Series B and C
Shares and the Warrants held by such Selling Shareholders.
/4/ JNC Opportunity Fund Ltd. has agreed to restrict its ability to convert the
Preferred Stock and exercise Warrants to the extent that the number of shares of
Common Stock held by it and its affiliates after such conversion and/or exercise
exceeds 4.999% of the then issued and outstanding shares of Common Stock
following such conversion and/or exercise. The states number of shares includes
an indeterminate number of shares of Common Stock that may become issuable to
prevent dilution resulting from stock splits, stock dividends and conversion
price or exercise price adjustments, which are included pursuant to Rule 416
promulgated under the Securities Act of 1933.
<PAGE>
PLAN OF DISTRIBUTION
Sales of Shares may be made from time to time by the Selling
Shareholders or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on NASDAQ,
in the over-the-counter market, on a national securities exchange (any of which
may involve crosses and block transactions), in privately negotiated
transactions or otherwise or in a combination of such transactions at prices and
at terms then prevailing or at prices related to the then current market price,
or at privately negotiated prices. In addition, any Shares covered by this
Prospectus which qualify for sale pursuant to Section 4(1) of the Securities
Act, or Rule 144 promulgated thereunder may be sold under such provisions rather
than pursuant to this Prospectus. Without limiting the generality of the
foregoing, the Shares may be sold in one or more of the following types of
transactions: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) an exchange distribution in accordance with the rules of
such exchange; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) face-to-face transactions between sellers and
purchasers without a broker-dealer; (f) short sales; and (g) a combination of
such methods of sale. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to participate in
the resales.
<PAGE>
In connection with distributions of the Shares or otherwise, the
Selling Shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares registered hereunder in the course of hedging the positions they
assume with Selling Shareholders. The Selling Shareholders may also sell Shares
short and deliver the Shares to close out such short positions.
Broker-dealers may agree with the Selling Shareholders to sell a
specified number of such Shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Shareholder, to purchase as principal any unsold Shares at the price required to
fulfill the broker-dealer commitment to the Selling Shareholders. Broker-dealers
who acquire Shares as principal may thereafter resell such Shares from time to
time in transactions (which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then-related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Shares commissions as
described above. The Selling Shareholders may also sell the Shares in accordance
with Rule 144 under the Securities Act, rather than pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders in amounts to be
negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
From time to time the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Shareholders engage in such transactions, the Conversion Price may be affected.
From time to time the Selling Shareholders may pledge their Shares pursuant to
the margin provisions of its customer agreements with its brokers. Upon a
default by the Selling Shareholders, the broker may offer and sell the pledged
Shares from time to time.
<PAGE>
Information as to whether underwriters who may be selected by the
Selling Shareholders, or any other broker-dealer, are acting as principal or
agent for the Selling Shareholders, the compensation to be received by
underwriters who may be selected by the Selling Shareholders, or any
broker-dealer, acting as principal or agent for the Selling Shareholders and the
compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
Prospectus (the "Prospectus Supplement"). Any dealer or broker participating in
any distribution of the Shares may be required to deliver a copy of this
Prospectus, including the Prospectus Supplement, if any, to any person who
purchases any of the Shares from or through such dealer or broker.
The Company has advised the Selling Shareholders that during such time
as they may be engaged in a distribution of the Shares included herein they are
required to comply with Regulation M promulgated under the Securities Exchange
Act of 1934, as amended. With certain exceptions, Regulation M precludes any
Selling Shareholder, any affiliated purchasers and any broker-dealer or other
person who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase, any security which is
the subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All of
the foregoing may affect the marketability of the Common Stock.
To comply with the securities laws of certain jurisdictions, if
applicable, the Shares will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Shares may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
All expenses of the registration of the Shares under the Securities Act
and applicable state securities laws, if required, will be paid by the Company,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws, if any, printing expenses, fees and
disbursements of counsel for the Company, and reasonable expenses of one counsel
for all of the Selling Shareholders; provided, however, that the Selling
Shareholders will pay all underwriting discounts and selling commissions, if
any. The Selling Shareholders will be indemnified by the Company against certain
civil liabilities, including certain liabilities under the Securities Act,
arising from or relating to any untrue statement or alleged untrue statement of
any material fact contained in the registration statement of which this
prospectus is contained, this prospectus, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
<PAGE>
LEGAL PROCEEDINGS
At the end of fiscal 1996, the Company was a defendant in a lawsuit for
breach of contract. During 1997, that lawsuit was settled without a material or
adverse effect on the Company's financial position or results of operation.
On July 11, 1997, the Company commenced a declaratory judgment action
in Federal District Court for the State of Utah, Central Division, entitled Say
Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No. 2:97-CV-548C, seeking
declaratory judgment that certain share certificates representing 3,400,000
shares of the Company's Common Stock were issued improperly without the
knowledge or consent of the Company. By order of a foreign court, such
certificates were seized from a holding account to satisfy a default judgment in
the United Kingdom, to which the Company was not a party. A receiver appointed
by the British Court has requested that the canceled share certificates be
transferred into the name of the receiver. The Company refused, and commenced
the action described herein in response to an action commenced against the
Company and its Stock Transfer Agent by the receiver to recognize and transfer
the certificate held by the receiver. While management believes that the
certificates were taken and issued in an improper manner without the Company's
knowledge and that, accordingly, the Company will prevail in this action, a
litigation loss and the resultant recognition of the shares of common stock held
by the receiver would represent a significant impact on the Company's financial
statements. For example, the inclusion of an additional 3.4 million shares in
the per share equity computation would result in the dilution of that equity by
approximately 15%.
Presently, the Company has discharged the Transfer Agent allegedly
responsible for the unauthorized and improper issuance of the 3.4 million shares
at issue. In addition, the Company is pursuing an indemnification claim against
said Transfer Agent with respect to the potential damage to the Company in the
event the court determines that said shares must be recognized by the Company as
valid issued and outstanding shares of the Company's Common Stock.
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and significant employees/advisors of
the Company as of January 23, 1997 are as follows. Directors of the Company
serve for a term of one year or until their successors are elected. Officers are
appointed by, and serve at the pleasure of, the Board.
Charles Thomas President and Director
Timothy Zuch Treasurer and Director
Chris Rousselle Secretary and Director
Henry Still Director
Nancy Roth Chief Financial Officer
Charles Thomas (D.O.B. 12/10/32) Director / President
Mr. Thomas is currently and has been a Director since March of 1996. Mr.
Thomas was elected President in February of 1997. Charles Thomas was co-founder
and Vice President in charge of sales for Exec-U-Form of Azusa, California
(1985-1996). Mr. Thomas, including management of the investment arm for
firm-associated corporate projects, performed oversight duties of all key
operational activities for the firm. Mr. Thomas' educational background includes
a major in Business Administration at Citrus College.
Henry Still (D.O.B. 12/18/38) Director
Mr. Still is currently and has been a Director since March of 1996.
Henry Still has managed and headed successful real estate ventures in the
Carolinas for 33 years. Mr. Still possesses strong connections in the retail
grocery and dairy processing industry, many that were cultivated while owning
and operating a farming business between 1962 and 1994. Mr. Still is Broker in
Charge of real estate for his family owned and operated real estate firm (The
UDS Company, Inc.), since 1993. Mr. Still received a B.Sc. in Business and
Corporate Management from the University of South Carolina in 1961 and brings
extensive business experience to the Directorship of the Company. Additional
activities of merit of Mr. Still include being Mayor of Blackville, South
Carolina (l973-1979), subsequent to serving on its City Council for twelve
years; Judge of Municipal Court (1969-1973); Chairman of Jefferson Davis Academy
School Board (1972-1978).
Tim Zuch (D.O.B. 08/30/56) Director / Treasurer
Mr. Zuch is currently and has been a Director/Treasurer since March of
1996. Mr. Zuch graduated with honors from Tri-State University in Indiana in
1978 with a Bachelors degree in Business Administration. The Internal Revenue
Service employed Mr. Zuch in Ohio for seventeen years (1979-1996) as an Internal
Revenue Agent auditing corporations, partnerships and individuals. He also
served for fifteen years as the District Director's Representative. Other duties
performed include co-ordination and maintenance of the Company's Internet
website, as well as developing various promotional activities found on the
Internet and in print.
<PAGE>
Chris Rousselle (D.O.B. 10/09/56) Director / Secretary
Mr. Rousselle was a Director / Secretary from February of 1996 to March of
1996, when he was required to resign due to illness. Mr. Rousselle was
re-elected to the Board of Directors during October of 1996. Mr. Rousselle was
elected Secretary in July of 1997. Mr. Rousselle possesses over twenty-five
years experience in the transportation industry, specializing in the conveying
of goods to both domestic and international markets. His transportation
experience is invaluable to Say Yes Foods, as it develops lines of distribution
for The Company's dairy products domestically and internationally.
Nancy Roth (D.O.B. 10/03/48) Chief Financial Officer (C.F.O.)
Ms. Roth was appointed C.F.O. in October of 1997. Nancy Roth joined the
corporation as controller in March 1997 and was promoted to Chief Financial
Officer (C.F.O.) in October 1997. From December 1993 to February 1997, she was
Comptroller of Audio Video Contractors in Scottsdale, Arizona. Ms. Roth
possesses excellent business systems implementation and finance abilities. Her
prior experience includes a position as Vice President of Imperial Securities,
an investment banking firm in San Francisco. Ms. Roth possesses a degree in
business and a degree in journalism.
FOUNDERS/PROMOTERS
The primary founders of the Company are Mr. Danny Ferraro and Mr.
Robert Donas; the founders received preferred stock in the amount of 255,000
shares each. By virtue of their ownership of such preferred stock, Messrs.
Ferraro and Donas each enjoys super voting rights in the Company's affairs on a
one hundred to one basis. Accordingly, Messrs. Ferraro and Donas each holds
voting power in the Company equivalent to 22,500,000 shares of the Company's
Common Stock. When measured against the Company's issued and outstanding Common
Stock, each controls approximately 34.6% of the voting power in the Company.
Messrs. Ferraro and Donas organized the Company in its present incarnation and
may be considered the Company's "promoters" as that term is defined by the
Securities and Exchange Commission.
Bob Donas: Special Advisor / Consultant
Bob Donas is a Special Advisor and one of the major voting shareholders
of the Company. Mr. Donas possesses over twenty year's experience in taking
companies public as well as being an account representative with several stock
brokerage firms. Mr. Donas is presently semi-retired and provides consulting
services directly to the Board of Directors of Say Yes Foods, Inc.
<PAGE>
Danny Ferraro: Consultant
Danny Ferraro is a supermarket owner with over twenty years experience
in the retail grocery industry. In addition, Mr. Ferraro has played a
participatory role in the development of the proprietary formulations utilized
by the Company to produce and market its dairy based products. Mr. Ferraro has
over seven years research and development experience in the dairy products
field.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) Security Ownership of Management
Name Security Number of Percent of Class
Address(1) Shares Owned Pre Offering Post Offering
Charles Thomas Common 375,000(2) 1.96% 1.57%
Chris Rousselle Common 325,000(3) 1.70% 1.36%
Tim Zuch Common 125,000(4) .65% .52%
Nancy Roth Common 75,000(5) .39% .31%
/1/ All c/o Say Yes Foods, Inc., 6380 South Eastern Avenue #2, Las Vegas Nevada,
89119 /2/ Includes 75,000 common owned directly and 300,000 options immediately
exercisable. /3/ Includes 25,000 common owned directly and 300,000 options
immediately exercisable. /4/ Includes 75,000 common owned directly and 50,000
options immediately exercisable.
/5/ Includes 75,000 options immediately exercisable.
(b) Security Ownership of Certain Beneficial Owners
Name Number of Percent of Class
Address(1) Security(2) Shares Owned Pre Offering Post Offering
Robert Donas Preferred 255,000 50.00% 50.00%
Danny Ferraro Preferred 255,000 50.00% 50.00%
/1/ All c/o Say Yes Foods, Inc., 6380 South Eastern Avenue #2, Las Vegas Nevada,
89119 /2/ Series A-1; Represents super voting rights of 100 to 1 with respect to
common stock
<PAGE>
(c) Options, Warrants and Conversion Rights
Number of Exercise
Name Security Shares Realized Price Expiration Date(1)
Charles Thomas Option 50,000 $4.00 March 28, 1998
Option 300,000 $3.00 November 2, 1999
Chris Rousselle Option 50,000 $4.00 March 28, 1998
Option 300,000 $3.00 November 2, 1999
Gino Punzo Option 100,000 $4.00 March 28, 1998
Tim Zuch Option 50,000 $4.00 March 28, 1998
Option 50,000 $3.00 November 2, 1999
Ronald Thomas Option 50,000 $4.00 March 28, 1998
Sonny Still Option 50,000 $4.00 March 28, 1998
Henry Still Option 100,000 $3.00 November 2, 1999
Nancy Roth Option 75,000 $3.00 November 2, 1999
Susan Westfall Option 50,000 $3.00 November 2, 1999
Patty Van Dyke Option 50,000 $3.00 November 2, 1999
Mark Heth Option 50,000 $3.00 November 2, 1999
Mike Meier Option 50,000 $3.00 November 2, 1999
Hal Still Option 50,000 $4.00 March 28, 1998
JNC Opportunity
Fund Ltd.(2) Conversion 1,004,000 $2.50 Automatic conversion
January 1, 1999
CDC
Consulting, Inc. Warrant 250,000 $2.50 December 31, 2002
JNC Opportunity
Fund, Ltd. (2) Warrant 250,000 $2.50 December 31, 2002
/1/ Options granted to employees of the Company are exercisable until the
earlier of the Expiration Date or six (6) months after employment with the
Company ends.
/2/ The ability of JNC Opportunity Fund, Ltd. to convert the Series B Shares and
Series C Shares to Common Stock is contractually limited to 4.99% of the
outstanding number of shares of Common Stock; this limitation can be waived by
the holder of such Preferred Stock.
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has two classes of voting securities: its Common Stock, par
value $.001 per share and 510,000 shares of Preferred Stock Series A-1 held by
two shareholders having super voting rights at a 100 to 1 ratio. The Company is
authorized to issue up to 50,000,000 shares of Common Stock, par value $.001 per
share, of which 19,115,563 shares are outstanding on the date hereof. In
addition, the Company is authorized to issue up to 2,510,000 shares of Preferred
Stock, of which 510,000 shares are issued and outstanding designated as Series
A-1; 1,500,000 of which are issued and outstanding designated as Series B; and
500,000 of which are issued and outstanding designated as Series C. Assuming
conversion of all Series B Shares and C Shares at the Conversion Prices in
effect on January 15, 1998 plus dividends thereon for two years and the exercise
of all Warrants as of the date of this Prospectus, there would be 4,780,000
shares of Common Stock offered herein. The terms of the Purchase Agreements,
however, limit the number of Preferred Shares into which the Purchaser may
convert or exercise to an amount equal to 4.99% of the Company's issued and
outstanding Common Stock. This limitation, however, may be waived by the holder
of Series B Shares and Series C Preferred Shares. Holders of Common Stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders.
There is no cumulative voting for election of directors. Subject to the
prior rights of any series of preferred stock which may from time to time be
outstanding, if any, including the Series B Shares and Series C Shares, holders
of Common Stock are entitled to receive ratably, dividends when, as, and if
declared by the Board of Directors out of funds legally available therefor and,
upon the liquidation, dissolution, or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the preferred stock, if any.
Holders of shares of Common Stock have no preemptive rights and have no rights
to convert their shares of Common Stock into any other securities. The
outstanding Common Stock are validly authorized and issued, fully paid, and
nonassessable.
The shares of Common Stock being offered pursuant to this Prospectus
are reserved for issuance pursuant to conversion and exercise rights held by the
Selling Shareholders as follows: (i) 3,262,500 Shares converted from Series B
Shares, (ii) 1,017,500 Shares converted from Series C Shares (both Series
inclusive of a 7% dividend for two years paid in shares of Common Stock) and
(iii) 500,000 Shares from the exercise of the Warrants.
<PAGE>
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,510,000
shares of Preferred Stock in one or more series, to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
shares of Preferred Stock and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the Company's stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
As of December 31, 1997, 510,000 shares of Preferred Stock were
designated as Series A-1 Shares; 1,500,000 shares of Preferred Stock were
designated as Series B Shares; and 500,000 shares of Preferred Stock were
designated as Series C Shares.
The holders of Series B Shares and Series C Shares are entitled to a 7%
cumulative dividend, payable in cash or Common Stock (at the option of the
Company). The Series B Shares and Series C Shares have no voting rights except
that a vote of a majority of the Series B Shares is required for any adverse
change to the rights and preferences of any class of stock senior to the Series
B Shares. The number of shares of Common Stock that would be issuable upon the
conversion of Series B and Series C Shares shall be limited so that no Selling
Shareholder owns, at any one time, in excess of 4.99% of the issued and
outstanding Common Stock.
The Series B Shares and Series C Shares have dividend and liquidation
preferences entitling the holders thereof to receive such payments prior to any
other security holders of the Company. The Certificates of Designation of the
Series B Shares and Series C Shares are included as Exhibit 4.7 and 4.8
respectively to the Registration Statement of which this Prospectus is a part.
The Series B Shares and Series C Shares are convertible into shares of
Common Stock (i) at the option of the holder thereof at any time and (ii) if not
earlier converted, on the second anniversary of their issuance, in each case at
a conversion price based on, inter alia, the market value of the Company's
Common Stock as determined by a formula specified in the Certificate of
Designation for the Series B Shares and Series C Shares, as applicable.
WARRANTS
As of January 15, 1998, there were Series B and Series C Warrants
outstanding to purchase an aggregate of 500,000 shares of the Company's Common
Stock at a present exercise price of $2.50 per share. Each such Warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
share issuable upon exercise of the Warrants under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassification and
consolidations.
In addition, 236,423 warrants exist in connection with a 1997
Regulation S placement having an exercise price of $5.00.
<PAGE>
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement
entered into by the Company and the Purchaser, the Company has granted the
Selling Shareholders and their transferees rights to have the shares of Common
Stock issuable upon conversion of Series B and C Shares and dividends or upon
exercise of the Warrants registered for resale pursuant to an effective
registration within 90 days of the closing date. This Prospectus is the result
of such rights under the Amended and Restated Registration Rights Agreement and
the Warrants. The Company has agreed to keep this Prospectus effective until all
of the remaining registered shares can be resold pursuant to Rule 144 of the
Act. Holders of registration rights also have unlimited rights to participate in
registered public offerings by the Company. These rights are subject to certain
conditions, as set forth in the Amended and Restated Registration Rights
Agreement, which is included as Exhibit 4.9 to the Registration Statement of
which this Prospectus is a part.
EXPERTS
The Financial Statements of the Company as of December 31, 1996,
included in this Prospectus, have been included herein in reliance upon the
report of Bradshaw Smith and Co., independent certified public accountants,
given upon the authority of said firm as experts in accounting and auditing.
COUNSEL
Certain legal matters in connection with the registration of the Shares
were passed upon by Roy D. Toulan, Jr., Esquire, Stibel & Toulan, LLP, counsel
to the Company.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Amended and Restated Certificate of Incorporation and
By-laws contain provisions eliminating the personal liability of a director to
the Company and its stockholders for certain breaches of his or her fiduciary
duty of care as a director. This provision does not, however, eliminate or limit
the personal liability of a director (i) for any breach of such director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Nevada statutory provisions making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
the Board of Directors of the Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or recission based upon a director's breach of his duty of care. The
SEC has taken the position that the provision will have no effect on claims
arising under the federal securities laws.
<PAGE>
Under the Registration Rights Agreement the Purchaser has agreed to
indemnify the Company from certain liabilities, including certain liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
ORGANIZATION WITHIN THE LAST FIVE YEARS
Say Yes Foods Inc. (the "Company") was organized under the laws of the
State of Nevada on March 23, 1989 as Moneyline Financial Group, Inc. Initially,
the Company issued 25,000 shares of its capital common stock at a par value of
$1.00, for a total of $25,000.00. Prior to February of 1996, the Company had no
business operations and was considered a development stage company.
On September 12, 1995, the Company amended its Articles of
Incorporation, changing the $1.00 par value per share of the common stock to a
par value of $.001 per share. In addition, the Company increased its authorized
shares of common stock to 50,000,000 and its preferred shares to 10,000,000,
with a par value of $.001 each. Contemporaneous with the aforesaid amendment,
the Company forward split its common stock resulting in eighty (80) new shares
for each one (1) share outstanding, changing the outstanding shares of common
stock from 25,000 to 2,000,000.
Thereafter, on January 31, 1996, the Company approved a reverse split
of its outstanding shares of common stock on the basis of one (1) share for two
(2), changing the issued and outstanding shares of common stock from 2,000,000
to 1,000,000 shares. The Company also approved decreasing the authorized shares
of preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2. 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares of Common Stock at par value. At the time of this
acquisition, the Company amended its Articles of Incorporation and changed its
name to Say Yes Foods, Inc.
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended, which resulted in the issuance of
11,500,000 shares of Common Stock. Contemporaneous with the aforesaid exempt
offering, the Company obtained approval for listing on the NASD OTC Bulletin
Board pursuant to the filing of a so called "2-11" application with NASD. The
Company's unrestricted Common Stock began trading on the Bulletin Board in early
February, 1996.
<PAGE>
In April of 1996, the Company completed a limited public offering
pursuant to an exemption in accordance with Regulation D, Rule 506 of the Act. A
total of 1,088,000 Shares of the Company's Common Stock were issued at that
time.
On December 24, 1997, the Company amended its Articles of Incorporation
increasing its authorized shares of preferred stock to 2,510,000.
Contemporaneous with the aforesaid amendment, the Company filed respective
Certificates of Designation for Series B Preferred Stock on December 24, 1997
and Series C Preferred Stock on December 31, 1997. See Exhibits 4.7 and 4.8,
respectively, included in the Registration Statement of which this Prospectus is
a part.
THE BUSINESS OF THE COMPANY
The Company's business is derived from its exclusive licensing
agreement with Global Dairy Products Ltd., in Nassau, Bahamas. The Company, as
Licensee, has the exclusive right to use a dairy based concentrate supplied by
the Licensor for the production and distribution of fat free dairy products in
the United States. Similar option rights, renewable at the Licensor's option,
are also held for worldwide production and distribution until 2005. The Company
markets and sells products in both concentrate and finished product forms. The
Company currently contracts with dairy processors who either (a) produce
finished product for the Company to market, (b) purchase concentrate from the
Company to manufacture co-packaged material for the Company and its' partner or
(3) purchase concentrate from the Company and subsequently manufacture and
distribute through the processor's lines of distribution. As such, the Company's
main source of revenue is derived from the sale of its concentrate and finished
products
The Product.
The Company's fat free dairy formulation is produced through a two-step
process that requires no re-tooling or special equipment for traditional dairy
manufacturers. In the first stage of the process the fat, cholesterol and
calories are removed from fluid skim milk to produce a nutrient-rich
concentrate. In the second phase, the concentrate is re-formulated in commercial
dairies by mixing it with Grade A nonfat milk. The resulting beverage achieves
the taste and consistency of higher fat-content milk. Through this process, the
Company's fat free milk has 80 calories per 8 ounce glass compared with nearly
90 calories for skim milk and less fat per serving than many skim milks.
<PAGE>
Shuster Labs has been retained to develop and provide on-going Quality
Assurance testing of all of the Company's production runs at all producing
dairies. Shuster also developed a complete Operating Standards Manual (SOP) and
provides technical support in the research & development efforts conducted by
the Company primarily at their Spokane, Washington facility. Shuster also
implements and maintains programs developed under the Company's SOP manual.
Shuster provides numerous additional support functions including, evaluation of
the Company's milk product, existing manufacturing procedures, packaging, labels
and claims.
Distribution.
The Company's primary business is marketing and distribution of fat
free dairy concentrate and fat free dairy products. The Company commenced
production and consumer test marketing in early 1996 and was in the development
stage until the end of 1996. The Company's products are unique in that their fat
free milks are thicker and creamier than most skim/non fat milks, while
maintaining the taste profile of a more full-fat milk product. Consumer testing
conducted by the Company has demonstrated a preference for the Company's
products versus competitive low and non fat milk options.
The Company currently markets Say Yes(TM) white milk, chocolate milk,
eggnog and sour cream. Fat free dips are available for market and the Company
anticipates successful completion of new product development on fat free dips,
flavored milk, fat free mozzarella cheese and fat free ice cream during 1998.
Presently, the Company has its products manufactured through six dairy
processors: Western Quality Foods (Utah), Sinton Dairy (Colorado), Anderson
Dairy (Nevada), Smith Food & Drugs Dairy (Arizona), Smith Dairy Company
(Indiana) and Lehigh Valley Dairies (Pennsylvania). The Company's fluid milk
products are being marketed, at retail, in eight western states and five eastern
states. Marketing program development encompasses customer categories including,
food service, institutional and industrial, as well as retail supermarket, club
store and convenience store categories.
The Company has focused on establishing a professional dairy broker
network throughout the country. The Company currently has professional broker
representation in most major metropolitan networks in the United States. The
Company has developed a military broker network which is working toward making
the product available for purchase in all military and government commissaries
on both a domestic level and internationally.
The Company currently purchases its dairy concentrate from Discovery
Foods, Inc. and, as such, the Company is dependant on a single source for supply
of raw materials to have its dairy products manufactured. Discovery Foods, Inc.
is controlled by Mr.Danny Ferraro, who holds approximately 34.6% of the voting
power of the Company. See "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" herein.
<PAGE>
Finally, the Company continues to negotiate with prospective customers,
producers and dairy businesses. These prospective customers include dairies and
other producers and distributors of milk and dairy products, who will include
the Company's products in their product mix.
Fortunato Foods, Inc. and its agents are responsible for assisting in
the development of markets and additional proprietary dairy products for the
Company. This firm and its agents possess extensive experience in the retail
grocery and dairy products development. Fortunato Foods has over seven years
research and development experience in the dairy products field, having
established solid working relationships with numerous food products in the U.S.
Fortunato Foods, Inc. likewise is controlled by Mr. Ferraro.
The Licensing Agreement.
On February 5,1996, the Company entered into a license agreement
whereby it acquired the exclusive United States rights to utilize a dairy
concentrate in the production and distribution of certain dairy and non-fat
dairy products from Global Dairy Products, Nassau, Bahamas. While the licensed
concentrate is based upon a proprietary formula not known by or revealed to the
Company, the license obligates the Licensor to supply the Company with its
requirements for the concentrate at stated prices. The license further
specifically provides for the remedy of specific performance should the Licensor
fail to supply the concentrate as set forth therein. Pursuant to that agreement,
the Company has paid $275,000.00 to the Licensor. The payments included
$25,000.00 thirty days from the execution of the agreement, with additional
payments of $l25,000.00, each made from two initial tranches of financing, which
have occurred. A final installment of $225,000.00 has been waived by the
Licensor. In addition, the license provides for the issuance of 2,500,000 shares
of the Company's Common Stock to the Licensor "on demand." Those shares, in
fact, have been issued to a number of third parties as directed by the Licensor
or have been "forgiven." At present, the Licensor holds 840,460 shares of the
Common Stock of the Company.
<PAGE>
The license covers the United States and Puerto Rico for a period of
ninety-nine years. The Company has also been granted an option to acquire
additional territorial rights if certain conditions are met including 1)
presentation of a business plan commercializing the product in the respective
territories; 2) presentation of financial estimates outlining market development
costs and project revenues; and 3) negotiation of a territory specific fee. The
option expires August 2005 and may be extended at the option of the licensor.
At present, the concentrate is sold to the Company by Discovery Foods,
Inc. ("Discovery"), pursuant to a contract between the Licensor and Discovery.
The Company is not a party to that contract. Discovery is an entity controlled
by Mr. Ferraro, a shareholder of the Company holding 255,000 shares of the
Company's Preferred Stock. By virtue of his ownership of such Preferred Stock,
Mr. Ferraro enjoys super voting rights in the Company's affairs on a one hundred
to one basis. Accordingly, Mr. Ferraro holds voting power in the Company
equivalent to 22,500,000 shares of the Company's Common Stock. When measured
against the Company's issued and outstanding Common Stock and the voting rights
of another holder of Preferred Stock with super voting rights, Mr. Ferraro
controls approximately 34.6% of the voting power in the Company.
Competition.
The Company has one major U.S. competitor in the fat free fluid dairy
products market, Skim Delux. Skim Delux is a privately held company, which
produces a fluid dairy product similar to the dietary and taste profile of the
Company's product. Extensive consumer testing conducted by the Company indicates
that the Company's fluid products are preferred by most consumers when compared
to Skim Delux products. In many cases, the Company's fluid products are
replacing Skim Delux products in retail grocery stores.
Germantown and Viva are additional fat free fluid dairy products
available in the U.S. market. To date, neither of these products has achieved a
significant market share. Taste studies conducted by the Company indicate a
choice of the Company's products over those produced by Germantown or Viva.
The Company has many competitors when considering the entire domestic
and international dairy industry, most of which have considerably greater
financial resources than the Company. The Company has entered into and will
continue to develop contractual relationships with companies which have been
engaged in the dairy business for significant periods of time and companies
which have developed a significant market for their products. Contractual
arrangements with dairy processors include the Company providing concentrate for
co-packaging and private label agreements or utilizing dairy processors for
production capability as the company develops its own retail and wholesale
market.
<PAGE>
Marketing.
The marketing goal of the Company is to become a lead supplier and
distributor of fat free dairy products in North America. The 1996 (first year)
fiscal year of operations has resulted in positioning the Company for profitable
growth in the future. The Company's product mix reflects its corporate strategy
of addressing the present and future demands of the consumer by developing and
marketing better tasting and more health conscious products. Test market efforts
have revealed that many consumers are seeking viable dairy alternatives to
conventional full fat dairy products primarily due to increased awareness of the
need to be more attentive to health and diet issues.
As such, the Company's market strategy is to capitalize on the market
potential in this area. The Company has determined that the most efficient and
cost effective method of achieving market penetration for its products is to
work in cooperation with dairy industry leaders. During 1996 and by mid-l997,
the Company established manufacturing and marketing agreements with state-of-
the-art dairy processors. This strategy will permit the Company to deliver a
national program without incurring the long term debt which otherwise would be
required to construct its own dairy processing facilities. Working closely with
existing dairy infrastructure also provides the opportunity for quick expansion
of the Company's client base and brand name recognition.
On May 1, 1997, the Company commenced a national program to expand and
solidify its client base. As a result, several dairies agreed to process and
market the Company's products through their client base, commencing in the third
quarter of 1997. These dairy processors will greatly expand the number of retail
stores in which the Company's products will be offered throughout the northeast
and mid-west regions of the U. S. The Company anticipates that its product will
be placed on thousands of retail shelves by mid-1998, in addition to the placing
programs with school district, food service and industrial market sectors
accounts.
To promote its retail program placements, the Company entered into an
international merchandising agreement with The Baywatch Production Company,
during mid-1997. This agreement allows the Company's products to prominently
display the Baywatch(R) logo/trademark along with the likeness of the full cast
appearing on the hit television series, "Baywatch(R)" on the Company's Say
Yes(TM) milk cartons and promotional advertising print media, including posters,
billboards, and brochures.
Seasonality within the U.S. dairy industry is a marginal issue and
should not be considered significant. The U.S. dairy industry typically
experiences a degree of sales decline during summer months. The degree of
slow-down is variant based on regional and firm specific issues. Seasonality is
generally reflected in an a decrease of sales of approximately 10% during the
summer months. Conversely, the fall season typically ushers in an increase in
sales of about 10%, returning sales to their normal level.
<PAGE>
Employees.
As of the date hereof, the Company employed 7 persons on a full time
basis. These employees were engaged in the following categories of activities:
management (3), administration (1), research and development (1) and sales (2).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
During the period prior to the acquisition of Say Yes assets and the
license rights in February of 1996, as discussed herein, the Company did not
engage in any operations. No revenues were received during this initial period.
Subsequent to February of 1996, the Company began operations and collected
revenues.
The financial statements for 1996 reflect a start-up year for the
Company. Expenditures were required to conduct initial marketing and extensive
consumer taste testing programs. Licensing fees expended for procuring
proprietary dairy formulations and entering the International Dairy Foods
Association were also required in the first year of operations. As a result, the
Company incurred an operating loss during that period. Significantly, the
Company's balance sheet shows no accumulation of long term debt. As a result,
the Company was able to increase its promotional focus and market support
programs for its product and program placements.
For the 1996 fiscal (December 31) year, the Company experienced a
$1,552,500 loss on gross revenues of $66,000, representing a net loss per common
share of $.09. While certain extraordinary expenses such as licence fees did not
occur in the nine months reported for fiscal 1997, the Company initiated several
costly promotional and client expansion programs during this period, resulting
in a $3,229,100 loss for that period on gross revenues of $369,500, representing
a net loss per common share of $.17.
In order to continue the expansion of the Company's
marketing/promotional and client based activities, the Company entered into two
financing arrangements at the end of 1997, which resulted in the issuance of
1,500,000 shares of 7% Series B Convertible Preferred Stock and 500,000 shares
of 7% Series C Convertible Preferred Stock to JNC Opportunity Fund, Ltd. (JNC).
See Exhibits number 4.1 and 4.2, respectively, to SB-2 Registration Statement.
By the terms of the respective Series B and C Purchase Agreements, JNC is
entitled to dividends at an annual rate of 7% and has the right immediately to
convert the preferred shares held by it to Common Stock of the Company on a
formula determined by, inter alia, the trading price of the Company's Common
Stock and to receive Warrants for 500,000 Shares. In addition, the Company
granted certain Registration Rights to JNC, resulting in the SB-2 Registration
Statement of which this Prospectus is a part. See Exhibit 4.9 to the SB-2
Registration Statement.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Prospectus are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
factors that could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein is the Company's ability to implement its business strategy successfully,
which will be dependent on business, financial, and other factors beyond the
Company's control, including, among others, prevailing changes in consumer
preferences and access to sufficient quantities of raw material. There can be no
assurance that the Company will continue to be successful in implementing its
business strategy. Other factors could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
DESCRIPTION OF PROPERTY
The Company leases and maintains 2,216 square feet of administrative
office space at 6380 South Eastern, Suite 3, Las Vegas, Nevada, 89119, for an
annual lease payment of $32,868.00. The term of this lease expires April 1,
2000.
In addition, the Company leases and maintains 2,200 square feet of
research and development space at 1514 E. Francis Avenue, Spokane WA, 99207, for
an annual lease payment of $11,328.00. The term of this lease expires October 1,
1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Ferraro, a shareholder owning 50% of the Company's super voting
Series A-1 Preferred Stock has controlling interests in entities that provide
product and services to the Company. During 1996, the Company entered into
contracts with Fortunato Foods, Inc, a company controlled by Mr. Ferraro that
provides research development and administrative services to the Company.
Fortunato Foods and its agents are responsible for assisting in the development
of markets and additional proprietary dairy products for the Company. This firm
and its agents possess extensive experience in the retail grocery and dairy
products development. Fortunato Foods has over seven years research and
development experience in the dairy products field, having established solid
working relationships with numerous food products Research and Development
specialists in the U.S.
In addition, the Company's present business relies upon a certain
license agreement whereby it acquired the exclusive United States rights to
utilize a dairy concentrate in the production and distribution of certain dairy
and non-fat dairy products from Global Dairy Products, Nassau, Bahamas. The
licensed concentrate is based upon a proprietary formula not known by or
revealed to the Company. As such, the Company relies upon the supply of
concentrate from the Licensor, which is obligated under the license agreement to
supply the Company with its requirements for the concentrate at stated prices.
At present, the concentrate is sold to the Company by Discovery Foods, Inc.
(Discovery), pursuant to a contract between the Licensor and Discovery. The
Company is not a party to that contract. Discovery is an entity controlled by
Mr. Ferraro.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the National Association
of Securities Dealers, Inc. OTC Bulletin Board since February of 1996, initially
under the trading symbol "MILK." On December 5, 1997, the Company's Common Stock
began trading under the symbol "SYES." The high and low bid prices for the
Company's Common Stock for each quarter within the last two fiscal years are as
follows:
QUARTER HIGH BID PRICE LOW BID PRICE
1996 Q1 (2/6 - 3/31) $3.18 $2.00
Q2 (4/1 - 6/28) $5.62 $3.43
Q3 (7/1 - 9/30) $5.81 $4.00
Q4 (10/1 - 12/31) $5.43 $3.75
1996 Q1 (1/3 - 3/31) $4.93 $3.75
Q2 (4/1 - 6/30) $4.31 $3.68
Q3 (7/1 - 9/30) $4.00 $2.62
Q4 (10/1 - 12/31) $3.43 $2.00
The Company has not paid any cash dividends on its Common Stock, nor
does it intend to do so in the foreseeable future. Under the Corporation Law of
the State of Nevada, the Company may only pay dividends out of capital and
surplus, or out of certain delineated retained earnings, all as defined in the
Corporation Law. There can be no assurance that the Company will have such funds
legally available for the payment of dividends in the event that the Company
should decide to do so.
<PAGE>
EXECUTIVE COMPENSATION
The aggregate annual remuneration of the Company's Executive Management
for the year ended December 31, 1997 was:
Capacities in Which
Name of Individual or Remuneration Was
Identity of Group Received Aggregate Remuneration
- ---------------------------------------------------------------------------
Charles Thomas President $ 68,000 (1)
Timothy Zuch Treasurer $ 30,000
Nancy Roth C.F.O. $ 60,000
/1/Includes salary of $60,000 and non-cash compensation relating to insurance
of $8,000.
FINANCIAL STATEMENTS
Registrant's Financial Statements as of December 31, 1996 and the independent
auditors' report of Bradshaw Smith & Co., independent certified public
accountants, with respect thereto, appear on pages F-1 to F-13 of this
Registration Statement on Form SB-2. Registrant's Unaudited Financial Statements
as of September 30, 1997 and for the Nine Months Ended September 30, 1997 appear
as Exhibit 99 to the Registration Statement of which this Prospectus is a part.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The potential exists for a material modification of the financial
statements submitted herewith depending upon the ultimate outcome of the lawsuit
involving 3.4 million shares of the Common Stock of the Company, as follows:
On July 11, 1997, the Company commenced a declaratory judgment action
in Federal District Court for the State of Utah, Central Division, entitled Say
Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No. 2:97-CV-548C, seeking
declaratory judgment that certain share certificates representing 3,400,000
shares of the Company's common stock were issued improperly without the
knowledge or consent of the Company. By order of a foreign court, such
certificates were seized from a holding account to satisfy a default judgment in
the United Kingdom, to which the Company was not a party. A receiver appointed
by the British Court has requested that the canceled share certificates be
transferred into the name of the receiver. The Company refused, and commenced
the action described herein in response to an action commenced against the
Company and its Stock Transfer Agent by the receiver to recognize and transfer
the certificate held by the receiver.
<PAGE>
While management believes that the certificates were taken and issued
in an improper manner without the Company's knowledge and that, accordingly, the
Company will prevail in this action, a litigation loss and the resultant
recognition of the shares of common stock held by the receiver would represent a
significant impact on the Company's financial statements. For example, the
inclusion of an additional 3.4 million shares in the per share equity
computation would result in the dilution of that equity by approximately 15%.
Accordingly, while the financial statements do not reflect the
aforesaid 3.4 million shares as part of the issued and outstanding Common Stock
of the Company, disclosure of the lawsuit described herein and its potential
impact upon the stated per share equity position of the Company has been made in
a footnote to said financial statements.
Presently, the Company has discharged the Transfer Agent allegedly
responsible for the unauthorized and improper issuance of the 3.4 million shares
at issue. In addition, the Company is pursuing an indemnification claim against
said Transfer Agent with respect to the potential damage to the Company in the
event the court determines that said shares must be recognized by the Company as
valid issued and outstanding shares of the Company's common Stock.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
CONTENTS
Independent auditors' report F-1
Financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of changes in stockholders' equity (deficit) F-4
Statements of cash flows F-5
Notes to financial statements F-6 to F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Say Yes Foods, Inc.
(Formerly Moneyline Financial Group, Inc.)
Las Vegas, Nevada
We have audited the accompanying balance sheet of Say Yes
Foods, Inc. (formerly Moneyline Financial Group, Inc.) as of December 31, 1996,
and the related statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Say Yes Foods, Inc. (formerly Moneyline Financial Group,
Inc.) as of December 31, 1995 and for the years ended December 31, 1995 and
1994, were audited by other auditors whose report dated February 7, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Say Yes
Foods, Inc. (formerly Moneyline Financial Group, Inc.) as of December 31, 1996
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
BRADSHAW, SMITH & CO.
Las Vegas, Nevada
August 8, 1997
F-1
<PAGE>
See Notes to Financial Statements.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
======== ========
Current assets:
Cash $511,200 $ --
Accounts receivable (net allowance for doubtful
accounts of $-0-) 25,100 --
-------- --------
Total current assets 536,300 --
Property and equipment (net of accumulated
depreciation of $600) 2,900 --
-------- --------
$539,200 $ --
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 41,300 $ 700
Account payable to related party (Note 6) 15,000 --
Other liabilities 2,000 --
-------- --------
Total current liabilities 58,300 700
-------- --------
Commitments and contingencies (Note 7) -- --
Stockholders' equity (deficit) (Notes 3 and 4):
Convertible preferred stock, $.001 par value;
authorized 510,000 shares: Series A; authorized
510,000 shares; issued and outstanding 510,000
and -0- shares (aggregate liquidation preference
of $510 and $-0-). 500 --
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
19,115,563 and 2,000,000 shares. 19,100 2,000
Additional paid-in capital 1,769,500 23,000
Stock options 270,000 --
Accumulated deficit (1,578,200) (25,700)
-------- --------
480,900 (700)
-------- --------
$539,200 $ --
======== ========
F-2
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
======== ======== ========
Re enues $ 66,000 $ -- $ --
Cost of revenues (Note 6) 26,500 -- --
-------- -------- --------
Gross profit 39,500 -- --
-------- -------- --------
Operating expenses:
Advertising and promotion 197,500 -- --
General and administrative (Note 6) 345,900 400 --
Depreciation 7,900 -- --
Research and development (Note 6) 206,800 -- --
Consulting services (Note 6) 288,900 -- --
Option compensation (Note 4) 270,000 -- --
Product licensee fee (Note 2) 275,000 -- --
-------- -------- --------
1,592,000 400 --
-------- -------- --------
Loss from continuing operations before
provision for income taxes (1,552,500) (400) --
Provision for income taxes (Note 5) -- -- --
-------- -------- --------
Net loss $(1,552,500) $ (400) $ --
======== ======== ========
Net loss per common share $ (0.09) NIL NIL
======== ======== ========
Weighted average common shares outstanding 16,859,248 609,384 25,000
======== ======== ========
F-3
<PAGE>
See Notes to Financial Statements.
<TABLE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Total
Preferred stock Common stock Additional Accumu- stockholders
===================== ===================== paid-in Stock lated equity
Shares Amount Shares Amount capital options deficit (deficit)
========== ========== ========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 and 1994 -- $ -- 25,000 $ 25,000 $ -- $ -- $ (25,300) $ (300)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Changed common stock par value from -- -- -- (24,975) 24,975 -- -- --
$1.00 to $.001
Forward stock split 80 for 1 -- -- 1,975,000 1,975 (1,975) -- -- --
Net loss -- -- -- -- -- -- (400) (400)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 -- -- 2,000,000 2,000 23,000 -- (25,700) (700)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Reverse stock split 1 for 2 -- -- (1,000,000) (1,000) 1,000 -- -- --
Issuance for assets 510,000 500 5,492,563 5,500 6,400 -- -- 12,400
Issuance for cash -- -- 11,500,000 11,500 103,500 -- -- 115,000
Issuance for cash -- -- 1,088,000 1,100 1,549,300 -- -- 1,550,400
Issuance for options -- -- -- -- -- 270,000 -- 270,000
Issuance for services -- -- 35,000 -- 86,300 -- -- 86,300
Net loss -- -- -- -- -- -- (1,552,500) (1,552,500)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 510,000 $ 500 19,115,563 $ 19,100 $1,769,500 $ 270,000 $(1,578,200) $480,900
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
=========== =========== ===========
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,552,500) $ (400) $ --
Charges to net loss not requiring cash outlays:
Stock issued in exchange for services and supplies 77,000 -- --
Stock bonuses awarded to employees 14,400 -- --
Stock options issued to non-employees 270,000 -- --
Depreciation 7,900 -- --
Product license agreement 275,000 -- --
Changes in:
Accounts receivable (25,100) -- --
Accounts payable 40,600 400 --
Other liabilities 2,000 -- --
Current note payable 15,000 -- --
----------- ---------- -----------
Net cash used by operating activities (875,700) -- --
----------- ---------- -----------
Cash flows from investing activities:
Purchase of assets (3,500) -- --
----------- ---------- -----------
Net cash used by investing activities (3,500) -- --
----------- ---------- -----------
Cash flows from financing activities:
Repayment of debt to related parties (275,000) -- --
Proceeds from issuance of common stock 1,665,400 -- --
----------- ---------- -----------
Net cash provided by financing activities 1,390,400 -- --
----------- ---------- -----------
Net increase in cash 511,200 -- --
Cash, beginning of period -- -- --
---------- ---------- -----------
Cash, end of period $ 511,200 $ -- $ --
========== ========== ===========
Schedule of non-cash investing and financing activities:
Non-cash assets acquired in merger $ 12,400 $ -- $ --
========== ========== ===========
Loan payable to related party for license agreement $ 275,000 $ -- $ --
========== ========== ===========
</TABLE>
F-5
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. Summary of significant accounting policies:
Organization:
The Company was organized March 23, 1989 under the laws of the State of
Nevada, as Moneyline Financial Group, Inc. The Company amended its
Articles of Incorporation February, 1996 changing its name to Say Yes
Foods, Inc. ("SYF").
InFebruary, 1996, the Company acquired certain assets, marketing rights,
and licensing rights through an agreement to issue 5,492,563 common
shares and 510,000 preferred shares. Tangible assets were recorded at the
predecessor's cost which was substantially similar to fair market value.
No value or costs were attributed to the marketing and licensing rights.
SYF's primary business is the marketing and distribution of fat free dairy
concentrate and fat free dairy products. SYF was in the development stage
until the end of 1996. Product sales are primarily in the Las Vegas,
Nevada metropolitan area. Management plans to distribute the product
globally.
Revenue recognition:
Product revenues are recognized at the time of shipment and reserves are
established to recognize the risk of returns from customers.
Depreciation:
Depreciation is recognized using the straight-line and accelerated methods
over the estimated useful life of the assets, as follows:
Office Furniture 7 years
Office Equipment 3-5 years
Income taxes:
SYF utilizes an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes are determined based on
the estimated future tax effects of differences between the financial
reporting and tax reporting bases of assets and liabilities given the
provisions of currently enacted tax laws.
Net loss per common share:
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year. The
common stock equivalents outstanding at December 31, 1996, consisted of
stock options and convertible series A preferred stock. They are excluded
from the computation of loss per share because their effect is
anti-dilutive.
F-6
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. Summary of significant accounting policies (continued):
Stock-based compensation:
InOctober, 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which became effective
for SYF beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based
on the fair value of the equity instrument awarded. Since SYF has decided
to continue to apply APB 25 (as permitted by SFAS No. 123), the
appropriate required disclosure of the effects of SFAS No. 123 are
included in Note 4.
Economic dependency:
SYF, under the terms of the license agreement (Note 2), purchases the fat
free dairy concentrate from the licensor. Failure of the licensor to
provide the product would have a materially adverse effect on SYF.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates.
Advertising costs:
Advertising costs are charged to operations as incurred. Total advertising
expense incurred during 1996 was $197,500.
2. Licensing rights:
SYF acquired the exclusive rights to a product (the "Product") which is a
fat free dairy concentrate used to produce milk and other products in
which milk is used. The license covers the United States and Puerto Rico
for a period of ninety-nine years.
SYF agreed to pay $275,000 and issued 2,500,000 shares of common stock at
par value in exchange for the license agreement. The license was recorded
at cost and charged to earnings in 1996.
F-7
<PAGE>
2. Licensing rights (continued):
SYF has also been granted an option to acquire additional territorial
rights if certain conditions are met including 1) presentation of a
business plan regarding commercializing the product in the respective
territories; 2) presention of financial estimates outlining market
development costs and project revenues; and 3) negotiation of a territory
specific fee. This option expires August, 2005 and may be extended at the
discretion of the licensor.
3. Stockholders' equity (deficit):
Change in capital structure:
The Company, when formed in 1989, issued 25,000 shares of common stock at
$1.00 par value, for a total of $25,000.
OnSeptember 12, 1995, the Company amended its Articles of Incorporation
changing the $1.00 par value per share of common stock to a par value of
$.001 per share. Also, the Company increased its authorized shares to
50,000,000 common shares and 10,000,000 preferred shares with a par value
of $.001 each. The Company forward split its common stock into 80 new
shares for each share outstanding, changing the outstanding shares from
25,000 to 2,000,000.
OnJanuary 31, 1996, the Company approved a reverse split of its
outstanding common shares on the basis of one share for two, changing the
issued and outstanding common shares from 2,000,000 to 1,000,000 shares.
The Company approved decreasing the authorized preferred shares from
10,000,000 to 510,000 shares at $.001 par value.
Convertible preferred stock:
InFebruary, 1996, the Company issued 510,000 shares of Series A
convertible preferred stock in connection with the purchase of assets.
The shares are convertible on a 1:1 basis to common shares and may be
converted at any time and have the same liquidation rights on a 1:1 basis
as with common stock. The preferred shares have super voting rights over
that of common shares by 100 to 1. The preferred shareholders will be
able to control any shareholder vote for the foreseeable future.
Private placement offerings:
In February, 1996, SYF issued 11,500,000 shares of common stock for
$115,000. The offering was pursuant to Regulation D, Rule 504 of the Securities
Act of 1933.
F-8
<PAGE>
3. Stockholders' equity (deficit) (continued):
Private placement offerings (continued):
During 1996, SYF sold 600,000 units under an offering pursuant to
Regulation D, Rule 506 of the Securities Act of 1933 at a price of $1.00
per unit. Each unit consisted of one share of restricted common stock
plus one warrant to purchase an additional share of restricted common
stock at a price of $2.00 per warrant. During 1996, 488,000 warrants were
exercised before the expiration date. All remaining outstanding warrants
expired during 1996.
4. Stock-based compensation:
The Board of Directors authorized the granting of options and issuance of
stock to certain officers, directors, key employees and contract consultants.
Stock option information with respect to all of SYF's stock options
follows:
Shares Exercise price
============ ============
Balance, December 31, 1995 unexercised -- $ --
Granted 650,000 4.00
Exercised -- --
Forfeited 200,000 4.00
------------ ------------
Balance, December 31, 1996 unexercised 450,000 $ 4.00
============ ============
The weighted average fair value of options granted during 1996 was $1.17.
The weighted average remaining contract life of options outstanding as of
December 31, 1996 was 1.3 years.
Officers' and employees' stock options:
The Board of Directors approved and granted 450,000 stock options to
employees, officers and directors. The option exercise price is $4.00 per
share and the options expire two years from grant date. The exercise
price was higher than the closing quoted market price of the stock on the
date of the grant. Options vest when granted but are forfeited if
employment terminates.
SYF applied APB Opinion 25 in accounting for options granted to employees
and directors. Accordingly, no compensation cost was recognized.
F-9
<PAGE>
4. Stock-based compensation (continued):
Officers' and employees' stock options fair value disclosures:
SFAS No. 123 requires the use of option valuation models to provide
supplemental information regarding options granted after 1994. Proforma
information regarding net loss and loss per share shown below was
determined as if SYF had accounted for its employee and director stock
options under the fair value method of SFAS No. 123.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions
used for grants: dividend yield 0%, expected volatility 69.47%, risk-free
interest rate of 5.86%, and expected life of two years.
Proforma net loss $
1,825,000
=================
Proforma net loss per common share $ (0.11)
=================
Other options granted:
The Board of Directors granted 200,000 options to key shareholders for
consulting services. The option exercise price is $4.00 per share, and
the options expire two years from grant date and vest when granted.
The fair value of each option is estimated on the Black-Scholes
option-pricing model in accordance with SFAS 123. Compensation cost
recognized in 1996 was $270,000. Significant assumptions used to estimate
compensation cost were as follows:
March 28, 1996 June 25, 1996
================= =================
Risk-free interest rate 5.86% 6.19%
Expected life of option 2 years 2 years
Expected volatility 69.47% 69.47%
Stock issued for services:
SYF agreed to issue 30,000 shares of restricted stock as consideration for
an advertising contract. Advertising expense of $71,900 was recognized.
F-10
<PAGE>
4. Stock-based compensation (continued):
Stock-based performance awards:
SYF entered into consulting contracts with two individuals. The contracts
contained agreements that provided quarterly bonuses of 2,500 shares of
restricted common stock to consultants achieving predetermined
performance goals. Performance goals are established and fixed by the
Company's officers and Directors.
During 1996, 5,000 shares of common stock were issued in accordance with
the quarterly bonus agreements. Total compensation cost recognized was $14,400.
5. Income taxes:
Included in the net deferred tax asset below is the net operating loss
carryforward which may in part be subject to substantial limitations in
accordance with various provisions of the Internal Revenue Code. The
Company has not yet determined the amount and nature of these
limitations.
The benefit for income taxes is different than the amount computed by
applying the statutory federal income tax rate to net loss before taxes.
A reconcilation of the net income tax benefit follows:
1996 1995 1994
========= ========= =========
Computed tax benefit at federal statutory rate $530,000 $ -- $ --
Temporary differences in accounting for -- --
licensing rights (88,000)
Change in deferred income tax valuation -- --
allowance (442,000) -- --
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The Company has a net operating loss carryforward ("NOL") for federal
income tax reporting purposes of approximately $1,300,000. The NOL
expires after the year 2011. The NOL includes temporary differences of
approximately $260,000 due to license fees being accounted for
differently for financial reporting and tax purposes.
6. Related party transactions:
a. A shareholder owning 50% of SYF's preferred stock has controlling
interests in entities that provide Product and services to SYF.
During 1996, the Company entered into contracts with the entity that
provided research, development and administrative services.
F-11
<PAGE>
6. Related party transactions (continued):
Transactions between SYF and entities controlled by the shareholder are
as follows:
(1) SYF paid $35,000 for administrative services in 1996. The contract,
which provided for $5,000 monthly payments, was canceled during 1996.
(2) SYF paid reimbursements of $30,300 in 1996 for expenses in
connection with research and development. These expenses
included office supplies, meals, airline fees and advertising.
(3) SYF paid $132,500 for research and development services in 1996. A five
year contract formed in 1996 provides for $15,000 monthly payments. Contract
terms are negotiable at the end of each year.
b. An officer of the Company also controlled a consulting firm. SYF entered
into contracts with the consulting firm and paid the firm $26,900 in 1996.
c. An officer of the Company had ownership in a consulting firm. SYF
entered into contracts with the consulting firm and paid the firm $77,200 in
1996.
d. Accounts payable to related party:
In1996, SYF purchased $26,200 of Product from the licensor/shareholder
(Note 2). As of December 31, 1996, SYF owed the licensor $15,000 for
Product. The payable for Product is due on demand and is non-interest
bearing.
7. Commitments and contingencies:
Concentration of credit risk:
The Company has cash and cash equivalents on deposit with a financial
institution which exceeded the federally insured amounts by approximately
$411,200 at December 31, 1996.
Litigation:
The Company is a defendant in a pending lawsuit for alleged breach of
contract. Management believes that the outcome of this lawsuit will not
have a material or adverse effect on the Company's financial position or
results of operations.
F-12
<PAGE>
7. Commitments and contingencies (continued):
Litigation (continued):
OnJuly 11, 1997, the Company commenced a declaratory judgment action in
Federal District Court for the State of Utah, Central Division, entitled
Say Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No.
2:97-CV-548C, seeking declaratory judgment that certain share
certificates representing 3,400,000 shares of the Company's common stock
were issued improperly without the knowledge or consent of the Company.
By order of a foreign court, such certificates were seized from a holding
account to satisfy a judgment in the United Kingdom, to which the Company
was not a party. A receiver appointed by the British Court has requested
that the canceled share certificates be transferred into the name of the
receiver. The Company refused, and commenced the action described herein
in response to an action commenced against the Company and its stock
transfer agent to recognize and transfer the certificate held by the
receiver. While management believes that the certificates were taken and
issued in an improper manner without the Company's knowledge and that,
accordingly, the Company will prevail in these actions, a litigation loss
and the resultant recognition of the shares of common stock held by the
receiver would represent a significant impact on the Company's capital
structure.
8. Subsequent events:
Asof August 8, 1997, SYF raised $875,000 of capital by selling equity
units for $2.50. Each unit consists of one share of restricted common
stock and a one half warrant to purchase one additional share of common
stock for $2.50.
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Issuer's Amended and Restated Certificate of Incorporation and
By-laws contain provisions eliminating the personal liability of a director to
the Issuer and its stockholders for certain breaches of his or her fiduciary
duty of care as a director. This provision does not, however, eliminate or limit
the personal liability of a director (i) for any breach of such director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Nevada statutory provisions making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
the Board of Directors of the Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or recission based upon a director's breach of his duty of care. The
Securities and Exchange Commission (the "Commission") has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has, pursuant to the Amended and Restated Registration
Rights Agreement, agreed to pay all expenses of this Private Offering, other
than fees, commissions, discounts and expenses of any underwriters engaged by
the Selling Shareholders. The estimated expenses of this Private Offering are:
Registration Fees $ 4,938.00
Attorney's Fees 32,500.00
EDGAR Services 5,000.00
TOTAL $ 42,438.00
<PAGE>
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 31, 1996, the Company approved a reverse split of its
outstanding shares of common stock on the basis of one (1) share for two (2),
changing the issued and outstanding shares of common stock from 2,000,000 to
1,000,000 shares. The Company also approved decreasing the authorized shares of
preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2. 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares of Common Stock at par value. At the time of this
acquisition, the Company amended its Articles of Incorporation and changed its
name to Say Yes Foods, Inc.
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended, and issued 11,500,000 shares of Common
Stock. Contemporaneous with the aforesaid exempt offering, the Company obtained
approval for listing on the NASD OTC Bulletin Board pursuant to the filing of a
so called "2-11" application with NASD. The Company's unrestricted Common Stock
began trading on the Bulletin Board in early February, 1996.
In April of 1996, the Company completed a limited public offering
pursuant to an exemption in accordance with Regulation D, Rule 506 of the
Securities Act of 1933, as amended.
and issued 1,088,000 shares of Common Stock.
Commencing on April 15, 1997 and through December 12, 1997, the Company
completed a Regulation S offering resulting in the issuance of 482,846 shares of
its Common Stock during such offering period.
On December 24, 1997, the Company amended its Articles of Incorporation
increasing its authorized shares of preferred stock to 2,510,000.
Contemporaneous with the aforesaid amendment, the Company filed respective
Certificates of Designation for Series B Preferred Stock on December 24, 1997
and Series C Preferred Stock on December 31, 1997.
<PAGE>
Item 27. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation 9/12/95
3.2 Articles of Amendment 2/5/96
3.3 Articles of Amendment 12/24/97
3.4 By Laws of the Company
4.1 Convertible Preferred Purchase Agreement - Series B 12/24/97
4.2 Convertible Preferred Purchase Agreement - Series C 12/31/97
4.3 Warrant No.1 - 187,500 Shares
to JNC Opportunity Fund Ltd. 12/24/97
4.4 Warrant No.2 - 187,500 Shares to
CDC Consulting, Inc. 12/24/97
4.5 Warrant No.3 - 62,500 Shares
to JNC Opportunity Fund Ltd. 12/31/97
4.6 Warrant No.4 - 62,500 Shares to
CDC Consulting, Inc. 12/31/97
4.7 Certificate of Designation -Series B Preferred Stock 12/24/97
4.8 Certificate of Designation -Series C Preferred Stock 12/31/97
4.9 Amended Registration Rights Agreement between
the Company and JNC Opportunity Fund Ltd. 12/31/97
5.1 Opinion of Stibel & Toulan, LLP - Series B 12/29/97
5.2 Opinion of Stibel & Toulan, LLP - Series C 12/31/97
10.1 License Agreement between the Company and
Global Dairy Products Ltd. 2/5/96
10.2 License Option Agreement between the Company
and Global Dairy Products Ltd. 8/8/97
23.1 Consent of Bradshaw, Smith & Co.
independent certified public accountants 1/29/98
23.2 Consent of Stibel & Toulan, LLP
counsel to the Company 1/29/98
27 Financial Data Summary
99 Unaudited interim financial statements
for the Company for the period 1/1/97 to 9/30/97
<PAGE>
Item 28. UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) Include any additional or change material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Las
Vegas, State of Nevada on January 29, 1998.
(Registrant) SAY YES FOODS, INC.
By: /s/ Charles Thomas
- ---------------------------------------------
Charles Thomas, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
January 29, 1998 /s/ Tim Zuch
-----------------------------
Tim Zuch
Treasurer and Director
January 29, 1998 /s/ Chris Rousselle
-----------------------------
Chris Rousselle
Secretary and Director
January 29, 1998 /s/ Henry Still
-----------------------------
Henry Still
Director
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation 9/12/95
RESTATED
ARTICLES OF INCORPORATION
OF
MONEYLINE FINANCIAL GROUP, INC.
On the 3rd day of March 1995, pursuant to the Nevada Revised Statutes 78.320 and
other applicable Nevada Revised Statutes, the Annual Meeting of Shareholders
representing a majority of the holders was held. Whereas, there being shares
validly issued and outstanding and entitled to vote, with a total voting power
of 25,000 shares, shareholders voted either by proxy or in person 25,000 shares
FOR, representing 100.00 % being a majority and 0 shares AGAINST, to RESTATE THE
ARTICLES OF INCORPORATION OF MONEYLINE FINANCIAL GROUP, INC.
Therefore, the Corporation does by these presents Restate its Articles of
Incorporation as follows:
FIRST: Name.
The name of the corporation is MONEYLINE FINANCIAL GROUP, INC., (the
"Corporation")
SECOND: Registered Office and Agent.
The address of the registered office of the Corporation in the State of Nevada
is 3566 So. Polaris Ave., #4A, Las Vegas, NV, 89103. In the City of Las Vegas,
County of Clark. The name and address of the Corporations' registered agent in
the State of Nevada is All Corporate Services, at said address, until such time
as another agent is duly authorized and appointed by the Corporation.
THIRD: Purpose and Business.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may now or hereafter be organized under the Nevada Revised
Statutes of the State of Nevada, including, but not limited to the following:
The purpose of the Corporation is to engage in any lawful act of activity for
which corporations may now of hereafter be organized under the Nevada Revised
Statutes of the State of Nevada, including, but not limited to the following:
(a) The Corporation may at any time exercise such rights, privileges and
powers, when not inconsistent with the purposes and object for
which this Corporation is organized;
(b) The Corporation shall have power to have succession by its corporate
name in perpetuity, or until dissolved and its affairs would up
according to law;
(c) The Corporation shall have power to sue and be sued in any court of law
or equity;
(d) The Corporation shall have power to make contracts;
(e) The Corporation shall have power to hold, purchase and convey real and
personal estate and to mortgage or lease any such real and personal
estate with its franchises. The power to hold real and personal estate
shall include the power to take the same by devise or bequest in the
State of Nevada, or in any other state, territory or
(f) The Corporation shall have power to appoint such officers and agents as
the affairs of the Corporation shall require and allow them suitable
compensation;
(g) The Corporation shall have power to make bylaws no inconsistent with
the constitution or laws of the United States, or of the State of
Nevada, for the management, regulation and government of its affairs
and property, the transfer of its stock, the transaction of its
business and the calling and holding of meetings of stockholders;
(h) The Corporation shall have the power to wind up and dissolve itself, or
be wound up or dissolved.
(i) The Corporation shall have the power to adopt and use a common seal or
stamp, or to use such seal or stamp and if one is used, to alter the
same. The use of a seal or stamp by the Corporation on any corporate
documents is not necessary. The Corporation may use a seal or stamp, if
it desires, but such use of non-use shall not in any way affect the
legality of the document.
(j) The Corporation shall have the power to borrow money and contract debts
when necessary for the transaction of its business, or for the exercise
of its corporate rights, privileges or franchises, or for any other
lawful purpose of its incorporation; to issue bonds, promissory notes,
bills of exchange, debentures and other obligations and evidence of
indebtedness, payable at a specified time or times, or payable upon the
happening of a specified event or events, whether secured by mortgage,
pledge or otherwise, or unsecured, for money borrowed, or in payment
for property purchased, or acquired, or for another lawful object;
(k) The Corporation shall have the power to guarantee, purchase, hold,
sell, assign, transfer, mortgage, pledge or otherwise dispose of the
shares of the capital stock of, or any bonds, securities or evidence of
indebtedness created by any other corporation or corporations of the
State of Nevada, or any other state or government and, while the owner
of such stock, bonds, securities or evidence of indebtedness, to
exercise all the rights, powers and privileges of ownership, including
the right to vote, if any:
(l) The Corporation shall have the power to purchase, hold, sell and
transfer shares of its own capital stock and use therefore its capital,
capital surplus, surplus or other property or fund;
(m) The Corporation shall have the power to conduct business, have one or
more offices and hold, purchase, mortgage and convey real and personal
property in the State of Nevada and in any of the several states,
territories, possessions and dependencies of the the United States, the
District of Columbia and any foreign country;
(n) The Corporation shall have the power to do all and everything necessary
and proper for the accomplishment of the objects enumerated in its
articles of incorporation, or any amendments thereof, or necessary or
incidental to the protection and benefit of the Corporation and, in
general, to carry on any lawful business necessary or incidental to the
attainment of the purposes of the Corporation, whether or not such
business is similar in nature to the purposes set forth in the articles
of Incorporation of the Corporation, or any amendment thereof;
(o) The Corporation shall have the power to make donations for the public
welfare or for charitable, scientific or educational purposes;
(p) The Corporation shall have the power to enter partnerships, general or
limited, or joint ventures, in connection with any lawful activities.
FOURTH: Capital Stock.
1. Classes and Number of Shares. The total number of shares of all classes
of stock, which the Corporation shall have authority to issue is Sixty
Million (60,000,000), consisting of Fifty Million (50,000,000) shares
of Common Stock, par value of $0.001 per share (the "Common Stock") and
Ten Million (10,000,000) shares of Preferred Stock, which have a par
value of $0.001 per share (the "Preferred Stock").
2. Powers and Rights of Common Stock
(a) Preemptive Right. No shareholders of the Corporation holding common
stock shall have any preemptive or other right to subscribe for any
additional un-issued or treasure shares of stock or for other
securities of any class, or for rights, warrants or options to purchase
stock, or for scrip, or for securities of any kind convertible into
stock or carrying stock purchase warrants or privileges unless so
authorized by the Corporation.
(b) Voting Rights and Powers. With respect to all matters upon which
stockholders are entitled to vote or to which stockholders are entitled
to give consent, the holders of the outstanding shares of the Common
Stock shall be entitled to cast thereon one (1) vote in person or by
proxy for each share of the Common Stock standing in his name.
(c) Dividends and Distributions.
(i) Cash Dividends. Subject to the rights of holders of Preferred Stock,
holders of Common Stock shall be entitled to receive such cash dividends as may
be declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor;
(ii) Other Dividends and
Distributions. The Board of Directors may issue shares of the Common Stock in
the form of a distribution or distributions pursuant to a stock dividend or
split-up of the shares of the Common Stock.
(iii) Other Rights. Except as otherwise required by the Nevada Revised
Statutes and as may otherwise be provided in these Restated Articles of
Incorporation, each share of the Common Stock shall have identical powers,
preferences and rights, including rights in liquidation;
3. Preferred Stock. The powers, preferences, rights, qualifications,
limitations and restrictions pertaining to the Preferred Stock, or any
series thereof, shall be such as may be fixed, from time to time, by
the Board of Directors in its sole discretion, authority to do so being
hereby expressly vested in such Board.
4. Issuance of the Common Stock and the Preferred Stock.
----------------------------------------------------
The Board of Directors of the Corporation may from time to time authorize
by resolution the issuance of any or all shares of the Common Stock and the
Preferred Stock herein authorized in accordance with the terms and conditions
set forth in these Restated Articles of Incorporation for such purposes, in such
amounts, to such persons, corporations, or entities, for such consideration and
in the case of Preferred Stock, in one or more series, all as the Board of
Directors in Its discretion may determine and without any vote or other action
by the stockholders, except as otherwise required by law. The Board of
Directors, from time to time, also may authorize by resolution, options,
warrants and other rights convertible into Common or Preferred stock
(collectively "securities.") The securities must be issued for such
consideration, including case, property, or services, as the Board of Directors
may deem appropriate, subject to the requirement that the value of such
consideration be no less than the par value of the shares issued. Any shares
issued for which the consideration so fixed has been paid or delivered shall be
fully paid stock and the holder of such shares shall not be liable for any
further call or assessment or any other payment thereon, provided that the
actual value of such consideration is not less than the par value of the shares
so issued. The Board of Directors may issue shares of the Common Stock in the
form of a distribution or distributions pursuant to a stock dividend or split-up
of the Common Stock.
5. Cumulative Voting. Except as other wise required by applicable law,
there shall b e no cumulative voting on any matter brought to a vote of
stockholders of the Corporation.
FIFTH: Adoption of Bylaws
In the futherance and not in limitation of the powers conferred by statute and
subject to Article Sixth hereof the Board of Directors is expressly authorized
to adopt, repeal, rescind, alter or amend in any respect the Bylaws of the
Corporation (the "Bylaws").
SIXTH: Shareholder Amendment of Bylaws.
Notwithstanding Article Fifth hereof, the Bylaws may also be adopted, repealed,
rescinded, altered or amended in any respect by the stockholders of the
Corporation, but only by the affirmative vote of the holders of not less than
seventy-five percent (75%) of the voting power of all outstanding shares of
voting stock, regardless of class and voting together as a single voting class.
SEVENTH: Board of Directors.
The business and affairs of the Corporation shall be managed by and under the
direction of the Board of Directors. Except as may otherwise be provided
pursuant to Section 4 of Article Fourth hereof in connection with rights to
elect additional directors under specified circumstances, which may be granted
to the holders of any class or series of Preferred Stock, the exact number of
directors of the Corporation shall be determined from time to time by a Bylaw or
amendment thereto, providing that the number of directors shall not be reduced
to less than two (2). The directors holding office at the time of the filing of
these Restated Articles of Incorporation shall continue as directors until the
next annual meeting and/or until their successors are duly chosen.
EIGHTH: Term of Board of Directors.
Except as otherwise required by applicable law, each director shall serve for a
term ending on the date of the third Annual Meeting of Stockholders of the
Corporation (the "Annual Meeting") following the Annual Meeting at which such
director was elected. All directors, shall have equal standing.
Notwithstanding the foregoing provisions of this Article Eighth each director
shall serve until his successor is elected and qualified or until his death,
resignation or removal; no decrease in the authorized number of directors shall
shorten the term of any incumbent director, and additional directors, elected
pursuant to Section 4 of Article Fourth hereof in connection with rights to
elect such additional directors under specified circumstances, which may be
granted to the holders of any class or series of Preferred Stock, shall not be
included in any class, but shall serve for such term or terms and pursuant to
such other provisions as are specified in the resolution of the Board of
Directors establishing such class or series.
NINTH: Vacancies on Board of Directors. Except as may otherwise be provided
pursuant to Section 4 of Article Fourth hereof in connection with rights to
elect additional directors under specified circumstances, which may be granted
to the holders of any class or series of Preferred Stock, newly created
directorships resulting from any increase in the number of director,s or any
vacancies on the Board of Directors resulting from death, resignation, removal
or other causes, shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified or until such
director's death, resignation or removal, whichever first occurs.
TENTH: Removal of Directors.
Except as may otherwise be provided pursuant to Section 4 of Article Fourth
hereof in connection with rights to elect additional directors under specified
circumstances, which may be granted to the holders of any class or series of
Preferred Stock, any director may be removed from office only for cause and only
by the affirmative vote of the holders of not less than seventy-five percent
(75%) of the voting power of all outstanding shares of voting stock entitled to
vote in connection with the election of such director, provided, however, that
where such removal is approved by a majority of the Directors, the affirmative
vote of a majority of the voting power of all outstanding shares of voting stock
entitled to vote in connection with the election of such director shall be
required for approval of such removal. Failure of an incumbent director to be
nominated to serve an additional term of office shall not be deemed a removal
from office requiring any stockholder vote.
ELEVENTH: Stockholder Action.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effective at a duly called Annual Meeting or at a special
meeting of stockholders of the Corporation, unless such action requiring or
permitting stockholder approval is approved by a majority of the Directors, in
which case such action may be authorized or taken by the written consent of the
holders of outstanding shares of Voting Stock having not less than minimum
voting power that would be necessary to authorize or take such action at a
meeting of stockholders at which all shares entitled to vote thereon were
present and voted, provided all other requirements of applicable law and these
Articles have been satisfied.
TWELFTH: Special Stockholder Meeting
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by a majority of the Board of Directors or by
the Chairman of the Board or the President. Special meetings may not be called
by any other person or persons. Each special meeting shall be held at such date
and time as is requested by the person or persons calling the meeting, within
the limits fixed by law.
THIRTEENTH: Location of Stockholder Meetings.
Meetings of stockholders of the Corporation may be held within or without the
State of Nevada, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision of the Nevada Revised Statutes) outside the State
of Nevada at such place or places as may be designated from time to time by the
Board of Directors of in the Bylaws.
FOURTEENTH: Private Property of Stockholders.
The private property of the stockholders shall not be subject to the payment of
corporate debts to any extent whatever and the stockholders shall not be
personally liable for the payment of the corporation's debts.
FIFTEENTH: Stockholder Appraisal Rights in Business Combinations.
To the maximum extent permissible under the Nevada Revised Statutes of the State
of Nevada, the stockholders of the Corporation shall be entitled to the
statutory appraisal rights provided therein, with respect to any Business
Combination involving the Corporation and any stockholder (or any affiliate or
associate of any stockholder), which requires the affirmative vote of the
Corporation's stockholders.
SIXTEENTH: Other Amendments.
The Corporation reserves the right to adopt, repeal, rescind, alter or amend in
any respect any provision contained in these Restated Articles of Incorporation
in the manner now or hereafter prescribed by applicable law and all rights
conferred on stockholders herein are granted subject to this reservation.
SEVENTEENTH: Term of Existence.
The Corporation is to have perpetual existence.
EIGHTEENTH: Liability of Directors.
No director of this Corporation shall have personal liability to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary duty as
a director or officers involving any act or omission of any such director or
officer. The foregoing provisions shall not eliminate or limit the liability of
a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or, which involve intentional misconduct or a knowing violation of law, (iii)
under applicable Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes or, (v)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of the Corporation
for acts or omissions prior to such repeal or modification.
NINETEENTH: Name and Address of Incorporator.
The name and address of the incorporator of the Corporation is:
David S. Jett, 9030 W. Sahara. #152, Las Vegas, NV 89117.
EXHIBIT NO. DESCRIPTION
3.2 Articles of Amendment
2/5/96
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MONEYLINE FINANCIAL GROUP, INC.
On the 2 day of February , 1996, pursuant to provisions of the Nevada Revised
Statutes 78.320, and other applicable statutes under Nevada Law, whereas, an
action of shareholders and consent for such actions may be taken without
meeting, wherein stockholders holding at least a majority of the voting power
are necessary to constitute a quorum for the transaction of business, and any
action required or permitted to be taken at a meeting of the stockholders may be
taken without a meeting if written consent thereto is signed by stockholders
holding at least a majority of the voting power, pursuant to said provisions of
Nevada Revised Statutes,
Whereas, there are 2,000,000 shares validly issued and outstanding entitled to
vote, and a majority of the shareholders voted either by proxy or in person
shares FOR, being a majority representing
%, and -0- shares AGAINST to authorize the Board of Directors of
Moneyline Financial Group, Inc., to amend Article One, "NAME", and to amend
paragraph 1 of Article Four, "CAPITAL STOCK", as follows:
FIRST: Name.
The name of the Corporation shall be:
SAY YES FOODS INC.
FOURTH: Capital Stock.
1. Classes and Number of Shares. The Corporation shall have authority to
issue an aggregate of 50,510,000 shares, of which 510,000 shares shall
be preferred stock, par value $0.001 (the "Preferred Stock"), and
50,000,000 shares shall be common stock, par value $0.001 (the "Common
Stock").
Dated this 2 Day of February , 1996.
Secretary
I, David S. Jett , President of Moneyline Financial Group, Inc., do hereby swear
and affirm that the Articles of Amendment to the Articles of Incorporation as
stated above are true and correct as signed and executed by the Secretary on
behalf of the corporation.
Dated this 2 day of February , 1996.
President
State of Nevada )
:ss
County of Clark )
The undersigned Notary Public certifies, deposes, and states that Ronald Thomas
, respectively the Secretary of Moneyline Financial Group, Inc., personally
appeared before me and executed the foregoing on behalf of the corporation this
2 day of February , 1996.
[SEAL]
Notary Public
State of Nevada )
:ss
County of Clark )
The undersigned Notary Public certifies, deposes, and states that David S. Jett
, respectively the President of Moneyline Financial Group, Inc., personally
appeared before me and executed the foregoing on behalf of the corporation this
2 day of February , 1996.
[SEAL]
Notary Public
EXHIBIT NO. DESCRIPTION
3.3 Articles of Amendment 12/24/97
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SAY YES FOODS, INC..
On the 15th day of December , 1997, pursuant to Nevada Revised Statutes 78.320,
and other applicable NRS, whereas, an action of shareholders and consent for
such actions may be taken without a regularly called meeting, wherein
stockholders holding at least a majority of the voting power are necessary to
constitute a quorum for the transaction of business, and any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if written consent thereto is signed by stockholders holding at least a
majority of the voting power, pursuant to said provisions of Nevada Revised
Statutes.
Whereas, there are 19,598,659 Common shares validly issued and outstanding
entitled to one vote each per outstanding share, and Whereas, there are 510,000
Preferred shares, titled Series A-1 shares having 100:1 voting rights over that
of common, thereafter, 510,000 Preferred Series A-1 shares were voted
representing 100 votes per outstanding share or 100 %, were voted in the
affirmative representing majority, and there were -0- shares Against, to
authorize the Board of Directors of Say Yes Foods, Inc., to amend paragraph 1 of
the FOURTH Article of the Articles of Incorporation as to Capital Stock, Classes
and Number of Shares, as follows:
FOURTH: Capital Stock
1. Classes and Number of Shares. The Corporation shall have authority to
issue an aggregate of 52,510,000 shares shall be preferred stock, par
value $0.001 (the "Preferred Stock"), and 50,000 shares shall be common
stock, par value $0.001 (the "Common Stock").
Executed this 16th Day of December , 1997.
Secretary
I, Charles Thomas , President of Say Yes Foods, Inc., do hereby swear and affirm
that the Articles of Amendment to the Articles of Incorporation as stated above
are true and correct as signed and executed by the Secretary on behalf of the
corporation.
Dated this 16th day of December , 1997.
President
State of Nevada )
:ss
County of Clark )
The undersigned Notary Public certifies, deposes, and states that Chris
Rousselle , and Charles Thomas , personally appeared before me and executed the
foregoing respectively as Secretary and President, on behalf of the corporation
this 16th day of December , 1997.
[SEAL]
Notary Public
3.4 By Laws of the Company
BY-LAWS
OF
ARTICLE 1
MEETING OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of Say Yes Foods,
Inc. (the Company) shall be held at its office in the City of Las Vegas, County,
Clark at 1:00 pm o'clock in the afternoon on the first Wednesday of May in each
year, if not a legal holiday, and if a legal holiday, then on the next
succeeding day not a legal holiday, for the purpose of electing directors of the
Company to serve during the ensuing year and for the transaction of such other
business as may be brought before the meeting.
At least five days' written notice specifying the time and place, when and
where, the annual meeting shall be convened, shall be mailed in a United States
Post Office addressed to each of the stockholders of record at the time of
issuing the notice at his or her, or its address last known, as the same appears
on the books of the Company.
SECTION 2. Special meetings of the stockholders may be held at the
off~office of the Company in the State of Nevada, or elsewhere, whenever called
by the President, or by the Board of Directors, or by vote of, or by an
instrument m writing signed by the holders of 51% of the issued and outstanding
capital stock of the Company. At least ten days written notice of such meeting,
specifying the day and hour and place, when and where such meeting shall be
convened, and objects for calling the same, shall be mailed in a United States
Post Office, addressed to each of the stockholders of record at the time of
issuing the notice, at his or her or its address last known, as the same appears
on the books of the Company.
SECTION 3. If all the stockholders of the Company shall waive notice of a
meeting, no notice of such meeting shall be required, and whenever all the
stockholders shall meet m person or by proxy, such meeting shall be valid for
all purposes without call or notice, and at such meeting any corporate action
may be taken.
The written certificate of the officer or officers calling any meeting setting
forth the substance of the notice, and the time and place of the mailing of the
same to the several stockholders, and the respective addresses to which the same
were mailed, shall be prima facie evidence of the manner and fact of the calling
and giving such notice.
If the address of any stockholder does not appear upon the books of the Company,
it will be sufficient to address any notice to such stockholder at the principal
office of the corporation.
SECTION 4. All business lawful to be transacted by the stockholders of the
Company, may be transacted at any special meeting or at any adjournment thereof.
Only such business, however, shall be acted upon at special meeting of the
stockholders as shall have been referred to in the notice calling such meetings,
but at any stockholders meeting at which all of the outstanding capital stock of
the Company is represented, either in person or by proxy, any lawful business
may be transacted, and such meeting shall be valid for all purposes.
SECTION 5. At the stockholders' meetings the holders of fifty one percent (51 %)
in amount of the entire issued and outstanding capital stock of the Company,
shall constitute a quorum for all purposes of such meetings. If the holders of
the amount of stock necessary to constitute a quorum shall fail to attend, in
person or by proxy, at the time and place fixed by these By-laws for the annual
meeting, or fixed by a notice as above provided for a special meeting, a
majority in interest of the stockholders present in person or by proxy may
adjourn from time to time without notice other than by announcement at the
meeting, until holders of the amount of stock requisite to constitute a quorum
shall attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted as originally
called.
SECTION 6. At each meeting of the stockholders every stockholder shall be
entitled to vote in person or by his duly authorized proxy appointed by
instrument in writing subscribed by such stockholder or by his duly authorized
attorney. Each stockholder shall have one vote for each share of stock standing
registered in his or her or its name on the books of the corporation, ten days
preceding the day of such meeting. The votes for directors, and upon demand by
any stockholder, the votes upon any question before the meeting, shall be viva
voce.
At each meeting of the stockholders, a full, true and complete list, in
alphabetical order, of all the stockholders entitled to vote at such meeting,
and indicating the number of shares held by each, certified by the Secretary of
the Company, shall be furnished, which list shall be prepared at least ten days
before such meeting, and shall be open to the inspection of the stockholders, or
their agents or proxies, at the place where such meeting is to be held, and for
ten days prior thereto. Only the persons in whose names shares of stock are
registered on the books of the company for ten days preceding the date of such
meeting, as evidenced by the list of stockholders, shall be entitled to vote at
such meeting. Proxies and powers of Attorney to vote must be filed with the
Secretary of the Company before an election or a meeting of the stockholders, or
they cannot be used at such election or meeting.
SECTION 7. At each meeting of the stockholders the polls shall be opened and
closed; the proxies and ballots issued, received, and be taken m charge of, for
the purpose of the meeting, and all questions touching the qualifications of
voters and the validity of proxies, and the acceptance or reflection of votes
shall be decided by two inspectors. Such inspectors shall be appointed at the
meeting by the presiding officer of the meeting.
SECTION 8. At the stockholders meetings, the regular order of business shall be
as follows:
1. Reading and approval of the Minutes of previous meeting or meetings;
2. Reports of the Board of Directors, the President, Treasurer, Secretary
and Chief Financial Officer of the Company in the order named.
3. Reports of Committee;
4. Election of Directors;
5. Unfinished Business;
6. New Business;
7. Adjournment.
- -2
ARTICLE II
DIRECTORS AND THEIR MEETINGS
SECTION 1. The Board of Directors of the Company shall consist of four or more
persons who shall be chosen by the stockholders annually, at the annual meeting
of the Company, and who shall hold Office for one year, and until their
successors are elected and qualify.
SECTION 2. When any vacancy occurs among the Directors by death, resignation,
disqualification or other cause, the stockholders, at any regular or special
meeting, or at any adjourned meeting thereof, or the remaining Directors, by the
affirmative vote of a majority thereof, shall elect a successor to hold office
for the unexpired portion of the term of the Director whose place shall have
become vacant and until his successor shall have been elected and shall qualify.
SECTION 3. Meeting of the Directors may be held at the principal off~office of
the company in the state of Nevada or elsewhere, at such place or places as the
Board of Directors may, from time to time, determine.
SECTION 4. Without notice or call, the Board of Directors shall hold its first
annual meeting for the year immediately after the annual meeting of the
stockholders or immediately after the election of Directors as such annual
meeting.
Regular meetings of the Board of Directors shall be held at the office of the
company (or by telephone conference) in the City of Las Vegas, State of Nevada
on the first Monday of each quarter at 9 o'clock in the a.m. or at a more
opportune time set up by al I the directors. Notice of such regular meetings
shall be mailed to each Director by the Secretary at least three days previous
to the day fixed for such meetings, but no regular meeting shall be held void or
invalid if such notice is not given, provided the meeting is held at the time
and place fixed by these by-laws for holding such regular meetings.
Special meetings of the Board of Directors may be held on the call of the
President or Secretary on at least three days notice by mail or telegraph.
Any meeting of the Board, no maker where held, at which all of the members shall
be present, even though without or of which notice shall have been waived by all
absentees, provided a quorum shall be present, shall be valid of all purposes
unless otherwise indicated m the notice calling the meeting or in the waiver of
notice.
Any and all business may be transacted by any meeting of the Board of Directors,
either regular or special.
SECTION 5. A majority of the Board of Directors in office shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there be less than a quorum present, a majority of those present may
adjourn from time to time, until a quorum shall be present, and no notice of
such adjournment shall be required. The Board of Directors may prescribe rules
not m conflict with these By laws for the conduct of its business; provided,
however, that in the fixing of salaries of the officers of the corporation, the
unanimous action of all of the Directors shall be required.
SECTION 6. A director need not be a stockholder of the corporation.
SECTION 7. The Directors shall be allowed and paid all necessary expenses
incurred in attending any meeting of the Board, but shall not receive any
compensation for their services as Directors until such time as the company is
able to declare and pay dividends on its capital stock.
SECTION 8. The Board of Directors shall make a report to the stockholders at
annual meetings of the stockholders of the condition of the company, and shall,
at request, furnish each of the stockholders with a true copy thereof.
The Board of Directors in its discretion may submit any contract or act for
approval or rat)ratification at any annual meeting of the stockholders called
for the purpose of considering any such contract or act, which, it approved, or
ratified by the vote of the holders of a majority of the capital stock of the
company represented in person or by proxy at such meeting, provided that a
lawful quorum of stockholders be there represented in person or by proxy, shall
be valid and binding upon the corporation and upon all the stockholders thereof,
as if it had been approved or ratified by every stockholder of the corporation.
SECTION 9. The Board of Directors shall have the power from time to time to
provide for the management of the offices of the company in such manner as they
see fit, and im particular form time to time to delegate any of the powers of
the Board in the course of the current business of the company to any standing
or special committee or to any officer or agent and to appoint any persons to be
agents of the company with such powers (including the power to subdelegate), and
upon such terms as may be deemed fit.
SECTION 10. The Board of Directors is invested with the complete and
unrestrained authority in the management of all the affairs of the company, and
is authorized to exercise for such purpose as the General Agent of the Company,
its entire corporate authority.
SECTION 11. The regular order of business at meetings of the Board of Directors
shall be as follows:
1. Reading and approval of the minutes of any previous meeting or meetings;
2. Reports of officers and committeemen;
3. Election of officers;
4. Unfinished business;
5. New business;
6. Adjournment.
- -4
ARTICLE III
OFFICERS AND THEIR DUTIES
SECTION 1. The Board of Directors, at its first and after each meeting after the
annual meeting of stockholders, shall elect a President, a Vice-President, a
Secretary, and a Treasurer, to hold off~office for one year next comma, and
until their successors are elected and qualify. The offices of the Secretary and
Treasurer may be held by one person. The officers of the Board of Directors also
serve as officers of the Corporation. The Board of Directors shall appoint a
Chief Financial Officer and any other officer of the Corporation as appropriate.
Any vacancy in any of said offices may be filled by the Board of Directors.
The Board of Directors may from time to time, by resolution, appoint
such additional Vice Presidents and additional Assistant Secretaries, Assistant
Treasurer and Transfer Agents of the Company as it may deem advisable; prescribe
their duties, and fix their compensation, and all such appointed officers shall
be subject to removal at any time by the Board of Directors. All officers,
agents, and factors of the Company shall be chosen and appointed m such manner
and shall hold their office for such terms as the Board of Directors may by
resolution prescribe.
SECTION 2. The President shall be the executive officer of the company and shall
have the supervision and, subject to the control of the Board of Directors, the
direction of the Company's affairs, with full power to execute all resolutions
and orders of the Board of Directors not especially entrusted to some other
officer of the Company. He shall be a member of the Executive Committee, and the
Chairman thereof; he shall preside at all meetings of the Board of Directors,
and at all meetings of the stockholders, and shall sign the Certificates of
Stock issued by the company, and shall perform such other duties as shall be
prescribed by the Board of Directors.
SECTION 3. The Vice-President shall be vested with all the powers and perform
all the duties of the President in his absence or inability to act, including
the signing of the Certificates of Stock issued by the company, and he shall so
perform such other duties as shall be prescribed by the Board of Directors.
SECTION 4. The Chief Financial Officer shall have the custody of all the funds
and securities of the Company. When necessary or proper he/she shall endorse on
behalf of the Company for collection checks, notes, and other obligations; he
shall deposit all monies to the credit of the Company in such bank or banks or
other depository as the Board of Directors may designate; he/she shall sign all
receipts and vouchers for payments made by the Company, except as herein
otherwise provided. He/she shall sign with the President all bills of exchange
and promissory notes of the Company. He/she shall also have the care and custody
of the stocks, bonds, certificates, vouchers, evidence of debts, securities, and
such other property belonging to the Company as the Board of Directors shall
designate; he/she shall sign all papers required by law or by those By-Laws or
the Board of Directors to be signed by the Treasurer. Whenever required by the
Board of Directors, he/she shall render a statement of his cash account; he/she
shall enter regularly in the books of the Company to be kept by him/her for the
purpose full and accurate accounts of all monies received and paid by him/her on
account of the Company. He/she at all reasonable times exhibit the books of
account to any Directors of the Company during business hours, and he/she
perform all acts incident to the position of Treasurer subject to the control of
the Board of Directors.
The Chief Financial Officer shall, if required by the Board of Directors, give
bond to the Company conditioned for the faithful performance of all his/her
duties as Chief Financial Officer in such sum, and with such security as shall
be approved by the Board of Directors, with expense of such bond to be borne by
the Company.
SECTION 5. Then Board of Directors may appoint an Assistant Chief
Financial Officer who shall have such powers and perform such duties as may be
prescribed for him by the Chief Financial Officer of the Company or by the Board
of Directors, and the Board of Directors shall require the Assistant Chief
Financial Officer to give a bond to the Company in such sum and with such
security as it shall approve, as conditioned for the faithful performance of
his/her duties as Assistant Chief Financial Officer, the expense of such bond to
be borne by the Company.
SECTION 6. The Secretary shall keep the Minutes of all meetings of the Board of
Directors and the Minutes of all meetings of the stockholders and of the
Executive Committee in books provided for that purpose. He/she shall attend to
the giving or serving of all notices of the Company; he/she may sign with the
President or Vice-President, in the name of the Company, all contracts
authorized by the Board of Directors or Executive Committee; he/she shall affix
the corporate seal of the Company thereto when so authorized by the Board of
Directors or Executive Committee; he/she shall have the custody of the corporate
seal of the Company; he/she shall affix the corporate seal to all certificates
of stock duly issued by the Company; he/she shall have charge of Stock
Certificate Books, Transfer Books and Stock Ledgers, and such other books and
papers as the Board of Directors or the Executive Committee may direct, all of
which shall at all reasonable times be open to the examination of any Director
upon application at the office of the Company during business hours, and he/she
shall, in general, perform all duties incident to the office of Secretary.
SECTION 7. The Board of Directors may appoint an Assistant Secretary who shall
have such powers and perform such duties as may be prescribed for him by the
Secretary of the Company or by the Board of Directors.
SECTION 8. Unless otherwise ordered by the Board of Directors, the President
shall have full power and authority in behalf of the Company to attend and to
act and to vote at any meetings of the stockholders of any corporation in which
the Company may hold stock, and at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock,
and which as the new owner thereof, the Company might have exercised if present.
The Board of Directors, by resolution, from time to time, may confer like powers
on any person or persons in place of the President to represent the Company for
the purposes in this section mentioned.
- -6
ARTICLE IV
CAPITAL STOCK
SECTION 1. The capital stock of the Company shall be issued in such manner and
at such times and upon such conditions as shall be prescribed by the Board of
Directors.
SECTION 2. Ownership of stock in the Company shall be evidenced by certificates
of stock m such forms as shall be prescribed by the Board of Directors, and
shall be under the seal of the Company and signed by the President or the
Vice-President and also by the Secretary or by an Assistant Secretary.
All certificates shall be consecutively numbered; the name of the person owning
the shares represented thereby with the number of such shares and the date of
issue shall be entered on the Company's books.
No certificates shall be valid unless it is signed by the President or
Vice-President and by the Secretary or Assistant Secretary.
All certificates surrendered to the Company shall be canceled and no new
certificate shall be issued until the former certificate for the same number of
shares shall have been surrendered or canceled.
SECTION 3. No transfer of stock shall be valid as against the Company except on
surrender and cancellation of the certificate therefor, accompanied by an
assignment or transfer by the owner therefor, made either in person or under
assignment, a new certificate shall be issued therefor.
Whenever any transfer shall be expressed as made for collateral security and not
absolutely, the same shall be so expressed in the entry of said transfer on the
books of the Company.
SECTION 4. The Board of Directors shall have power and authority to make all
such rules and regulations not inconsistent herewith as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Company.
The Board of Directors may appoint a transfer agent and a registrar of transfers
and may require all stock certificates to bear the signature of such transfer
agent and such registrar of transfer.
SECTION 5. The Stock Transfer Books shall be closed for all meetings of the
stockholders for the period of ten days prior to such meetings and shall be
closed for the payment of dividends during such periods as from time to time may
be fixed by the Board of Directors, and during such periods no stock shall be
transferable.
SECTION 6. Any person or persons applying for a certificate of stock in lieu of
one alleged to have been lost or destroyed, shall make affidavit or affirmation
of the fact, and shall deposit with the Company an affidavit. Whereupon, at the
end of six months after the deposit of said affidavit and upon such person or
persons giving Bond of Indemnity to the Company with surety to be approved by
the Board of Directors in double the current value of stock against any damage,
loss or inconvenience to the Company, which may or can arise in consequence of a
new duplicate certificate being issued in lieu of the one lost or missing, the
Board of Directors may cause to be issued to such person or persons a new
certificate, or a duplicate of the certificate, or a duplicate of the
certificate so lost or destroyed. The Board of Directors may, in its discretion
refuse to issue such new or duplicate certificate save upon the order of some
court having jurisdiction in such matter, anything herein to the contrary
notwithstanding. ARTICLE V
OFFICES AND BOOKS
SECTION 1. The principal office of the corporation, m Nevada shall be at 6380 S.
Eastern Suites 2 & 3, and the Company may have a principal office in any other
state or territory as the Board of Directors may designate.
SECTION 2. The Stock and Transfer Books and a copy of the By-Laws and
Articles of Incorporation of the Company shall be kept at its principal office
in the County of Clark, State of Nevada, for the inspection of all who are
authorized or have the right to see the same, and for the transfer of stock. All
other books of the Company shall be kept at such places as may be prescribed by
the Board of Directors.
ARTICLE V I
MISCELLANEOUS
SECTION 1. The Board of Directors shall have power to reserve over and above the
capital stock paid in, such an amount in its discretion as it may deem advisable
to fix as a reserve fund, and may, from time to time, declare dividends from the
accumulated profits of the Company m excess of the amounts so reserved, and pay
the same to the stockholders of the Company, and may also, if it deems the same
advisable, declare stock dividends of the unissued capital stock of the Company.
SECTION 2. No agreement, contract or obligation (other than checks in payment of
indebtedness incurred by authority of the Board of Directors) involving the
payment of monies or the credit of the Company for more than ten thousand
dollars ($ 10,000.00), shall be made without the authority of the Board of
Directors, or of the Executive Committee acting as such.
SECTION 3. Unless otherwise ordered by the Board of Directors, all agreements
and contracts shall be signed by the President and the Secretary m the name and
on behalf of the Company, and shall have the corporate seal thereto attached.
SECTION 4. All monies of the corporation shall be deposited when and as received
by the Treasurer in such bank or banks or other depository as may from time to
time be designated by the Board of Directors, and such deposits shall be made in
the name of the Company.
SECTION 5. No note, draft, acceptance, endorsement or other evidence of
indebtedness shall be valid or against the company unless the same shall be
signed by the President or a Vice-President, and attested by the Secretary or an
Assistant Secretary, or signed by the Treasurer or and Assistant Treasurer, and
countersigned by the President, Vice-President, or Secretary, except that the
Treasurer or an Assistant Treasurer may, without countersignature, make
endorsements for deposit to the credit of the Company in all its duly authorized
depositories.
SECTION 6. No loan or advance of money shall be made by the Company to
any stockholder or officer therein, unless the Board of Directors shall
otherwise authorize.
SECTION 7. The Company may take, acquire, hold, mortgage, sell, or otherwise
deal in stocks or bonds or securities of any other corporation, if and as often
as the Board of Directors shall so elect.
SECTION 8. The Directors shall have power to authorize and cause to be executed,
mortgages, and liens without limit as to the amount upon the property and
franchise of this corporation, and pursuant to the affirmative vote, either in
person or by proxy, of the holders of a majority of the capital stock issued and
outstanding; the Directors shall have the authority to dispose m any manner of
the whole property of this corporation.
SECTION 9. The Company shall have a corporate seal, the design thereof
being as follows: 9
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments and changes of these By-Laws may be made at any regular or
special meeting of the Board of Directors by a vote of not less than all the
entire Board, or may be made by a vote of, or a consent in writing signed by the
holders of 51% of the issued and outstanding capital stock. KNOW ALL MEN BY
THESE PRESENTS: That we, the undersigned, being the Directors of the above named
corporation, do hereby consent to the foregoing By-Laws and adopt the same as
and for the By-Laws of said corporation.
IN WITNESS WHEREOF, we have hereunto act our hands this 5~ day of February,
1996.
4.1 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of December
24, 1997 (this "Agreement"), among Say Yes Foods, Inc., a Nevada corporation
(the "Company") and JNC Opportunity Fund Ltd., a corporation organized under the
laws of the Cayman Islands (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase an aggregate principal amount of $3,750,000 of the
Company's 7% Series B Convertible Preferred Stock, par value $.001 per share
(the "Preferred Stock"), which is convertible into shares of the Company's
common stock, par value $.001 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK; CLOSING
1
.15 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall, severally and not jointly, purchase the Preferred Stock for an
aggregate purchase price of $3,750,000. The closing of the purchase and sale of
the Preferred Stock (the "Closing") shall take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP (the "Escrow Agent"), 1290 Avenue of the
Americas, New York, New York 10104, immediately following the execution hereof
or such later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "Closing Date."
(ii) Prior to the Closing, the parties shall deliver
or shall cause to be delivered to the Escrow Agent such items as are required
to be delivered by them in accordance with and subject to the terms and
conditions of the Escrow Agreement, dated as of the date hereof, by and among
the Company, the Purchaser and the Escrow Agent (the "Escrow Agreement"),
including the following: (A) the Company shall deliver (1) 1,500,000 shares
of Preferred Stock, registered in the name of the Purchaser, (2) the
Warrants (as defined in Section 3.16), (3) the Registration Rights Agreement
dated the date hereof between the Company and the Purchaser, substantially in
the form of Exhibit B (the "Registration Rights Agreement"), and (4) the
legal opinion of Stibel & Toulan LLP, substantially in the form of Exhibit C
(the "Legal Opinion"); (B) the Purchaser shall deliver $3,750,000; and (C) each
party hereto shall deliver all other executed instruments, agreements and
certificates as are required to be delivered hereunder by or on their behalf
at the Closing.
1(p) Form of Preferred Stock. The Preferred Stock shall have the
rights preferences and privileges set forth in Exhibit A, and shall be
incorporated into a [Certificate of Designation] ("Certificate of Designation"),
in form and substance approved by the Purchaser.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall
have the meanings set forth in Exhibit A; "Market Price" as at any date shall
mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding
<PAGE>
such date, and "Business Day" shall mean any day except Saturday, Sunday and any
day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES
2(a) Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(i) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule 2.1(a)
attached hereto (collectively, the "Subsidiaries"). Each of the Subsidiaries is
a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the full corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of this Agreement, the Preferred Stock, the Warrants, the Registration Rights
Agreement or the Escrow Agreement (collectively, the "Transaction Documents"),
(y) have a material adverse effect on the results of operations, assets,
prospects, or condition of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any Transaction Document (any of the foregoing, a
"Material Adverse Effect").
(ii) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(iii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Preferred Stock and Warrants hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or
<PAGE>
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or has the right to acquire by agreement with or
by obligation binding upon the Company, beneficial ownership of in excess of 5%
of the Common Stock. There are no agreements or arrangements under which the
Company or any Subsidiary is obligated to register the sale of any of their
securities under the Securities Act (other than as contemplated in the
Registration Rights Agreement). A "Person" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
(iv) Issuance of Preferred Stock, Warrants and Underlying Shares.
The Preferred Stock and the Warrants are duly authorized, and, when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusals of any kind (collectively, "Liens"). The Company has and at all times
while the Preferred Stock and the Warrants are outstanding will maintain an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Warrants and the Preferred Stock and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) two times the
number of shares of Common Stock as would be issuable upon conversion in full of
the Preferred Stock, assuming such conversion were effected on the Original
Issue Date or the Filing Date (as defined in the Registration Rights Agreement),
whichever yields a lower Conversion Price, (ii) the number of shares of Common
Stock as are issuable as payment of dividends on the Preferred Stock, and (iii)
the number of shares of Common Stock as are issuable upon exercise in full of
the Warrants. The shares of Common Stock issuable upon conversion of the
Preferred Stock, as payment of dividends in respect thereof and upon exercise of
the Warrants are sometimes referred to herein as the "Underlying Shares," and
the Preferred Stock, Warrants and Underlying Shares are, are collectively
referred to herein as, the "Securities." When issued in accordance with the
terms of the Preferred Stock and the Warrants, the Underlying Shares will be
duly authorized, validly issued, fully paid and nonassessable, free and clear of
all Liens.
(v) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which 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 agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(vi) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other
<PAGE>
than (i) the filing of a registration statement covering the resale of the
Underlying Shares by the Purchaser (the "Underlying Shares Registration
Statement") with the Securities and Exchange Commission (the "Commission"),
which shall be filed in the time period set forth in the Registration Rights
Agreement and (ii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, could not have or result in, individually or in the aggregate, a
Material Adverse Effect (together with the consents, waivers, authorizations,
orders, notices and filings referred to in Schedule 2.1(f), the "Required
Approvals").
(vii) Litigation; Proceedings. Except as specifically disclosed in
the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(viii) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or in
the aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(ix) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Section 2.2(b)-(f),
the issuance and sale of the Securities to the Purchaser as contemplated hereby
are exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(x) Disclosure Material. The financial statements of the Company
dated December 31, 1996 and September 30, 1997 and any other financial
statements delivered by the Company to the Purchaser (the "Financial Statements"
and, together with the Schedules to this Agreement and other documents and
information furnished by or on behalf of the Company at any time prior to the
Closing, the "Disclosure Materials") comply in all material respects with
applicable accounting requirements. Such Financial Statements have been prepared
in accordance with United States generally accepted accounting principles,
applied on a consistent basis ("GAAP") during the periods involved, except as
may be otherwise specified in such Financial Statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. There are no liabilities, contingent or
otherwise, of the Company involving material amounts not disclosed in said
Financial Statements. The Disclosure Materials do 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. Other than the
$200,000 loan from Global Dairy Products Ltd., since September 30, 1997, there
has been no event, occurrence or development that has had or that could have or
result in a Material Adverse Effect.
(xi) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
<PAGE>
(xii) Certain Fees. Other than fees payable to CDC Consulting,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank with respect to the
transactions contemplated hereby. Neither the Purchaser nor any of its
affiliates shall have any obligation with respect to such fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless the
Purchaser, its respective employees, officers, directors, agents, and partners,
and their respective Affiliates (as such term is defined under Rule 405
promulgated under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(xiii) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(xiv) Exclusivity. The Company shall not issue and sell
Preferred Stock to any Person other than the Purchaser.
(xv) Listing and Maintenance Requirements Compliance. The Company
has not in the two years preceding the date hereof received written notice from
any stock exchange, market or trading facility on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing, maintenance or other requirements of such exchange, market,
trading or quotation facility. The Company has no reason to believe that it does
not now or will not in the future meet any such requirements.
(xvi) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are necessary
for use in connection with its business and which the failure to so have would
have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). To the best knowledge of the Company, there is no existing
infringement of any of the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives and counsel in connection with the transactions
contemplated hereby is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. The Company confirms that it has not provided to the Purchaser or
any of its representatives, agents or counsel any information that constitutes
or might constitute material nonpublic information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representation in
effecting transactions in securities of the Company.
2(b) Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company.
(i) Organization; Authority. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by such Purchaser has been duly authorized
by all necessary action on the part of such Purchaser. Each of this Agreement,
the Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
<PAGE>
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
(ii) Investment Intent. Such Purchaser is acquiring the Securities
to be acquired hereunder by such Purchaser for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration.
(iii) Purchaser Status. At the time such Purchaser was offered the
Securities to be acquired hereunder by such Purchaser, it was, at the date
hereof, it is, and at the Closing Date, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(iv) Experience of Purchaser. Such Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(v) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and such Purchaser is able to bear the economic
risk of an investment in the Securities to be acquired hereunder by such
Purchaser, and, at the present time, is able to afford a complete loss of such
investment.
(vi) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(vii) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and sold to
it without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
<PAGE>
ARTICLE 8.
OTHER AGREEMENTS OF THE PARTIES
3(a) Transfer Restrictions. (i) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register (i) any transfer of Securities by one Purchaser to another Purchaser,
and agrees that no documentation other than executed transfer documents shall be
required for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
transfers among any such Affiliates provided in each case of clauses (i) and
(ii) the transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Any such Purchaser or
Affiliate transferee shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(ii) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR PREFERRED STOCK ONLY] THESE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSION SET FORTH IN
SECTION 3.8 OF A CONVERTIBLE STOCK PURCHASE AGREEMENT, DATED AS OF DECEMBER
___, 1997, BETWEEN SAY YES FOODS, INC. (THE "COMPANY") AND THE ORIGINAL
HOLDERS HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above if
the conversion of Preferred Stock, exercise of Warrants or other issuances of
Underlying Shares in as contemplated hereby, as the case may be, occurs at any
time while an Underlying Shares Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Shares
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company agrees that it will provide the Purchaser, upon
request, with a certificate or certificates representing Underlying Shares, free
from such legend at such time as such legend is no longer required hereunder.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section 3.1(b).
<PAGE>
3(b) Acknowledgement of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Preferred Stock and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares, as provided in the Transaction
Documents, is not and shall not be effected by any such dilution.
3(c) Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may resell
all of its Underlying Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent for the benefit of and enforceable by the
Purchaser) the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3(d) Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials and any information provided by or on behalf of the Company
pursuant to Section 3.3, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Securities other than pursuant to an
effective registration statement.
3(e) Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchaser may request and shall continue such
qualification at all times until the Purchaser notifies the Company in writing
that they no longer own Securities; provided, however, that neither the Company
nor its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3(f) Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3(g) Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Preferred Stock (and paying any accrued but unpaid dividends in
respect thereof in shares of Common Stock) that remain unconverted at such date
or (b) honoring the exercise in full of the Warrants due to the unavailability
of a sufficient number of shares of authorized but unissued or re-acquired
Common Stock, the Board of Directors of the Company shall promptly (and in any
case within 30 Business Days
<PAGE>
from such date) prepare and mail to the shareholders of the Company proxy
materials requesting authorization to amend the Company's restated certificate
of incorporation to increase the number of shares of Common Stock which the
Company is authorized to issue to at least such number of shares as reasonably
requested by the Purchaser in order to provide for such number of authorized and
unissued shares of Common Stock to enable the Company to comply with its
conversion, exercise and reservation of shares obligations as set forth in this
Agreement, the Preferred Stock and the Warrants. In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing such increase,
(b) recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within 5 Business Days of obtaining
such shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
3(h) Purchaser Ownership of Common Stock. The Purchaser shall not convert
Preferred Stock or exercise its Warrant to the extent such conversion or
exercise would result in such Purchaser beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Preferred Stock held by such
Purchaser after application of this Section. To the extent that the limitation
contained in this Section applies, the determination of whether Preferred Stock
are convertible (in relation to other securities owned by a Purchaser) and of
which portion of the principal amount of such Preferred Stock are convertible
shall be in the sole discretion of such Purchaser, and the submission of
Preferred Stock for conversion shall be deemed to be such Purchaser's
determination of whether such Preferred Stock are convertible (in relation to
other securities owned by a Purchaser) and of which portion of such Preferred
Stock are convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. Nothing contained herein shall be deemed to
restrict the right of a Purchaser to convert Preferred Stock at such time as
such conversion will not violate the provisions of this Section. The provisions
of this Section may be waived by a Purchaser as to itself (and solely as to
itself) upon not less than 75 days prior notice to the Company, and the
provisions of this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3(i) Listing of Underlying Shares. The Company will use its commercially
reasonable efforts to list the Common Stock for trading on either the Nasdaq
SmallCap Market or Nasdaq National Market as soon as possible after the Closing
Date and to maintain such listing thereafter as long as Underlying Shares are
outstanding. If the Common Stock hereafter is listed for trading on the Nasdaq
National Market, Nasdaq SmallcCap Market (or on the American Stock Exchange or
New York Stock Exchange, or any other national securities market or exchange),
then the Company shall (1) take all necessary steps to list the Underlying
Shares thereon, including the preparation of any required additional listing
application therefor covering at least the sum of (i) two times the number of
Underlying Shares as would be issuable upon a conversion in full of the then
outstanding principal amount of Preferred Stock (plus all Underlying Shares are
issuable as payment of dividends thereon, assuming all such dividends were paid
in shares of Common Stock) and upon exercise in full of the then unexercised
portion of the Warrants and (2) provide to the Purchaser evidence of such
listing, and the Company shall maintain the listing of its Common Stock on such
exchange or market. In addition, if at any time following the listing of the
Underlying Shares in accordance with the foregoing, the number of shares of
Common Stock issuable on conversion of all then outstanding shares of Preferred
Stock, on account of accrued and unpaid dividends thereon and upon exercise in
full of the Warrants is greater than the number of shares of Common Stock
theretofore listed, the Company shall promptly take such action to file an
additional shares listing application covering at least a number of shares equal
to the sum of (x) 200% of (A) the number of Underlying Shares as would then be
issuable upon a conversion in full of the Preferred Stock, and (B) the number of
Underlying Shares as would be issuable as
<PAGE>
payment of dividends on the Preferred Stock and (y) the number of Underlying
Shares as would be issuable upon exercise in full of the Warrants.
3(j) Conversion Procedures. Exhibit E sets forth the form of Transfer
Agent Instructions which shall be executed by the Company's transfer agent prior
to the Closing Date.
3(k) Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while any Purchaser (or any assignee thereof) owns any
Securities the Common Stock is not Actively Traded (as defined below) on the OTC
Bulletin Board (or, if after the Closing Date the Common Stock is listed on any
of the exchange, markets or trading facilities contemplated in Section 3.9, if
the Common Stock is delisted or suspended from trading on such exchange, market
or trading facility, other than as a result of the suspension of trading in
securities on such market or exchange generally, or temporary suspensions
pending the release of material information) for more than three (3) Trading
Days, then, notwithstanding anything to the contrary contained in any
Transaction Document, at a Purchaser's option exercisable by five (5) Business
Days prior written notice to the Company, the Company shall redeem all Preferred
Stock and Underlying Shares then held by the Purchaser, at an aggregate purchase
price equal to the sum of (I) the number of shares of Preferred Stock then held
by the Purchaser multiplied by the product of (1) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (a) the day of such
notice or (b) the date of payment in full of the redemption price calculated
under this Section 3.11, whichever is greater, multiplied by (2) the Conversion
Ratio on the date of the repurchase notice, (II) the number of Underlying Shares
then held by the Purchaser multiplied by the average Per Share Market Value for
the five (5) Trading Days immediately preceding (A) the date of the notice or
(B) the date of payment in full by the Company of the redemption price
calculated under this Section 3.11, whichever is greater, and (III) interest on
the amounts set forth in I - II above accruing from the 5th day after such
notice until the redemption price under this Section 3.11 is paid in full at the
rate of 15% per annum. If after the Original Issue Date the Common Stock shall
be listed for trading or quoted on the Nasdaq SmallCap Market, Nasdaq National
Market or any other national securities exchange or market, this provision shall
similarly apply to any delistings or suspensions therefrom. The term "Actively
Traded" shall mean that (i) shares of Common Stock worth at least $500,000 trade
on the OTC Bulletin Board (or any other national securities exchange or market
on which the Common Stock is then listed or traded) in any five consecutive
Trading Day period and (ii) there are at least eight (8) market makers actively
making a market in the Common Stock.
3(l) Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of Company debt or to redeem Company any equity or equity-equivalent securities.
Pending application of the proceeds of this placement in the manner permitted
hereby the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3(m) Notice of Breaches. Each of the Company and the Purchaser shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Document to be incorrect
or breached as of such Closing Date. However, no disclosure by either party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
Notwithstanding the generality of the foregoing, the Company shall promptly
notify the Purchaser of any notice or claim (written or oral) that it receives
from any lender of the Company to the effect that the consummation of the
transactions contemplated by the Transaction Documents violates or would violate
any written agreement or understanding between such lender and the Company, and
the Company shall promptly
<PAGE>
furnish by facsimile to the holders of the Preferred Stock a copy of any written
statement in support of or relating to such claim or notice.
3(n) Conversion Obligations of the Company. The Company shall honor
conversions of the Preferred Stock and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms and conditions
and time periods set forth in the Preferred Stock and the Warrants.
3(o) Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (i) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holder thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market price of the
Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of 180 days after the Closing Date, except
(i) the granting of options or warrants to employees, officers and directors,
and the issuance of shares upon exercise of options granted, under any stock
option plan heretofore or hereinafter duly adopted by the Company, (ii) shares
issued upon exercise of any currently outstanding warrants and upon conversion
of any currently outstanding convertible preferred stock in each case disclosed
in Schedule 3.1(c), and (iii) shares of Common Stock issued upon conversion of
Preferred Stock, as payment of dividends thereon, or upon exercise of the
Warrants in accordance with their respective terms, unless (A) the Company
delivers to Encore a written notice (the "Subsequent Financing Notice") of its
intention effect such Subsequent Financing, which Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing shall be affected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Encore shall
not have notified the Company by 5:00 p.m. (New York City time) on the tenth
(10th) Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide Encore with a second Subsequent
Financing Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice.
(ii) Except Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, and other than Company
securities to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of this Section, the Company shall
not, without the prior written consent of the Purchaser, (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for a period of not less than 90 Trading
Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission. Any days that a Purchaser is unable to
sell Underlying Shares under the Underlying Shares Registration Statement shall
be added to such 90 Trading Day period for the purposes of (i) and (ii) above.
<PAGE>
(iii) As long as there are shares of Preferred Stock
outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the holders
of the Preferred Stock, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the holders of
Preferred Stock; (ii) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock other than as to the Underlying
Shares; or (iii) enter into any agreement with respect to any of the foregoing.
3(p) The Warrants. At the Closing, the Company shall issue to the
Purchaser, a Common Stock purchase warrant, in the form of Exhibit D (the
"Warrants"), pursuant to which the Purchaser shall have the right at any time
and from time to time thereafter through the fifth anniversary of the date of
issuance thereof, to acquire 187,500 shares of Common Stock at an exercise price
per share equal to $2.50 per share.
3(q) Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of, any Intellectual Property
Rights, or allow the Intellectual Property Rights to become subject to any
Liens, or fail to renew such Intellectual Property Rights (if renewable and
would otherwise expire), without the prior written consent of the Purchaser.
3(r) Certain Securities Laws Disclosures; Publicity. (a) The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to the Purchaser promptly after the filing thereof. The Company
shall file with the Commission (i) a press release acceptable to the Purchaser
disclosing the transactions contemplated hereby within three (3) Business Days
after the Closing Date and (ii) a Report on Form 8-K disclosing this Agreement
and the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
(b) In furtherance and in addition to the obligation of the
Company set forth in Section 3.18(a) above, the Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3(s) Reimbursement. In the event that any Purchaser, other than by reason
of its gross negligence or willful misconduct, becomes involved in any capacity
in any action, proceeding or investigation brought by or against any person,
including stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated pursuant to the Transaction
Documents, the Company will reimburse such Purchaser for its legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith. In addition, with respect to the Purchaser, other than
with respect to any matter in which such Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliate of the Purchaser and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchaser and any such other person or entity, and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchaser and any other such
<PAGE>
person or entity. The Company also agrees that no Purchaser or any such
affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of such Purchaser or entity in connection with the
transactions contemplated by this Agreement.
ARTICLE 9.
MISCELLANEOUS
4(a) Fees and Expenses. The Company shall pay the Purchaser at the
Closing (i) $15,000 for its legal fees and disbursements in connection with the
preparation and negotiation of the Transaction Documents and (ii) $7,000 for its
due diligence expenses and disbursements in connection with the transactions
contemplated hereby. Other than the amounts contemplated by the immediately
preceding sentence, and except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Preferred Stock
pursuant hereto. The Purchaser shall be responsible for its own respective tax
liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement.
4(b) Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Preferred Stock and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters.
4(c) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Say Yes Foods, Inc.
6380 South Eastern
Suite No. 3
Las Vegas, NV 89119
Facsimile No.: (702) 262-6441
Attn: Chief Financial Officer
With copies to: Stibel & Toulan LLP
183 State Street
Boston, MA 02109
Facsimile No.: (617)523-6100
<PAGE>
Attn: Roy D. Toulan, Jr., Esq.
If to the
Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Alan Brown
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
either Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4(d) Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4(e) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4(f) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), neither Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
4(g) No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
<PAGE>
4(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4(i) Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Preferred Stock and exercise of the Warrants.
4(j) Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4(k) Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
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SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Stock Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
SAY YES FOODS, INC.
By:___________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:___________________________
Alan Brown
Director
<PAGE>
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Among
SAY YES FOODS, INC.,
and
JNC OPPORTUNITY FUND LTD.
-----------------------------
December ___, 1997
------------------------------
- --------------------------------------------------------------------------------
4.2 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of December 31,
1997 (this "Agreement"), between Say Yes Foods, Inc., a Nevada corporation (the
"Company") and JNC Opportunity Fund Ltd., a corporation organized under the laws
of the Cayman Islands (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $1,250,000 of the Company's 7%
Series C Convertible Preferred Stock, par value $.001 per share (the "Preferred
Stock"), which is convertible into shares of the Company's common stock, par
value $.001 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase the Preferred Stock for an aggregate purchase price of
$1,250,000. The closing of the purchase and sale of the Preferred Stock (the
"Closing") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP (the "Escrow Agent"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(ii) Prior to the Closing, the parties shall deliver
or shall cause to be
delivered to the Escrow Agent such items as are required to be delivered by them
in accordance with and subject to the terms and conditions of the Escrow
Agreement, dated as of the date hereof, by and among the Company, the Purchaser
and the Escrow Agent (the "Escrow Agreement"), including the following: (A) the
Company shall deliver (1) 500,000 shares of Preferred Stock, registered in the
name of the Purchaser, (2) the Warrants (as defined in Section 3.16), (3) the
Amended and Restated Registration Rights
<PAGE>
Agreement, dated the date hereof, between the Company and the Purchaser,
substantially in the form of Exhibit B (the "Registration Rights Agreement"),
and (4) the legal opinions of Stibel & Toulan LLP and Curran and Parry, in the
forms acceptable to the Purchaser; (B) the Purchaser shall deliver $1,250,000;
and (C) each party hereto shall deliver all other executed instruments,
agreements and certificates as are required to be delivered hereunder by or on
their behalf at the Closing.
1(b) Form of Preferred Stock. The Preferred Stock shall have the
rights preferences and privileges set forth in Exhibit A, and shall be
incorporated into a Certificate of Designation ("Certificate of Designation"),
in form and substance approved by the Purchaser.
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date" "Trading Day" and "Per Share Market Value" shall
have the meanings set forth in Exhibit A; "Market Price" as at any date shall
mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date, and "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
2(a) Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(i) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule 2.1(a)
attached hereto (collectively, the "Subsidiaries"). Each of the Subsidiaries is
a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the full corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may
<PAGE>
be, could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of this Agreement, the Preferred Stock, the
Warrants, the Registration Rights Agreement or the Escrow Agreement
(collectively, the "Transaction Documents"), (y) have a material adverse effect
on the results of operations, assets, prospects, or condition of the Company and
the Subsidiaries, taken as a whole, or (z) adversely impair the Company's
ability to perform fully on a timely basis its obligations under any Transaction
Document (any of the foregoing, a "Material Adverse Effect").
(ii) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(iii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c) and as issuable in connection
with (x) the conversion of shares of the Company's 7% Series B Convertible
Preferred Stock issued to the Purchaser (the "Series B Preferred") and (y) the
exercise of the Common Stock purchase warrants of the Company issued in
connection with the sale of the Series B Preferred (the "Series B Warrants"),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except as a result
of the purchase and sale of the Preferred Stock and Warrants hereunder,
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the
<PAGE>
Company, except as specifically disclosed in the SEC Documents (as defined
below) or Schedule 2.1(c), no Person (as defined below) beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the Common Stock. There are no agreements or arrangements
under which the Company or any Subsidiary is obligated to register the sale of
any of their securities under the Securities Act (other than as contemplated in
the Registration Rights Agreement). A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(iv) Issuance of Preferred Stock, Warrants and Underlying Shares.
The Preferred Stock and the Warrants are duly authorized, and, when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusals of any kind (collectively, "Liens"). The Company has and at all times
while the Preferred Stock and the Warrants are outstanding will maintain an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Warrants and the Preferred Stock and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) two times the
number of shares of Common Stock as would be issuable upon conversion in full of
the Preferred Stock, assuming such conversion were effected on the Original
Issue Date or the Filing Date (as defined in the Registration Rights Agreement),
whichever yields a lower Conversion Price, (ii) the number of shares of Common
Stock as are issuable as payment of dividends on the Preferred Stock, and (iii)
the number of shares of Common Stock as are issuable upon exercise in full of
the Warrants. The shares of Common Stock issuable upon conversion of the
Preferred Stock, as payment of dividends in respect thereof and upon exercise of
the Warrants are sometimes referred to herein as the "Underlying Shares," and
the Preferred Stock, Warrants and Underlying Shares are, are collectively
referred to herein as, the "Securities." When issued in accordance with the
terms of the Preferred Stock and the Warrants, the Underlying Shares will be
duly authorized, validly issued, fully paid and nonassessable, free and clear of
all Liens.
(v) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse
<PAGE>
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument (evidencing a Company debt or otherwise) to which the
Company is a party or by which any property or asset of the Company is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, do not have a
Material Adverse Effect.
(vi) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a registration statement covering the resale of the Underlying
Shares by the Purchaser (the "Underlying Shares Registration Statement") with
the Securities and Exchange Commission (the "Commission"), which shall be filed
in the time period set forth in the Registration Rights Agreement and (ii) other
than, in all other cases, where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals").
(vii) Litigation; Proceedings. Except as specifically disclosed in
the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(viii) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or
<PAGE>
any Subsidiary under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority, except as could not individually or in the aggregate, have or result
in, individually or in the aggregate, a Material Adverse Effect.
(ix) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Section 2.2(b)-(f),
the issuance and sale of the Securities to the Purchaser as contemplated hereby
are exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(x) Disclosure Material. The financial statements of the Company
dated December 31, 1996 and September 30, 1997 and any other financial
statements delivered by the Company to the Purchaser (the "Financial Statements"
and, together with the Schedules to this Agreement and other documents and
information furnished by or on behalf of the Company at any time prior to the
Closing, the "Disclosure Materials") comply in all material respects with
applicable accounting requirements. Such Financial Statements have been prepared
in accordance with United States generally accepted accounting principles,
applied on a consistent basis ("GAAP") during the periods involved, except as
may be otherwise specified in such Financial Statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. There are no liabilities, contingent or
otherwise, of the Company involving material amounts not disclosed in said
Financial Statements. The Disclosure Materials do 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. Other than the
$200,000 loan from Global Dairy Products Ltd., since September 30, 1997, there
has been no event, occurrence or development that has had or that could have or
result in a Material Adverse Effect.
(xi) Investment Company. The Company is not, and is not an
Affiliate of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
<PAGE>
(xii) Certain Fees. Other than fees payable to CDC Consulting,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank with respect to the
transactions contemplated hereby. Neither the Purchaser nor any of its
affiliates shall have any obligation with respect to such fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless the
Purchaser, its respective employees, officers, directors, agents, and partners,
and their respective Affiliates (as such term is defined under Rule 405
promulgated under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(xiii) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(xiv) Exclusivity. The Company shall not issue and sell
Preferred Stock to any Person other than the Purchaser.
(xv) Listing and Maintenance Requirements Compliance. The Company
has not in the two years preceding the date hereof received written notice from
any stock exchange, market or trading facility on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing, maintenance or other requirements of such exchange, market,
trading or quotation facility. The Company has no reason to believe that it does
not now or will not in the future meet any such requirements.
(xvi) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are necessary
for use in connection with its business and which the failure to so have would
have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). To the best knowledge of the Company, there is no existing
infringement of any of the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives and counsel in connection with the transactions
contemplated hereby is true and correct in all material respects and does not
fail to state any material fact
<PAGE>
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. The Company confirms
that it has not provided to the Purchaser or any of its representatives, agents
or counsel any information that constitutes or might constitute material
nonpublic information. The Company understands and confirms that the Purchaser
shall be relying on the foregoing representation in effecting transactions in
securities of the Company.
2(b) Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company.
(i) Organization; Authority. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by such Purchaser has been duly authorized
by all necessary action on the part of such Purchaser. Each of this Agreement,
the Registration Rights Agreement and the Escrow Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
(ii) Investment Intent. Such Purchaser is acquiring the Securities
to be acquired hereunder by such Purchaser for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration.
(iii) Purchaser Status. At the time such Purchaser was offered the
Securities to be acquired hereunder by such Purchaser, it was, at the date
hereof, it is, and at the Closing Date, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(iv) Experience of Purchaser. Such Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and
<PAGE>
financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, and has so evaluated the merits and
risks of such investment.
(v) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and such Purchaser is able to bear the economic
risk of an investment in the Securities to be acquired hereunder by such
Purchaser, and, at the present time, is able to afford a complete loss of such
investment.
(vi) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to eval uate its investment,
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(vii) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and sold to
it without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
<PAGE>
ARTICLE 3.
OTHER AGREEMENTS OF THE PARTIES
3(a) Transfer Restrictions. (i) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register (i) any transfer of Securities by one Purchaser to another Purchaser,
and agrees that no documentation other than executed transfer documents shall be
required for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
transfers among any such Affiliates provided in each case of clauses (i) and
(ii) the transferee certifies to the Company that it is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Any such Purchaser or
Affiliate transferee shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(ii) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR PREFERRED STOCK ONLY] THESE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
<PAGE>
AND CONVERSION SET FORTH IN SECTION 3.8 OF A CONVERTIBLE
STOCK PURCHASE AGREEMENT, DATED AS OF DECEMBER 31, 1997,
BETWEEN SAY YES FOODS, INC. (THE "COMPANY") AND THE ORIGINAL
HOLDERS HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above if
the conversion of Preferred Stock, exercise of Warrants or other issuances of
Underlying Shares as contemplated hereby, as the case may be, occurs at any time
while an Underlying Shares Registration Statement is effective under the
Securities Act or, in the event there is not an effective Underlying Shares
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company agrees that it will provide the Purchaser, upon
request, with a certificate or certificates representing Underlying Shares, free
from such legend at such time as such legend is no longer required hereunder.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section 3.1(b).
3(b) Acknowledgement of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Preferred Stock and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares, as provided in the Transaction
Documents, is not and shall not be effected by any such dilution.
3(c) Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may resell
all of its Underlying Shares without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent for the benefit of and enforceable by the
Purchaser) the Company is not required to file reports pursuant to such
sections, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
<PAGE>
required by Section 13(a) or 15(d) of the Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.
The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3(d) Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials and any information provided by or on behalf of the Company
pursuant to Section 3.3, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Securities other than pursuant to an
effective registration statement.
3(e) Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchaser may request and shall continue such
qualification at all times until the Purchaser notifies the Company in writing
that they no longer own Securities; provided, however, that neither the Company
nor its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3(f) Integration. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3(g) Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Preferred Stock (and paying any accrued but unpaid dividends in
respect thereof in shares of Common Stock) that remain unconverted at such date
or (b) honoring the exercise in full of the Warrants due to the unavailability
of a sufficient number of shares of authorized but unissued or re-acquired
Common Stock, the Board of Directors of the Company shall promptly (and in any
case within 30 Business Days from such date) prepare and mail to the
shareholders of the Company proxy materials requesting authorization to amend
the
<PAGE>
Company's restated certificate of incorporation to increase the number of shares
of Common Stock which the Company is authorized to issue to at least such number
of shares as reasonably requested by the Purchaser in order to provide for such
number of authorized and unissued shares of Common Stock to enable the Company
to comply with its conversion, exercise and reservation of shares obligations as
set forth in this Agreement, the Preferred Stock and the Warrants. In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the shareholders no later than the 60th day after delivery of
the proxy materials relating to such meeting) and (c) within 5 Business Days of
obtaining such shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase.
3(h) Purchaser Ownership of Common Stock. The Purchaser shall not convert
Preferred Stock or exercise its Warrant to the extent such conversion or
exercise would result in such Purchaser beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Preferred Stock and the Series
B Preferred and the Series B Warrants held by such Purchaser after application
of this Section. To the extent that the limitation contained in this Section
applies, the determination of whether Preferred Stock are convertible (in
relation to other securities owned by a Purchaser) and of which portion of the
principal amount of such Preferred Stock are convertible shall be in the sole
discretion of such Purchaser, and the submission of Preferred Stock for
conversion shall be deemed to be such Purchaser's determination of whether such
Preferred Stock are convertible (in relation to other securities owned by a
Purchaser) and of which portion of such Preferred Stock are convertible, in each
case subject to such aggregate percentage limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of a Purchaser to convert
Preferred Stock or Series B Preferred at such time as such conversion will not
violate the provisions of this Section. The provisions of this Section may be
waived by a Purchaser as to itself (and solely as to itself) upon not less than
75 days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
3(i) Listing of Underlying Shares. The Company will use its commercially
reasonable efforts to list the Common Stock for trading on either the Nasdaq
SmallCap Market or Nasdaq National Market as soon as possible after the Closing
Date and to maintain such listing thereafter as long as Underlying Shares are
outstanding. If the Common Stock hereafter is listed for trading on the Nasdaq
National Market, Nasdaq
<PAGE>
SmallCap Market (or on the American Stock Exchange or New York Stock Exchange,
or any other national securities market or exchange), then the Company shall (1)
take all necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing application therefor covering at
least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount of
Preferred Stock (plus all Underlying Shares are issuable as payment of dividends
thereon, assuming all such dividends were paid in shares of Common Stock) and
upon exercise in full of the then unexercised portion of the Warrants and (2)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock on such exchange or market. In
addition, if at any time following the listing of the Underlying Shares in
accordance with the foregoing, the number of shares of Common Stock issuable on
conversion of all then outstanding shares of Preferred Stock, on account of
accrued and unpaid dividends thereon and upon exercise in full of the Warrants
is greater than the number of shares of Common Stock theretofore listed, the
Company shall promptly take such action to file an additional shares listing
application covering at least a number of shares equal to the sum of (x) 200% of
(A) the number of Underlying Shares as would then be issuable upon a conversion
in full of the Preferred Stock, and (B) the number of Underlying Shares as would
be issuable as payment of dividends on the Preferred Stock and (y) the number of
Underlying Shares as would be issuable upon exercise in full of the Warrants.
3(j) Conversion Procedures. Exhibit E sets forth the form of Transfer
Agent Instructions which shall be executed by the Company's transfer agent prior
to the Closing Date.
3(k) Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while any Purchaser (or any assignee thereof) owns any
Securities the Common Stock is not Actively Traded (as defined below) on the OTC
Bulletin Board (or, if after the Closing Date the Common Stock is listed on any
of the exchange, markets or trading facilities contemplated in Section 3.9, if
the Common Stock is delisted or suspended from trading on such exchange, market
or trading facility, other than as a result of the suspension of trading in
securities on such market or exchange generally, or temporary suspensions
pending the release of material information) for more than three (3) Trading
Days, then, notwithstanding anything to the contrary contained in any
Transaction Document, at a Purchaser's option exercisable by five (5) Business
Days prior written notice to the Company, the Company shall redeem all Preferred
Stock and Underlying Shares then held by the Purchaser, at an aggregate purchase
price equal to the sum of (I) the number of shares of Preferred Stock then held
by the Purchaser multiplied by the product of (1) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (a) the day of such
notice or (b) the date of payment in full of the
<PAGE>
redemption price calculated under this Section 3.11, whichever is greater,
multiplied by (2) the Conversion Ratio on the date of the repurchase notice,
(II) the number of Underlying Shares then held by the Purchaser multiplied by
the average Per Share Market Value for the five (5) Trading Days immediately
preceding (A) the date of the notice or (B) the date of payment in full by the
Company of the redemption price calculated under this Section 3.11, whichever is
greater, and (III) interest on the amounts set forth in I - II above accruing
from the 5th day after such notice until the redemption price under this Section
3.11 is paid in full at the rate of 15% per annum. If after the Original Issue
Date the Common Stock shall be listed for trading or quoted on the Nasdaq
SmallCap Market, Nasdaq National Market or any other national securities
exchange or market, this provision shall similarly apply to any delistings or
suspensions therefrom. The term "Actively Traded" shall mean that (i) shares of
Common Stock worth at least $500,000 trade on the OTC Bulletin Board (or any
other national securities exchange or market on which the Common Stock is then
listed or traded) in any five consecutive Trading Day period and (ii) there are
at least eight (8) market makers actively making a market in the Common Stock.
3(l) Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of Company debt or to redeem Company any equity or equity-equivalent securities.
Pending application of the proceeds of this placement in the manner permitted
hereby the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3(m) Notice of Breaches. Each of the Company and the Purchaser shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Document to be incorrect
or breached as of such Closing Date. However, no disclosure by either party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
Notwithstanding the generality of the foregoing, the Company shall promptly
notify the Purchaser of any notice or claim (written or oral) that it receives
from any lender of the Company to the effect that the consummation of the
transactions contemplated by the Transaction Documents violates or would violate
any written agreement or understanding between such lender and the Company, and
the Company shall promptly furnish by facsimile to the holders of the Preferred
Stock a copy of any written statement in support of or relating to such claim or
notice.
<PAGE>
3(n) Conversion Obligations of the Company. The Company shall honor
conversions of the Preferred Stock and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms and conditions
and time periods set forth in the Preferred Stock and the Warrants.
3(o) Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (i) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities or any instrument that
permits the holder thereof to acquire Common Stock at any time over the life of
the security or investment at a price that is less than the market price of the
Common Stock at the time of issuance of such security or investment (a
"Subsequent Financing") for a period of 180 days after the Closing Date, except
(i) the granting of options or warrants to employees, officers and directors,
and the issuance of shares upon exercise of options granted, under any stock
option plan heretofore or hereinafter duly adopted by the Company, (ii) shares
issued upon exercise of any currently outstanding warrants and upon conversion
of any currently outstanding convertible preferred stock in each case disclosed
in Schedule 3.1(c), and (iii) shares of Common Stock issued upon conversion of
Preferred Stock, as payment of dividends thereon, or upon exercise of the
Warrants in accordance with their respective terms, unless (A) the Company
delivers to Encore a written notice (the "Subsequent Financing Notice") of its
intention effect such Subsequent Financing, which Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing shall be affected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Encore shall
not have notified the Company by 5:00 p.m. (New York City time) on the tenth
(10th) Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide Encore with a second Subsequent
Financing Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial
<PAGE>
Subsequent Financing Notice with the Person (or an Affiliate of such Person)
identified in the Subsequent Financing Notice.
(ii) Except Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, and other than Company
securities to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of this Section, the Company shall
not, without the prior written consent of the Purchaser, (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for a period of not less than 90 Trading
Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission. Any days that a Purchaser is unable to
sell Underlying Shares under the Underlying Shares Registration Statement shall
be added to such 90 Trading Day period for the purposes of (i) and (ii) above.
(iii) As long as there are shares of Preferred Stock
outstanding, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of the Preferred Stock, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the holders of Preferred Stock; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock other than as
to the Underlying Shares; or (iii) enter into any agreement with respect to any
of the foregoing.
3(p) The Warrants. At the Closing, the Company shall issue to the
Purchaser, a Common Stock purchase warrant, in the form of Exhibit D (the
"Warrants"), pursuant to which the Purchaser shall have the right at any time
and from time to time thereafter through the fifth anniversary of the date of
issuance thereof, to acquire 62,500 shares of Common Stock at an exercise price
per share equal to $2.50 per share.
3(q) Transfer of Intellectual Property Rights. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of, any Intellectual Property
Rights, or allow the Intellectual Property Rights to become subject to any
Liens, or fail to renew such Intellectual Property Rights (if renewable and
would otherwise expire), without the prior written consent of the Purchaser.
3(r) Certain Securities Laws Disclosures; Publicity. (a) The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to
<PAGE>
the Purchaser promptly after the filing thereof. The Company shall file with the
Commission (i) a press release acceptable to the Purchaser disclosing the
transactions contemplated hereby within three (3) Business Days after the
Closing Date and (ii) a Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby within ten (10) Business Days after the Closing
Date.
(b) In furtherance and in addition to the obligation of the
Company set forth in Section 3.18(a) above, the Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3(s) Reimbursement. In the event that any Purchaser, other than by reason
of its gross negligence or willful misconduct, becomes involved in any capacity
in any action, proceeding or investigation brought by or against any person,
including stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated pursuant to the Transaction
Documents, the Company will reimburse such Purchaser for its legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith. In addition, with respect to the Purchaser, other than
with respect to any matter in which such Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliate of the Purchaser and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchaser and any such other person or entity, and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchaser and any other such person
or entity. The Company also agrees that no Purchaser or any such affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from
<PAGE>
the gross negligence or willful misconduct of such Purchaser or entity in
connection with the transactions contemplated by this Agreement.
ARTICLE 4.
MISCELLANEOUS
4(a) Fees and Expenses. The Company shall pay the Purchaser at Closing (i)
$3,000 for its legal fees and disbursements in connection with the preparation
and negotiation of the Transaction Documents and (ii) $3,000 for its due
diligence expenses in connection with the transactions contemplated hereby.
Other than the amounts set forth in the immediately preceding sentence, and
except as set forth in the Registration Rights Agreement, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Preferred Stock pursuant hereto. The Purchaser shall be
responsible for its own respective tax liability that may arise as a result of
the investment hereunder or the transactions contemplated by this Agreement.
4(b) Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, the Preferred Stock and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters.
4(c) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
<PAGE>
<PAGE>
If to the Company: Say Yes Foods, Inc.
6380 South Eastern
Suite No. 3
Las Vegas, NV 89119
Facsimile No.: (702) 262-6441
Attn: Chief Financial Officer
With copies to: Stibel & Toulan LLP
183 State Street
Boston, MA 02109
Facsimile No.: (617)523-6100
Attn: Roy D. Toulan, Jr., Esq.
If to the
Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Alan Brown
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
<PAGE>
4(d) Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4(e) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4(f) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), neither Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
4(g) No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section 4.6,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
4(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of
<PAGE>
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
4(i) Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Preferred Stock and exercise of the Warrants.
4(j) Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4(k) Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Stock Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
SAY YES FOODS, INC.
By:___________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:___________________________
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
SAY YES FOODS, INC.,
and
JNC OPPORTUNITY FUND LTD.
-----------------------------
December 31, 1997
------------------------------
- --------------------------------------------------------------------------------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
SAY YES FOODS, INC.
WARRANT
Warrant No. 1 Dated December 24, 1997
SAY YES FOODS, INC., a corporation organized and existing under the laws of
the State of Nevada (the "Company"), hereby certifies that, for value received,
JNC Opportunity Fund Ltd., or its registered assigns ("Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company up to a total
of 187,500 shares of Common Stock, $.001 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $2.50 per share (as adjusted
from time to time as provided in Section 8, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
December 24, 2002 (the "Expiration Date"), and subject to the following terms
and conditions:
i. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
<PAGE>
ii. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company specified in or pursuant to Section 3(b) for one or
more New Warrants, evidencing in the aggregate the right to purchase the number
of Warrant Shares which may then be purchased hereunder. Any such New Warrant
will be dated the date of such exchange.
(iii) Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. This Warrant
may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 11 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than as required by the Purchase Agreement of
even date herewith between the Holder and the Company. Any person so designated
by the Holder to receive Warrant Shares shall be
<PAGE>
deemed to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
(iv) Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933,
as amended, pursuant to which the Company is registering securities pursuant to
a Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
(v) Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
<PAGE>
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
(vi) Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
(vii) Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
(viii) Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a
<PAGE>
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company in which the consideration
therefor is equity or equity equivalent securities or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities
or property, then the Holder shall have the right thereafter to exercise this
Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property of the Company's business combination partner equal to
the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any such
reclassification, consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 8(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
<PAGE>
(d) If, at any time while this Warrant is outstanding, the Company shall
issue or cause to be issued rights or warrants to acquire or otherwise sell or
distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses shall also be
applicable:
(i) Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
<PAGE>
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the assets
of the Company, or any compulsory share
exchange whereby the Common Stock is
converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(ix) Payment of Exercise Price. The Holder may pay the Exercise Price in
cash or, in the event that a registration statement covering the resale of the
Warrant Shares and naming the holder thereof as a selling stockholder thereunder
is not effective for the
<PAGE>
resale of the Warrant Shares at any time during the term of this Warrant,
pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of
Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
(x) Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
(xi) Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing,
<PAGE>
if sent by nationally recognized overnight courier service, or (iii) upon actual
receipt by the party to whom such notice is required to be given. The addresses
for such communications shall be: (1) if to the Company, to Say Yes Foods, Inc.,
6380 South Eastern, Suite No. 3, Las Vegas, NV 89119, or to Facsimile No.: (702)
262-6441 Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 11.
(xii) Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
(xiii) Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
<PAGE>
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
SAY YES FOODS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SAY YES FOODS, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Say Yes
Foods, Inc. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL
SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
<PAGE>
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Say Yes Foods, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Say Yes Foods, Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
<PAGE>
SAY YES FOODS, INC.
WARRANT
Warrant No. 2 Dated December 24, 1997
SAY YES FOODS, INC., a corporation organized and existing under the
laws of the State of Nevada (the "Company"), hereby certifies that, for value
received, CDC Consulting, Inc., or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 187,500 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $2.50 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including December 24, 2002 (the "Expiration Date"), and subject to the
following terms and conditions:
xiv. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
xv. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company specified in or pursuant to Section 3(b) for one or
more New Warrants, evidencing in the aggregate the right to purchase the number
of Warrant Shares which may then be purchased hereunder. Any such New Warrant
will be dated the date of such exchange.
(xvi) Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., New York
<PAGE>
City time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value. This Warrant may not be
redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 11 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than as required by the Purchase Agreement of
even date herewith between the Holder and the Company. Any person so designated
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
(xvii) Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933,
as amended, pursuant to which the Company is registering securities pursuant to
a Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
<PAGE>
(xviii) Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
(xix) Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
(xx) Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
(xxi) Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be
<PAGE>
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company in which the consideration
therefor is equity or equity equivalent securities or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities
or property, then the Holder shall have the right thereafter to exercise this
Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property of the Company's business combination partner equal to
the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any such
reclassification, consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 8(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the Company shall
issue or cause to be issued rights or warrants to acquire or otherwise sell or
distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
<PAGE>
(e) For the purposes of this Section 8, the following clauses shall also be
applicable:
(i) Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the assets
of the Company, or any compulsory share
exchange whereby the Common Stock is
converted into other securities, cash or
property; or
<PAGE>
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(xxii) Payment of Exercise Price. The Holder may pay the
Exercise Price in cash or, in the event that a registration statement covering
the resale of the Warrant Shares and naming the holder thereof as a selling
stockholder thereunder is not effective for the resale of the Warrant Shares at
any time during the term of this Warrant, pursuant to a cashless exercise, as
follows:
(a) Cash Exercise. The Holder shall deliver immediately available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of
Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
<PAGE>
(xxiii) Fractional Shares. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
(xxiv) Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to Say Yes Foods, Inc., 6380
South Eastern, Suite No. 3, Las Vegas, NV 89119, or to Facsimile No.: (702)
262-6441 Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 11.
(xxv) Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
(xxvi) Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
<PAGE>
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
SAY YES FOODS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SAY YES FOODS, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Say Yes
Foods, Inc. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL
SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
<PAGE>
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Say Yes Foods, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Say Yes Foods, Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
SAY YES FOODS, INC.
<PAGE>
WARRANT
Warrant No. 3 Dated December 31, 1997
SAY YES FOODS, INC., a corporation organized and existing under the
laws of the State of Nevada (the "Company"), hereby certifies that, for value
received, JNC Opportunity Fund Ltd., or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 62,500 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $2.50 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including December 31, 2002 (the "Expiration Date"), and subject to the
following terms and conditions:
xxvii. Registration of Warrant. The Company shall register
this Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
xxviii. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company specified in or pursuant to Section 3(b) for one or
more New Warrants, evidencing in the aggregate the right to purchase the number
of Warrant Shares which may then be purchased hereunder. Any such New Warrant
will be dated the date of such exchange.
(xxix) Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. This Warrant
may not be redeemed by the Company.
<PAGE>
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 11 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than as required by the Purchase Agreement of
even date herewith between the Holder and the Company. Any person so designated
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
(xxx) Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933,
as amended, pursuant to which the Company is registering securities pursuant to
a Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
(xxxi) Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or
<PAGE>
Warrants in a name other than that of the Holder, and the Company shall not be
required to issue or cause to be issued or deliver or cause to be delivered the
certificates for Warrant Shares unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid. The Holder shall be responsible for all other tax liability that may arise
as a result of holding or transferring this Warrant or receiving Warrant Shares
upon exercise hereof.
(xxxii) Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
(xxxiii) Reservation of Warrant Shares. The Company covenants
that it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
(xxxiv) Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
<PAGE>
or distribution and shall become effective immediately after the effective date
in the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company in which the consideration
therefor is equity or equity equivalent securities or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities
or property, then the Holder shall have the right thereafter to exercise this
Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property of the Company's business combination partner equal to
the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any such
reclassification, consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 8(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(e) For the purposes of this Section 8, the following clauses shall also be
applicable:
<PAGE>
(i) Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the assets
of the Company, or any compulsory share
exchange whereby the Common Stock is
converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
<PAGE>
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(xxxv) Payment of Exercise Price. The Holder may pay the
Exercise Price in cash or, in the event that a registration statement covering
the resale of the Warrant Shares and naming the holder thereof as a selling
stockholder thereunder is not effective for the resale of the Warrant Shares at
any time during the term of this Warrant, pursuant to a cashless exercise, as
follows:
(a) Cash Exercise. The Holder shall deliver immediately available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of
Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
(xxxvi) Fractional Shares. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise
<PAGE>
of this Warrant so presented. If any fraction of a Warrant Share would, except
for the provisions of this Section 10, be issuable on the exercise of this
Warrant, the Company shall, at its option, (i) pay an amount in cash equal to
the Exercise Price multiplied by such fraction or (ii) round the number of
Warrant Shares issuable, up to the next whole number.
(xxxvii) Notices. Any and all notices or other communications
or deliveries hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section, (ii) the business day following the date of mailing,
if sent by nationally recognized overnight courier service, or (iii) upon actual
receipt by the party to whom such notice is required to be given. The addresses
for such communications shall be: (1) if to the Company, to Say Yes Foods, Inc.,
6380 South Eastern, Suite No. 3, Las Vegas, NV 89119, or to Facsimile No.: (702)
262-6441 Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 11.
(xxxviii) Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
(xxxix) Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
<PAGE>
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
SAY YES FOODS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SAY YES FOODS, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Say Yes
Foods, Inc. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL
SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
<PAGE>
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Say Yes Foods, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Say Yes Foods, Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
SAY YES FOODS, INC.
WARRANT
Warrant No. 4 Dated December 31, 1997
SAY YES FOODS, INC., a corporation organized and existing under the
laws of the State of Nevada (the "Company"), hereby certifies that, for value
received, CDC Consulting, Inc., or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of 62,500 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $2.50 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including December 31, 2002 (the "Expiration Date"), and subject to the
following terms and conditions:
xl. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
xli. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
<PAGE>
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company specified in or pursuant to Section 3(b) for one or
more New Warrants, evidencing in the aggregate the right to purchase the number
of Warrant Shares which may then be purchased hereunder. Any such New Warrant
will be dated the date of such exchange.
(xlii) Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. This Warrant
may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 11 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than as required by the Purchase Agreement of
even date herewith between the Holder and the Company. Any person so designated
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
(xliii) Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933,
as amended, pursuant to which the Company is registering securities pursuant to
a Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there
<PAGE>
is not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention Eric L.
Cohen, notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
(xliv) Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
(xlv) Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
(xlvi) Reservation of Warrant Shares. The Company covenants
that it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
(xlvii) Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
<PAGE>
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person, the sale or transfer of
all or substantially all of the assets of the Company in which the consideration
therefor is equity or equity equivalent securities or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities
or property, then the Holder shall have the right thereafter to exercise this
Warrant only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property of the Company's business combination partner equal to
the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any such
reclassification, consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 8(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
<PAGE>
(d) If, at any time while this Warrant is outstanding, the Company shall
issue or cause to be issued rights or warrants to acquire or otherwise sell or
distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses shall also be
applicable:
(i) Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an issue
or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
<PAGE>
the Company, any
consolidation or merger to
which the Company is a
party, any sale or transfer
of all or substantially all
of the assets of the
Company, or any compulsory
share exchange whereby the
Common Stock is converted
into other securities, cash
or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(xlviii) Payment of Exercise Price. The Holder may pay the
Exercise Price in cash or, in the event that a registration statement covering
the resale of the Warrant Shares and naming the holder thereof as a selling
stockholder thereunder is not effective for the resale of the Warrant Shares at
any time during the term of this Warrant, pursuant to a cashless exercise, as
follows:
(a) Cash Exercise. The Holder shall deliver immediately available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of
Exercise.
<PAGE>
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
(xlix) Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
(l) Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to Say Yes Foods, Inc., 6380
South Eastern, Suite No. 3, Las Vegas, NV 89119, or to Facsimile No.: (702)
262-6441 Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 11.
(li) Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
(lii) Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
<PAGE>
(b) Subject to Section 13(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
SAY YES FOODS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To SAY YES FOODS, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Say Yes
Foods, Inc. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL
SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
<PAGE>
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Say Yes Foods, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Say Yes Foods, Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
4.7 Certificate of Designation-Series B Preferred Stock 12/24/97
CERTIFICATE OF DESIGNATION
SERIES B PREFERRED STOCK
SAY YES FOODS, INC.
Pursuant to a Resolution of the Board of Directors of Say Yes Foods, Inc., dated
December 22, 1997, the voting powers, designations, preferences, limitations,
restrictions and relative rights have been established for and pertaining to a
class of the Corporation's capital stock to be known as "SeriesB Preferred
Stock," as set forth in the "Terms of Preferred Stock: attached hereto and
incorporated herein by reference.
SAY YES FOODS, INC.
By______/s/___________________
Charles Thomas, President
By____/s/________________________
Nancy J. Roth, Assistant Secretary
State of Nevada )
) :ss
County of Clark)
The undersigned Notary Public certifies. Deposes, and states that Charles
Thomas, personally appeared before me and executed the foregoing respectively as
President, on behalf of the corporation this 22nd day of December, 1997.
(Seal)
-------------------------------
Notary Public
Terms of Preferred Stock
1. Section Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series B Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be
1,500,000 (which shall not be subject to increase without the consent of the
holders of the Preferred Stock ("Holder"). Each share of Preferred Stock shall
have a par value of $.001 per share and a stated value of $2.50 per share (the
"Stated Value").
2. Section Dividends.
(a) Holders of Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor, and
the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 7% per annum, payable, in
cash or shares of Common Stock (as defined in Section 8) at (subject to the
terms and conditions set fort herein) the option of the Company. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 8),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Accrued dividends of the
Preferred Stock shall be paid on the date on which such Preferred Stock is
converted, provided, that the Company shall have the option to pay dividends
more frequently as and when declared by the Board of Directors. The party that
holds the Preferred Stock on an applicable record date for any dividend payment
will be entitled to receive such dividend payment and any other accrued and
unpaid dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Preferred Stock subsequent to the
applicable record date but prior to the applicable dividend payment date. Except
as otherwise provided herein, if at any time the Company pays less than the
total amount of dividends then accrued on account of the Preferred Stock, such
payment shall be distributed ratably among the holders of the Preferred Stock
based upon the number of shares held by each holder. Payment of dividends on the
Preferred Stock is further subject to the provisions of Section 5(c)(i). The
Company shall provide the holders quarterly notice of its intention to pay
dividends in cash or shares of Common Stock. Such notice shall be delivered to
all Holders not less than 10 Trading Days prior to March 31, June 30, September
30 and December 31 of each year for so long as shares of Preferred Stock are
outstanding. If dividends are paid in shares of Common Stock, the number of
shares of Common Stock payable as such dividend to each Holder shall be equal to
the cash amount of such dividend payable to such Holder on such dividend payment
date divided by the closing bid price of the Common Stock on such dividend
payment date.
(b) Notwithstanding anything to the contrary contained herein,
the Company may not issue shares of Common Stock in payment of dividends (and
must deliver cash in respect thereof) on the Preferred Stock if:
i) ( the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes, or held as treasury stock, is insufficient to
pay such dividends in shares of Common Stock;
ii) ( the shares of Common Stock to be issued in respect of such dividends
are not registered for resale pursuant to an effective registration statement
that names the recipient of such dividend as a selling stockholder thereunder
and may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance acceptable
to the Holder;
iii) ( the Common Stock shall fail to be Actively Traded or shall be
delisted from the OTC Bulletin Board or any national securities exchange or
market on which such Common Stock is then listed for trading or suspended from
trading thereon without being Actively Traded, relisted or having such
suspension lifted, as the case may be, within one (1) Trading Day (if after the
Original Issue Date the Common Stock shall be listed for trading or quoted on
the Nasdaq SmallCap Market, Nasdaq National Market or any other national
securities exchange or market, this provision shall apply to any delistings or
suspensions therefrom);
iv) ( the issuance of such shares would result in the recipient thereof
beneficially owning, in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, more than 4.999% of the issued and
outstanding shares of Common Stock; or
(v) the Company has failed to timely satisfy its obligations pursuant to
any Holder Conversion Notice (as defined in Section 5(a)).
(c) So long as any Preferred Stock shall remain outstanding, neither the
Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 8), nor
shall the Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan.
(a) Section Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the holders of all of the shares of the Preferred Stock then
outstanding, alter or change adversely the powers, preferences or rights given
to the Preferred Stock, (b) alter or amend this Certificate of Designation, (c)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 4) or otherwise senior to or
pari passu with the Preferred Stock, (d) amend its certificate of incorporation,
bylaws or other charter documents so as to affect adversely any rights of any
holders, (e) increase the authorized number of shares of Preferred Stock and (f)
enter into any agreement with respect to the foregoing.
4. Section Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Preferred Stock shall be distributed among the
holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record holder of Preferred Stock.
(a) Section Conversion. Each share of Preferred Stock shall be
convertible into shares of Common Stock (subject to reduction pursuant to
Section 3.8 of the Purchase Agreement) at the Conversion Ratio (as defined in
Section 8) at the option of the holder in whole or in part at any time after the
Original Issue Date. The Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice attached
hereto as Exhibit A (the "Holder Conversion Notice"). Each Holder Conversion
Notice shall specify the number of shares of Preferred Stock to be converted and
the date on which such conversion is to be effected, which date may not be prior
to the date the holder delivers such Holder Conversion Notice by facsimile (the
"Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that the Holder
Conversion Notice is deemed delivered pursuant to Section 5(i). Subject to
Sections 5(b), each Holder Conversion Notice, once given, shall be irrevocable.
If the holder is converting less than all shares of Preferred Stock represented
by the certificate or certificates tendered by the holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(b) Not later than three Trading Days after any Conversion Date, the
Company will deliver to the holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock (subject to reduction pursuant to Section 3.8 of the Purchase Agreement),
(ii) one or more certificates representing the number of shares of Preferred
Stock not converted, (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued dividends in cash) and (iv)
if the Company has elected to pay accrued dividends in shares of Common Stock,
certificates, which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement), representing
such number of Shares of Common Stock as equals such dividend divided by the
Conversion Price on the Conversion Date; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security) reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. If in the case of
any Holder Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable holder by the third Trading Day after the Conversion
Date, the holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the fifth Trading Day after the Conversion Date,
the Company shall pay to such holder, in cash, as liquidated damages and not as
a penalty, $2,500 for each day after such fifth Trading Day until such
certificates are delivered.
(i) The conversion price for each share of Preferred Stock (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (a) 100% of the
average Per Share Market Value for the ten (10) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) 80%
of the average of five (5) lowest closing bid prices of the Common Stock during
the ten (10) Trading Days prior to the date of the applicable Holder Conversion
Notice; provided, that, (a) if the Underlying Shares Registration Statement is
not filed on or prior to the 20th Trading Day after the Original Issue Date, or
(b) the Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed," or not subject
to further review or (c) if the Underlying Shares Registration Statement is not
declared effective by the Commission on or prior to the 90th day after the
Original Issue Date, or (d) if such Underlying Shares Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Trading Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) if the Common Stock shall fail to be Actively Traded or
if trading in the Common Stock shall be suspended for any reason for more than
three (3) Trading Days in the aggregate, or (f) if the conversion rights of the
Holders are suspended for any reason or (g) if the Company breaches in a
material respect any covenant or other material term or condition to the
Purchase Agreement (other than a representation or warranty contained therein),
the Registration Rights Agreement or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
thereby, and such breach continues for a period of thirty (30) days after
written notice thereof to the Company (any such failure being referred to as an
"Event," and for purposes of clauses (a), (c) and (f) the date on which such
Event occurs, or for purposes of clause (b) the date on which such five (5) day
period is exceeded, or for purposes of clause (d) the date which such 10 Trading
Day-period is exceeded, or for purposes of clause (e) the date on which such
three Trading Day period is exceeded, or for clause (g) the date on which such
thirty (30) day period is exceeded, being referred to as "Event Date"), the
Conversion Price shall be decreased by 2.5% each month (i.e., the Conversion
Price would decrease by 2.5% as of the Event Date and an additional 2.5% as of
each monthly anniversary of the Event Date) until the earlier to occur of the
second month anniversary after the Event Date and such time as the applicable
Event is cured. Commencing the second month anniversary after the Event Date,
the Company shall pay to the Holders an aggregate amount equal to the product of
2.5% and the amount derived by multiplying the then outstanding Preferred Stock
by the Stated Value (each holder being entitled to receive such portion of such
amount as equals its pro rata portion of the Preferred Stock then outstanding)
in cash as liquidated damages, and not as a penalty on the first day of each
monthly anniversary of the Event Date until such time as the applicable Event,
is cured. Any decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such decrease has been
subsequently cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations under the Registration Rights
Agreement.
(ii) If the Company, at any time while any shares of Preferred Stock are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities or pari passu securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred Stock are
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value of Common Stock at the record
date mentioned below, the Initial Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in the
Initial Conversion Price pursuant to this Section 5(c)(iii), if any such right
or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 5 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii) and (iii) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to the nearest cent or
the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(ii),(iii) or (iv), the Company shall promptly mail to each holder of
Preferred Stock, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person pursuant to which (i) a
majority of the Company's Board of Directors will not constitute a majority of
the board of directors of the surviving entity or (ii) less than 65% of the
outstanding shares of the capital stock of the surviving entity will be held by
the same shareholders of the Company prior to such reclassification,
consolidation or merger, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property, the holders
of the Preferred Stock then outstanding shall have the right thereafter to, at
their option, (A) convert such shares only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the holders of the Preferred Stock shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which such shares of
Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange would
have been entitled or (B) require the Company to redeem, from funds legally
available therefor at the time of such redemption, its shares of Preferred Stock
at a price per share equal to the product of (i) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the case may
be, of the reclassification, consolidation, merger, sale, transfer or share
exchange the triggering such redemption right or (2) the date of payment in full
by the Company of the redemption price hereunder, whichever is greater, and (ii)
the Conversion Ratio calculated on the date of the closing or the effective
date, as the case may be, of the reclassification, consolidation, merger, sale,
transfer or share exchange triggering such redemption right, as the case may be.
The entire redemption price shall be paid in cash, and the terms of payment of
such redemption price shall be subject to the provisions set forth in Section
6(b). The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or property set forth
in this Section 5(c)(vii) upon any conversion or redemption following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other distribution) on
its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, of any
compulsory share of exchange whereby
the Common Stock is converted into
other securities, cash or property;
or
E. the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(ix)If the Company (i) makes a public announcement that it intends to enter
into a Change of Control Transaction (as defined below) or (ii) any person,
group or entity (including the Company, but excluding a Holder or any affiliate
of a Holder) publicly announces a bona fide tender offer, exchange offer or
other transaction to purchase 50% or more of the Common Stock (such announcement
being referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert shares of Preferred Stock on or following the Announcement
Date, the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lower of (x) the average
Per Share Market Value on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on the
Conversion Date for such Preferred Stock. "Abandonment Date" means with respect
to any proposed transaction or tender offer, exchange offer or other transaction
for which a public announcement as contemplated by this paragraph has been made,
the date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer, exchange
offer or another transaction which caused this paragraph to become operative.
(d) If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 30 calendar days prior to the effective date of such
action, and an Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of shares of Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price then in
effect.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(c)) upon the conversion of all
outstanding shares of Preferred Stock and payment of dividends hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and freely tradeable.
(f) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on conversion
of Preferred Stock shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the holder of such shares of Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be canceled
and shall have the status of authorized but unissued shares of undesignated
stock.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of the Preferred Stock hereunder, including, without
limitation, any Holder Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each holder of
Preferred Stock at the facsimile telephone number or address of such holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (Eastern Time), (ii) the date after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York Time) on any date and earlier than 11:59 p.m. (Eastern Time)
on such date, (iii) upon receipt, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
6. Section Automatic Conversion and Optional Redemption.
(a) All outstanding and unconverted shares of Preferred Stock
shall, on the date which is two years from the Original Issue Date or if such
day is not a Trading Day then on the next Trading Day thereafter, be
automatically converted by the Company at the then applicable Conversion Price.
(b) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the holders of the Preferred Stock given at any
time subsequent to the 90th day following the Effectiveness Date (as defined in
the Registration Rights Agreement) (provided that any days that the Holders are
not permitted to resell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90-day period), to redeem all or
any portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price per share equal to the sum of (A) the product
of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the date of the redemption notice referenced above or
(2) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on the date of
such redemption notice, and (B) the aggregate of all accrued but unpaid
dividends and other amounts payable in respect of such shares. The entire
redemption price shall be paid in cash. Holders of Preferred Stock may convert
any shares of Preferred Stock, including shares subject to a redemption notice
given under this Section, during the period from the date of such redemption
notice through the 29th Trading Day thereafter. If the Company intends to redeem
less than all of the then outstanding Preferred Stock, it shall do so on a pro
rata basis among such holders in accordance with this Section. If any portion of
the applicable redemption price under this Section shall not be paid by the
Company within five (5) calendar days after the date due, interest shall accrue
thereon at the rate of 15% per annum until the redemption price plus all such
interest is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). All redeemed shares of Preferred Stock shall cease to be
outstanding and shall have the status of authorized but undesignated stock, but
may not be reissued as Preferred Stock. In addition, if any portion of such
Redemption Price remains unpaid for more than five (5) calendar days after the
date due, each holder of the Preferred Stock subject to such redemption may
elect, by written notice to the Company, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section 5
of all of the shares of Preferred Stock for which such Redemption Price has not
been paid in full (the "Unpaid Redemption Shares"), in which event the
Conversion Price shall be the lower of the Conversion Price on the date such
Redemption Price was originally due and the Conversion Price on the date of the
holder's written demand for conversion, or (ii) invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary. If a
holder elects option (i) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to such holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject to such
holder conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if such holder elects option (ii) above, the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
the holder's notice of such election, return to the holder all of the Unpaid
Redemption Shares.
7. Section Redemption Option Upon Triggering Event. In
addition to all other rights of the Holders contained herein, after a Triggering
Event (as defined below), each Holder shall have the right, as such Holder's
option, to require the Company to redeem all or a portion of such Holder's
Preferred Stock at a price per share of Preferred Stock equal to the sum of (A)
the product of (i) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (1) the date of the Triggering Event or (2) the date
of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Conversion Ratio calculated on the date of the Triggering
Event ("Triggering Event Redemption Price"), and (B) the aggregate of all
accrued but unpaid dividends and other amounts payable in respect of such
shares. A "Triggering Event" shall be deemed to have occurred at such time as
any of the following events:
(i)the failure of the Registration Statement to be declared effective by
the Commission on or prior to the 180th day after the Original Issuance Date;
(ii) if during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Preferred Stock
for the resale of Underlying Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such Holder
seeking to be redeemed pursuant to this Section 8;
(iii) the failure of the Common Stock to be Actively Traded or listed for
trading on the OTC Bulletin or any other national securities exchange or market
on which such Common Stock is then listed for trading for a period of seven
consecutive days;
(iv) the Company's notice to any holder of Preferred Stock, including by
way of public announcement, at any time, of its intention not to comply with
proper requests for conversion of any Preferred Stock into shares of Common
Stock;
(v)if the Company fails to deliver to the holder a certificate or
certificates pursuant to Section 5(b) prior to the 12th day after the Conversion
Date; or
(v)the failure of the Company to cure any Event within three days following
the related Event Date.
The Company will pay interest on the redemption price at a rate of 15% per
annum, in cash to such holder, accruing from the redemption date until the
redemption price and any accrued interest thereon is paid in full.
8. Section Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Actively Traded" shall mean that (i) shares of Common Stock
worth at least $500,000 trade on the OTC Bulletin Board (or any other national
securities exchange or market on which the Common Stock is then listed or
traded) in any five consecutive Trading Day period and (ii) there are at least
eight (8) market makers actively making a market in the Common Stock.
"Common Stock" means the Company's common stock, $.001 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap Market or other stock exchange or quotation system on which the Common
Stock is listed for trading, or (b) if the Common Stock is not listed on the
Nasdaq SmallCap Market or any other stock exchange or market, the closing bid
price per share of the Common Stock on such date on the over-the-counter market,
as reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, the closing bid price per share of Common Stock on
such date on the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices), or (d) if the Common Stock is no longer traded
on the over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser); provided, that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, limited liability company, a business, an individual, a government
or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original holders of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq Stock Market or other stock exchange or market on which the
Common Stock has been listed, or (b) if the Common Stock is not then listed on
the Nasdaq Stock Market or any stock exchange or market, a day on which the
Common Stock is traded on the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted on the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other government action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Preferred Stock is convertible and the shares of Common Stock
issuable upon payment of dividends thereon, in accordance with the terms hereof
and the Purchase Agreement.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.001 per share (the "Common Stock"), of Say Yes Foods, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
4.8 Certificate of Designation-Series C Preferred Stock 12/31/97
CERTIFICATE OF DESIGNATION
SERIES C PREFERRED STOCK
SAY YES FOODS, INC.
Pursuant to a Resolution of the Board of Directors of Say Yes Foods, Inc, dated
December 31, 1997, the voting powers, designations, preferences, limitations,
restrictions and relative rights have been established for and pertaining to a
class of the Corporation's capital stock to be known as "Series C Preferred
Stock" attached hereto and incorporated herein by reference.
SAY YES FOODS, INC.
By_____________________
Charles Thomas, President
By_____________________
Chris Rouselle, Secretary
State of Nevada )
) :ss
County of Clark )
The undersigned Notary Pblic certifies, deposes and states that Charles Thomas,
personally appeared before me and executed the foregoing respectively as
President, on behalf of the corporation on this 31st day of December, 1997.
(Seal)
By______________________
(Notary Public)
Terms of Preferred Stock
1. Section Designation, Amount and Par Value. The series of
preferred stock shall be designated as 7% Series C Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 500,000
(which shall not be subject to increase without the consent of the holders of
the Preferred Stock ("Holder"). Each share of Preferred Stock shall have a par
value of $.001 per share and a stated value of $2.50 per share (the "Stated
Value").
2. Section Dividends. (a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 7% per annum,
payable, in cash or shares of Common Stock (as defined in Section 8) at (subject
to the terms and conditions set fort herein) the option of the Company.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date whether or not earned
or declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Accrued dividends of the
Preferred Stock shall be paid on the date on which such Preferred Stock is
converted, provided, that the Company shall have the option to pay dividends
more frequently as and when declared by the Board of Directors. The party that
holds the Preferred Stock on an applicable record date for any dividend payment
will be entitled to receive such dividend payment and any other accrued and
unpaid dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Preferred Stock subsequent to the
applicable record date but prior to the applicable dividend payment date. Except
as otherwise provided herein, if at any time the Company pays less than the
total amount of dividends then accrued on account of the Preferred Stock, such
payment shall be distributed ratably among the holders of the Preferred Stock
based upon the number of shares held by each holder. Payment of dividends on the
Preferred Stock is further subject to the provisions of Section 5(c)(i). The
Company shall provide the holders quarterly notice of its intention to pay
dividends in cash or shares of Common Stock. Such notice shall be delivered to
all Holders not less than 10 Trading Days prior to March 31, June 30, September
30 and December 31 of each year for so long as shares of Preferred Stock are
outstanding. If dividends are paid in shares of Common Stock, the number of
shares of Common Stock payable as such dividend to each Holder shall be equal to
the cash amount of such dividend payable to such Holder on such dividend payment
date divided by the closing bid price of the Common Stock on such dividend
payment date.
(b) Notwithstanding anything to the contrary contained herein,
the Company may not issue shares of Common Stock in payment of dividends (and
must deliver cash in respect thereof) on the Preferred Stock if:
i) ( the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay such dividends in shares of Common
Stock;
ii) ( the shares of Common Stock to be issued in respect of such dividends
are not registered for resale pursuant to an effective registration statement
that names the recipient of such dividend as a selling stockholder thereunder
and may not be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance acceptable
to the Holder;
iii) ( the Common Stock shall fail to be Actively Traded or shall be
delisted from the OTC Bulletin Board or any national securities exchange or
market on which such Common Stock is then listed for trading or suspended from
trading thereon without being Actively Traded, relisted or having such
suspension lifted, as the case may be, within one (1) Trading Day (if after the
Original Issue Date the Common Stock shall be listed for trading or quoted on
the Nasdaq SmallCap Market, Nasdaq National Market or any other national
securities exchange or market, this provision shall apply to any delistings or
suspensions therefrom);
iv) ( the issuance of such shares would result in the recipient thereof
beneficially owning, in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, more than 4.999% of the issued and
outstanding shares of Common Stock; or
(v) the Company has failed to timely satisfy its obligations pursuant to
any Holder Conversion Notice (as defined in Section 5(a)).
(c) So long as any Preferred Stock shall remain outstanding, neither the
Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 8), nor
shall the Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan.
(a) Section Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the holders of all of the shares of the Preferred Stock then
outstanding, alter or change adversely the powers, preferences or rights given
to the Preferred Stock, (b) alter or amend this Certificate of Designation, (c)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 4) or otherwise senior to or
pari passu with the Preferred Stock, (d) amend its certificate of incorporation,
bylaws or other charter documents so as to affect adversely any rights of any
holders, (e) increase the authorized number of shares of Preferred Stock and (f)
enter into any agreement with respect to the foregoing.
4. Section Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Preferred Stock shall be distributed among the
holders of Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record holder of Preferred Stock.
(a) Section Conversion. Each share of Preferred Stock shall be
convertible into shares of Common Stock (subject to reduction pursuant to
Section 3.8 of the Purchase Agreement) at the Conversion Ratio (as defined in
Section 8) at the option of the holder in whole or in part at any time after the
Original Issue Date. The Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion notice attached
hereto as Exhibit A (the "Holder Conversion Notice"). Each Holder Conversion
Notice shall specify the number of shares of Preferred Stock to be converted and
the date on which such conversion is to be effected, which date may not be prior
to the date the holder delivers such Holder Conversion Notice by facsimile (the
"Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that the Holder
Conversion Notice is deemed delivered pursuant to Section 5(i). Subject to
Sections 5(b), each Holder Conversion Notice, once given, shall be irrevocable.
If the holder is converting less than all shares of Preferred Stock represented
by the certificate or certificates tendered by the holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall promptly deliver to such holder (in the manner and
within the time set forth in Section 5(b)) a certificate for such number of
shares as have not been converted.
(b) Not later than three Trading Days after any Conversion Date, the
Company will deliver to the holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock (subject to reduction pursuant to Section 3.8 of the Purchase Agreement),
(ii) one or more certificates representing the number of shares of Preferred
Stock not converted, (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued dividends in cash) and (iv)
if the Company has elected to pay accrued dividends in shares of Common Stock,
certificates, which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement), representing
such number of Shares of Common Stock as equals such dividend divided by the
Conversion Price on the Conversion Date; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security) reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. If in the case of
any Holder Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable holder by the third Trading Day after the Conversion
Date, the holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the fifth Trading Day after the Conversion Date,
the Company shall pay to such holder, in cash, as liquidated damages and not as
a penalty, $2,500 for each day after such fifth Trading Day until such
certificates are delivered.
(i) The conversion price for each share of Preferred Stock (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (a) 100% of the
average Per Share Market Value for the ten (10) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) 80%
of the average of five (5) lowest closing bid prices of the Common Stock during
the ten (10) Trading Days prior to the date of the applicable Holder Conversion
Notice; provided, that, (a) if the Underlying Shares Registration Statement is
not filed on or prior to the 20th Trading Day after the Original Issue Date, or
(b) the Company fails to file with the Commission a request for acceleration in
accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed," or not subject
to further review or (c) if the Underlying Shares Registration Statement is not
declared effective by the Commission on or prior to the 90th day after the
Original Issue Date, or (d) if such Underlying Shares Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Trading Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) if the Common Stock shall fail to be Actively Traded or
if trading in the Common Stock shall be suspended for any reason for more than
three (3) Trading Days in the aggregate, or (f) if the conversion rights of the
Holders are suspended for any reason or (g) if the Company breaches in a
material respect any covenant or other material term or condition to the
Purchase Agreement (other than a representation or warranty contained therein),
the Registration Rights Agreement or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
thereby, and such breach continues for a period of thirty (30) days after
written notice thereof to the Company (any such failure being referred to as an
"Event," and for purposes of clauses (a), (c) and (f) the date on which such
Event occurs, or for purposes of clause (b) the date on which such five (5) day
period is exceeded, or for purposes of clause (d) the date which such 10 Trading
Day-period is exceeded, or for purposes of clause (e) the date on which such
three Trading Day period is exceeded, or for clause (g) the date on which such
thirty (30) day period is exceeded, being referred to as "Event Date"), the
Conversion Price shall be decreased by 2.5% each month (i.e., the Conversion
Price would decrease by 2.5% as of the Event Date and an additional 2.5% as of
each monthly anniversary of the Event Date) until the earlier to occur of the
second month anniversary after the Event Date and such time as the applicable
Event is cured. Commencing the second month anniversary after the Event Date,
the Company shall pay to the Holders an aggregate amount equal to the product of
2.5% and the amount derived by multiplying the then outstanding Preferred Stock
by the Stated Value (each holder being entitled to receive such portion of such
amount as equals its pro rata portion of the Preferred Stock then outstanding)
in cash as liquidated damages, and not as a penalty on the first day of each
monthly anniversary of the Event Date until such time as the applicable Event,
is cured. Any decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such decrease has been
subsequently cured. The provisions of this Section are not exclusive and shall
in no way limit the Company's obligations under the Registration Rights
Agreement.
(ii) If the Company, at any time while any shares of Preferred Stock are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities or pari passu securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of Common
Stock into a smaller number of shares, or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred Stock are
outstanding, shall issue rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value of Common Stock at the record
date mentioned below, the Initial Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in the
Initial Conversion Price pursuant to this Section 5(c)(iii), if any such right
or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 5 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii) and (iii) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of the shares of Preferred
Stock then outstanding; and provided, further, that the Company, after receipt
of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to the nearest cent or
the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(ii),(iii) or (iv), the Company shall promptly mail to each holder of
Preferred Stock, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another person pursuant to which (i) a
majority of the Company's Board of Directors will not constitute a majority of
the board of directors of the surviving entity or (ii) less than 65% of the
outstanding shares of the capital stock of the surviving entity will be held by
the same shareholders of the Company prior to such reclassification,
consolidation or merger, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property, the holders
of the Preferred Stock then outstanding shall have the right thereafter to, at
their option, (A) convert such shares only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the holders of the Preferred Stock shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which such shares of
Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange would
have been entitled or (B) require the Company to redeem, from funds legally
available therefor at the time of such redemption, its shares of Preferred Stock
at a price per share equal to the product of (i) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the case may
be, of the reclassification, consolidation, merger, sale, transfer or share
exchange the triggering such redemption right or (2) the date of payment in full
by the Company of the redemption price hereunder, whichever is greater, and (ii)
the Conversion Ratio calculated on the date of the closing or the effective
date, as the case may be, of the reclassification, consolidation, merger, sale,
transfer or share exchange triggering such redemption right, as the case may be.
The entire redemption price shall be paid in cash, and the terms of payment of
such redemption price shall be subject to the provisions set forth in Section
6(b). The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the holder of
Preferred Stock the right to receive the securities, cash or property set forth
in this Section 5(c)(vii) upon any conversion or redemption following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other distribution) on
its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, of any
compulsory share of exchange whereby
the Common Stock is converted into
other securities, cash or property;
or
E. the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(ix)If the Company i)makes a public announcement that it intends to enter into a
Change of Control Transaction (as defined below) or (ii) any person, group or
entity (including the Company, but excluding a Holder or any affiliate of a
Holder) publicly announces a bona fide tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert shares of Preferred Stock on or following the Announcement
Date, the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lower of (x) the average
Per Share Market Value on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on the
Conversion Date for such Preferred Stock. "Abandonment Date" means with respect
to any proposed transaction or tender offer, exchange offer or other transaction
for which a public announcement as contemplated by this paragraph has been made,
the date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer, exchange
offer or another transaction which caused this paragraph to become operative.
(d)If at any time conditions shall arise by reason of action taken bythe Company
which in the opinion of the Board of Directors are not adequately covered by the
other provisions hereof and which might materially and adversely affect the
rights of the holders of Preferred Stock (different than or distinguished from
the effect generally on rights of holders of any class of the Company's capital
stock) or if at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the holders of Preferred Stock at least 30 calendar
days prior to the effective date of such action, and an Appraiser selected by
the holders of majority in interest of the Preferred Stock shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 5), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which shares of Preferred
Stock may thereafter be convertible) and any distribution which is or would be
required to preserve without diluting the rights of the holders of shares of
Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in good faith, in which case the adjustment shall be equal to the
average of the adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the receipt of
such opinion or opinions or the taking of any such action contemplated, as the
case may be; provided, however, that no such adjustment of the Conversion Price
shall be made which in the opinion of the Appraiser(s) giving the aforesaid
opinion or opinions would result in an increase of the Conversion Price to more
than the Conversion Price then in effect.
(e)The Company covenants that it will atall times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(c)) upon the conversion of all
outstanding shares of Preferred Stock and payment of dividends hereunder. The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and freely tradeable.
(f) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on conversion
of Preferred Stock shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the holder of such shares of Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be canceled
and shall have the status of authorized but unissued shares of undesignated
stock.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of the Preferred Stock hereunder, including, without
limitation, any Holder Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each holder of
Preferred Stock at the facsimile telephone number or address of such holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (Eastern Time), (ii) the date after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York Time) on any date and earlier than 11:59 p.m. (Eastern Time)
on such date, (iii) upon receipt, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
6. Section Automatic Conversion and Optional Redemption.
(a) All outstanding and unconverted shares of Preferred Stock shall, on the
date which is two years from the Original Issue Date or if such day is not a
Trading Day then on the next Trading Day thereafter, be automatically converted
by the Company at the then applicable Conversion Price.
(b) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the holders of the Preferred Stock given at any
time subsequent to the 90th day following the Effectiveness Date (as defined in
the Registration Rights Agreement) (provided that any days that the Holders are
not permitted to resell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90-day period), to redeem all or
any portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price per share equal to the sum of (A) the product
of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the date of the redemption notice referenced above or
(2) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on the date of
such redemption notice, and (B) the aggregate of all accrued but unpaid
dividends and other amounts payable in respect of such shares. The entire
redemption price shall be paid in cash. Holders of Preferred Stock may convert
any shares of Preferred Stock, including shares subject to a redemption notice
given under this Section, during the period from the date of such redemption
notice through the 29th Trading Day thereafter. If the Company intends to redeem
less than all of the then outstanding Preferred Stock, it shall do so on a pro
rata basis among such holders in accordance with this Section. If any portion of
the applicable redemption price under this Section shall not be paid by the
Company within five (5) calendar days after the date due, interest shall accrue
thereon at the rate of 15% per annum until the redemption price plus all such
interest is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). All redeemed shares of Preferred Stock shall cease to be
outstanding and shall have the status of authorized but undesignated stock, but
may not be reissued as Preferred Stock. In addition, if any portion of such
Redemption Price remains unpaid for more than five (5) calendar days after the
date due, each holder of the Preferred Stock subject to such redemption may
elect, by written notice to the Company, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section 5
of all of the shares of Preferred Stock for which such Redemption Price has not
been paid in full (the "Unpaid Redemption Shares"), in which event the
Conversion Price shall be the lower of the Conversion Price on the date such
Redemption Price was originally due and the Conversion Price on the date of the
holder's written demand for conversion, or (ii) invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary. If a
holder elects option (i) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to such holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject to such
holder conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if such holder elects option (ii) above, the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
the holder's notice of such election, return to the holder all of the Unpaid
Redemption Shares.
7. Section Redemption Option Upon Triggering Event. In
addition to all other rights of the Holders contained herein, after a Triggering
Event (as defined below), each Holder shall have the right, as such Holder's
option, to require the Company to redeem all or a portion of such Holder's
Preferred Stock at a price per share of Preferred Stock equal to the sum of (A)
the product of (i) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (1) the date of the Triggering Event or (2) the date
of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Conversion Ratio calculated on the date of the Triggering
Event ("Triggering Event Redemption Price"), and (B) the aggregate of all
accrued but unpaid dividends and other amounts payable in respect of such
shares. A "Triggering Event" shall be deemed to have occurred at such time as
any of the following events:
(i)the failure of the Registration Statement to be declared effective by
the Commission on or prior to the 180th day after the Original Issuance Date;
(ii) if during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Preferred Stock
for the resale of Underlying Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such Holder
seeking to be redeemed pursuant to this Section 8;
(iii) the failure of the Common Stock to be Actively Traded or listed for
trading on the OTC Bulletin or any other national securities exchange or market
on which such Common Stock is then listed for trading for a period of seven
consecutive days;
(iv) the Company's notice to any holder of Preferred Stock, including by
way of public announcement, at any time, of its intention not to comply with
proper requests for conversion of any Preferred Stock into shares of Common
Stock;
(v)if the Company fails to deliver to the holder a certificate or
certificates pursuant to Section 5(b) prior to the 12th day after the Conversion
Date; or
(v)the failure of the Company to cure any Event within three days following
the related Event Date.
The Company will pay interest on the redemption price at a rate of 15% per
annum, in cash to such holder, accruing from the redemption date until the
redemption price and any accrued interest thereon is paid in full.
8. Section Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Actively Traded" shall mean that (i) shares of Common Stock
worth at least $500,000 trade on the OTC Bulletin Board (or any other national
securities exchange or market on which the Common Stock is then listed or
traded) in any five consecutive Trading Day period and (ii) there are at least
eight (8) market makers actively making a market in the Common Stock.
"Common Stock" means the Company's common stock, $.001 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company, other than the Company's Series B Convertible
Preferred Stock, par value $.001 per share.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap Market or other stock exchange or quotation system on which the Common
Stock is listed for trading, or (b) if the Common Stock is not listed on the
Nasdaq SmallCap Market or any other stock exchange or market, the closing bid
price per share of the Common Stock on such date on the over-the-counter market,
as reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, the closing bid price per share of Common Stock on
such date on the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices), or (d) if the Common Stock is no longer traded
on the over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser); provided, that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, limited liability company, a business, an individual, a government
or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original holder of the Preferred Stock.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated as of the Original Issue Date, by and among
the Company and the original Holder.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq Stock Market or other stock exchange or market on which the
Common Stock has been listed, or (b) if the Common Stock is not then listed on
the Nasdaq Stock Market or any stock exchange or market, a day on which the
Common Stock is traded on the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted on the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other government action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Preferred Stock is convertible and the shares of Common Stock
issuable upon payment of dividends thereon, in accordance with the terms hereof
and the Purchase Agreement.
<PAGE>
10849-00015/504672.1
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.001 per share (the "Common Stock"), of Say Yes Foods, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
Exhibit 4.9
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (this
"Agreement") is made and entered into as of December 31, 1997, by and between
Say Yes Foods, Inc., a Nevada corporation (the "Company") and JNC Opportunity
Fund Ltd., a Cayman Islands corporation (the "Purchaser").
WHEREAS, the Company and the Purchaser entered into a
Registration Rights Agreement, dated as of December 24, 1997 (the "Original
Agreement"), pursuant to which the Company granted to the Purchaser certain
registration rights in respect of the shares of Common Stock issuable upon
conversion of, and as payment of dividends on, the shares of the Company's 7%
Series B Convertible Preferred Stock issued to the Purchaser on December 24,
1997 (the "Series B Preferred"), and shares of Common Stock issuable in respect
of the Series B Warrants (as defined below);
WHEREAS, concurrently herewith, the Company and the Purchaser
are entering into a Convertible Preferred Stock Purchase Agreement ("Purchase
Agreement"), pursuant to which among other things, the Company is issuing to the
Purchaser 500,000 shares of its newly created 7% Series C Convertible Preferred
Stock (the "Series C Preferred") and certain of the Series C Warrants (as
defined below); and
WHEREAS, the Company and the Purchaser wish to amend and
restate the Original Agreement to provide registration rights in respect of the
shares of Common Stock issuable upon conversion of, and as payment of dividends
in respect of, the Series C Preferred and the Series C Warrants.
NOW, THEREFORE, the Company and the Purchaser hereby agree as
follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value
$.001 per share.
<PAGE>
"Effectiveness Date" means the 90th day following the Closing
Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 20th Business Day following the
Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"New York Courts" shall have the meaning set forth in
Section 7(j).
"Original Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Preferred Stock" means, collectively, the Series B Preferred
and the Series C Preferred.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon (a) conversion in full of the Preferred Stock, (b) exercise of the
Warrants and (c) payment of dividends in respect of the Preferred Stock;
provided, however that in order to account for the fact that the number of
shares of Common Stock that are issuable upon conversion of shares of Preferred
Stock is determined in part upon the market price of the Common Stock at the
time of conversion, Registrable Securities contemplated by clause (a) of this
definition shall be deemed to include not less than 200% of the number of shares
of Common Stock into which the Preferred Stock are convertible, assuming such
conversion occurred on the Closing Date or the Filing Date (whichever date
yields a lower Conversion Price). The initial Registration Statement shall cover
at least such number of shares of Common Stock as equals the sum of (x) 200% of
the number of shares of Common Stock into which the Preferred Stock is
convertible, assuming such conversion occurred on the Closing Date or the Filing
Date (whichever date yields a lower Conversion Price), (y) dividends thereon and
(z) the maximum number of shares of Common Stock which could be issued upon
exercise of the Warrants. The Company shall be required to file additional
Registration Statements to the extent the actual number of shares of Common
Stock into which shares
<PAGE>
of Preferred Stock are convertible (together with dividends thereon) and
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in accordance with the immediately prior sentence (the Company shall
have 10 Business Days to file such additional Registration Statement after
notice of the requirement thereof, which the Holders may give at such time when
the number of shares of Common Stock as are issuable upon conversion of
Preferred Stock exceeds 180% of the number of shares of Common Stock into which
the shares of Preferred Stock are convertible, assuming such conversion occurred
on the Closing Date or the Filing Date (whichever yields a lower Conversion
Price).
"Registration Statement" means the registration statement
contemplated by Section 2(a) (covering such number of Registrable Securities and
any additional Registration Statements contemplated in the definition of
Registrable Securities), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B Preferred" shall have the meaning set forth in the
recitals to this Agreement.
"Series B Warrants" means the Common Stock purchase warrants
issued to the Purchaser and to CDC Consulting, Inc. in connection with the sale
of the Series B Preferred.
"Series C Preferred" shall have the meaning set forth in the
recitals to this Agreement.
"Series C Warrants" means the Common Stock purchase warrants
to be issued to the Purchaser and to CDC Consulting, Inc. in connection with the
sale of the Series C Preferred.
"Special Counsel" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means, collectively, the Series B Warrants and the
Series C Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form SB-2 (or, if the
Company is not permitted to register the resale of the Registrable Securities on
Form SB-2, the Registration Statement shall be on such other appropriate form in
accordance herewith as the Holders of a majority in interest of the Registrable
Securities may consent). The Company shall use its best efforts to cause the
Registration Statement
<PAGE>
to be declared effective under the Securities Act as promptly as possible after
the filing thereof, but in any event prior to the Effectiveness Date, and shall
use its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is three years after the date that
such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act, as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent (the "Effectiveness Period");
provided, however, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement (and any additional Registration
Statements as may be required) in accordance with Section 2(a), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously
<PAGE>
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Pro spectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and promptly provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply with the provisions of
the Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section 3(e)
that would, in the opinion of counsel for the Company, violate applicable law or
be materially detrimental to the business prospects of the Company.
<PAGE>
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent reasonably
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board
and any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
<PAGE>
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement or at the time of delivery of any Registrable Securities
sold pursuant thereto (at the option of the underwriters), obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each Person and in
such form and substance as are custom ary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 7
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
<PAGE>
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable
Securities that (i) it will not offer or sell any Registrable Securities under
the Registration Statement until it has received copies of the Prospectus as
then amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(c), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with OTC Bulletin Board and each other securities
exchange or market on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the underwriters or
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing underwriters, if
any, or the Holders of a majority of Registrable Securities may designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and
<PAGE>
disbursements of the Underwriters (including any underwriting commissions and
discounts) and their legal counsel and accountants. By way of illustration which
is not intended to diminish from the provisions of Section 4(a), the Holders
shall not be responsible for, and the Company shall be required to pay the fees
or disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, settlements, judgments, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
<PAGE>
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
<PAGE>
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
Schedule 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of
<PAGE>
the Registrable Securities such holder requests to be registered. No right to
registration of Registrable Securities under this Section shall be construed to
limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Say Yes Foods, Inc.
6380 South Eastern
Suite No. 3
Las Vegas, NV 89119
Facsimile No.: (702) 262-6441
Attn: Chief Financial Officer
With copies to: Stibel & Toulan LLP
183 State Street
Boston, MA 02109
Facsimile No.: (617)523-6100
Attn: Roy D. Toulan, Jr., Esq.
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Alan Brown
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
<PAGE>
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of a Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by such Purchaser to any assignee or transferee of all
or a portion of the Preferred Stock, the Warrants and other Common Stock
warrants referenced in the definition of Registrable Securities or Registrable
Securities without the consent of the Company if: (i) such Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to such registration
rights are being transferred or assigned, (iii) at or before the time the
Company receives the written notice contemplated by clause (ii) of this Section,
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (iv) such transfer shall have been made
in accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchaser's (and to subsequent)
successors and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court sitting in the Borough of Manhattan, the state and federal courts sitting
in the City of New York or any federal court sitting in the Borough of Manhattan
in the City of New York (collectively, the "New York Courts") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such
<PAGE>
Proceeding brought in any New York Court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any Holder. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
SAY YES FOODS, INC.
By: ___________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By: ___________________________
Name:
Title:
Exhibit 5.1
December 29, 1997
JNC Opportunity Fund Ltd.
c/o Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Re:Say Yes Foods, Inc. to
JNC Opportunity Fund Ltd.
Convertible Preferred Stock Purchase Agreement
Gentlemen:
I have acted as counsel to Say Yes Foods, Inc., a Nevada corporation
(the Company), in connection with the execution and delivery of the Convertible
Preferred Stock Purchase Agreement, dated as of December 24, 1997 (the Purchase
Agreement), by and between the Company and JNC Opportunity Fund Ltd. (the
Purchaser), pursuant to which the Company is issuing to the Purchaser 1,500,000
shares of its 7% Series B Convertible Preferred Stock, par value $.001 per share
(the Preferred Stock ) Capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in the Purchase Agreement.
This opinion is delivered to you pursuant to Section 1.1 (a)(ii) of the
Purchase Agreement. In connection with this opinion, I have examined:
(a) A copy of the final Purchase Agreement;
(b) A copy of the Certificate of Designation of the Company (the
Certificate of Designation), as filed with the Nevada
Secretary of State; (c) A copy of the final Registration Rights
Agreement; (d) A copy of the final Warrants; (e) The Certificate
of Incorporation and By-laws of the Company as
amended to the date hereof; and
(f) Records of proceedings and actions of the Board of Directors
of the
<PAGE>
Company relating to the transactions contemplated by the
Purchase Agreement and the Registration Rights Agreement.
The documents referenced in (a) through (d) above are referred to
herein as the Operative Documents).
I have also investigated such questions of law, including, without
limitation, Regulation D (Regulation D) promulgated under the Securities Act of
1933, as amended (the Securities Act), and examined such additional corporate
records of the Company and such other documents and public records as I have
deemed necessary or appropriate to render the opinions contained herein.
I have assumed the genuineness of all signatures (except those of
officers of the Company), the authenticity of all documents submitted to us as
originals and the conformity to original documents of documents submitted to us
as certified, conformed or photostatic copies. I have also assumed, without
verification, the legal capacity of each individual who has executed documents
or instruments in connection with the transaction contemplated hereby. With
respect to certain factual matters, I have relied, without independent
investigation on the facts stated in the representations and warranties
contained in the Purchase Agreement and the Schedules thereto, the SEC
Documents, the Registration Rights Agreement and the Officers' Certificate
(other than in each case facts constituting conclusions of law).
I have also assumed, without verification (i) that the parties to the
Operative Documents and the other agreements instruments and documents executed
in connection therewith, other than the Company, have the power (including,
without limitation, corporate power where applicable) and authority to enter
into and perform the Operative Documents and such other agreements, instruments
and documents, (ii) the due authorization, execution and delivery by such other
parties of the Operative Documents and such other agreements, instruments and
documents, and (iii) that the Operative Documents and such other agreements,
instruments and documents constitute legal, valid and binding obligations of
each such other party, enforceable against such other party in accordance with
their respective terms.
Based upon and subject to the foregoing, I am of the opinion that:
1. No shares of common stock, $.001 par value per share (the Common
Stock), of the Company are entitled to preemptive or similar rights. Except as
specifically disclosed in Schedule 2.1(c) to the Purchase Agreement, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Preferred Stock and the
<PAGE>
Warrants, securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock, except as set forth in the aforesaid Schedule 2.1(c).
2. The Preferred Stock and the Warrants have been duly authorized and,
when paid for in accordance with the terms of the Purchase Agreement, shall have
been validly issued, filly paid and nonassessable.
3. The Company has duly authorized and reserved for issuance such
number of shares of Common Stock upon conversion of the Preferred Stock, as
payment of dividends thereon and upon exercise in full of the Warrants (the
"Underlying Shares") as required pursuant to the Purchase Agreement, the
Warrants and Certificate of Designation. When issued by the Company in
accordance with the terms of the Purchase Agreement, the Warrants and
Certificate of Designation, such Underlying Shares will be validly issued, fully
paid and nonassessable.
4. The execution, delivery and performance of the Operative Documents
by the Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not (i) conflict with or violate
any provision of its Certificate of Incorporation or Bylaws (ii) conflict with
or constitute a default (or an event which with notice or lapse of time or bath
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party and which is listed as an exhibit to
a certain Form 10 to be filed by the Company with the Securities and Exchange
Commission contemporaneous herewith, or (iii) to my knowledge conflict with or
constitute a default (or an event which with notice or lapse of time or bath
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any other agreement, indenture or
instrument to which the Company is a party, or (iv) to my knowledge result in a
violation of any Jaw, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected. To my
knowledge, the business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental authority.
5. Other than the Required Approvals, the Company is not required to
obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any
<PAGE>
court or other federal, state, local or other governmental authority in
connection with the execution, delivery and performance by the Company of the
Operative Documents.
6. Assuming the accuracy of the representations and warranties of the
Company set forth in Section 2.1 of the Purchase Agreement and of the Purchaser
set forth in Section 2.2 of the Purchase Agreement, the offer, issuance and sale
of the Preferred Stock and the Warrants and the offer of the Underlying Shares
to the Purchaser pursuant to the Purchase Agreement, the Warrants and
Certificate of Designation are exempt from the registration requirements of the
Securities Act.
7. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by the Operative Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Operative Documents by the Company and the consummation
by it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company. Each of the Operative Documents has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
I do not undertake to advise you or anyone else of any changes in the
opinions expressed herein resulting from changes in law, changes in facts or any
other matters that hereafter might occur or be brought to my attention that did
not exist on the date hereof and of which I had no knowledge.
The opinions expressed herein are limited to the transaction
contemplated in the Operative Documents and the parties thereto; no reliance
should be made or placed upon such opinions for other purposes or by other
parties.
Sincerely yours,
Roy D. Toulan, Jr.
Exhibit 5.2
December 31, 1997
JNC Opportunity Fund Ltd.
c/o Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Re:Say Yes Foods, Inc. to
JNC Opportunity Fund Ltd.
Convertible Preferred Stock Purchase Agreement (Series C)
Gentlemen:
I have acted as counsel to Say Yes Foods, Inc., a Nevada corporation
(the Company), in connection with the execution and delivery of the Convertible
Preferred (Series C) Stock Purchase Agreement, dated as of December 31, 1997
(the Purchase Agreement), by and between the Company and JNC Opportunity Fund
Ltd. (the Purchaser), pursuant to which the Company is issuing to the Purchaser
500,000 shares of its 7% Series Convertible Preferred Stock, par value $.001 per
share (the Preferred Stock ) Capitalized terms used and not otherwise defined
herein shall have the respective meanings set forth in the Purchase Agreement.
This opinion is delivered to you pursuant to Section 1.1 (a)(ii) of the
Purchase Agreement. In connection with this opinion, I have examined:
(a) A copy of the final Purchase Agreement;
(b) A copy of the Certificate of Designation of the Company (the
Certificate of Designation), as filed with the Nevada Secretary of State;
(c) A copy of the final Registration Rights Agreement;
(d) A copy of the final Warrants;
(e) The Certificate of Incorporation and By-laws of the Company
as amendedto the date hereof; and
(f) Records of proceedings and actions of the Board of Directors
of the Company relating to the transactions contemplated by the Purchase
Agreement and the Registration Rights Agreement.
The documents referenced in (a) through (d) above are referred to
herein as the Operative Documents).
I have also investigated such questions of law, including, without
limitation, Regulation D (Regulation D) promulgated under the Securities Act of
1933, as amended (the Securities Act), and examined such additional corporate
records of the Company and such other documents and public records as I have
deemed necessary or appropriate to render the opinions contained herein.
I have assumed the genuineness of all signatures (except those of
officers of the Company), the authenticity of all documents submitted to us as
originals and the conformity to original documents of documents submitted to us
as certified, conformed or photostatic copies. I have also assumed, without
verification, the legal capacity of each individual who has executed documents
or
<PAGE>
instruments in connection with the transaction contemplated hereby. With respect
to certain factual matters, I have relied, without independent investigation on
the facts stated in the representations and warranties contained in the Purchase
Agreement and the Schedules thereto, the SEC Documents, the Registration Rights
Agreement and the Officers' Certificate (other than in each case facts
constituting conclusions of law).
I have also assumed, without verification (i) that the parties to the
Operative Documents and the other agreements instruments and documents executed
in connection therewith, other than the Company, have the power (including,
without limitation, corporate power where applicable) and authority to enter
into and perform the Operative Documents and such other agreements, instruments
and documents, (ii) the due authorization, execution and delivery by such other
parties of the Operative Documents and such other agreements, instruments and
documents, and (iii) that the Operative Documents and such other agreements,
instruments and documents constitute legal, valid and binding obligations of
each such other party, enforceable against such other party in accordance with
their respective terms.
Based upon and subject to the foregoing, I am of the opinion that:
1. No shares of common stock, $.001 par value per share (the Common
Stock), of the Company are entitled to preemptive or similar rights. Except as
specifically disclosed in Schedule 2.1(c) to the Purchase Agreement, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Preferred Stock and the Warrants, securities,
rights or obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock, except as set forth in
the aforesaid Schedule 2.1(c).
2. The Preferred Stock and the Warrants have been duly authorized and,
when paid for in accordance with the terms of the Purchase Agreement, shall have
been validly issued, filly paid and nonassessable.
3. The Company has duly authorized and reserved for issuance such
number of shares of Common Stock upon conversion of the Preferred Stock, as
payment of dividends thereon and upon exercise in full of the Warrants (the
"Underlying Shares") as required pursuant to the Purchase Agreement, the
Warrants and Certificate of Designation. When issued by the Company in
accordance with the terms of the Purchase Agreement, the Warrants and
Certificate of Designation, such Underlying Shares will be validly issued, fully
paid and nonassessable.
4. The execution, delivery and performance of the Operative Documents
by the Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not (i) conflict with or violate
any provision of its Certificate of Incorporation or Bylaws (ii) conflict with
or constitute a default (or an event which with notice or lapse of time or bath
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party and which is listed as an exhibit to
a certain Form 10 to be filed by the Company with the Securities and Exchange
Commission contemporaneous herewith, or (iii) to my knowledge conflict with or
constitute a default (or an event which with notice or lapse of time or bath
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any other agreement, indenture or
instrument to which the Company is a party, or (iv) to my knowledge result in a
violation of any Jaw, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected. To my
knowledge, the business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental authority.
<PAGE>
5. Other than the Required Approvals, the Company is not required to
obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority in connection with the execution, delivery and
performance by the Company of the Operative Documents.
6. Assuming the accuracy of the representations and warranties of the
Company set forth in Section 2.1 of the Purchase Agreement and of the Purchaser
set forth in Section 2.2 of the Purchase Agreement, the offer, issuance and sale
of the Preferred Stock and the Warrants and the offer of the Underlying Shares
to the Purchaser pursuant to the Purchase Agreement, the Warrants and
Certificate of Designation are exempt from the registration requirements of the
Securities Act.
7. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by the Operative Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Operative Documents by the Company and the consummation
by it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company. Each of the Operative Documents has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
I do not undertake to advise you or anyone else of any changes in the
opinions expressed herein resulting from changes in law, changes in facts or any
other matters that hereafter might occur or be brought to my attention that did
not exist on the date hereof and of which I had no knowledge.
The opinions expressed herein are limited to the transaction
contemplated in the Operative Documents and the parties thereto; no reliance
should be made or placed upon such opinions for other purposes or by other
parties.
Sincerely yours,
Roy D. Toulan, Jr.
g:\sayes\rdtopinion.seriesC
<PAGE>
EXHIBIT NO. DESCRIPTION
10.1 License Agreement between the Company and
Global Dairy Products Ltd. 2/5/96
PRODUCT LICENSE AGREEMENT
THIS AGREEMENT is dated for reference the day of February, 1996.
BETWEEN:
GLOBAL DAIRY PRODUCTS LTD., a Bahamian company,
with its address at 94 Dowdeswell Street, P.O. Box N-7521,
Nassau, Bahamas
(hereinafter referred to as "Licensor")
OF THE FIRST PART
AND:
SAY YES FOODS INC., a Nevada corporation, with its offices at
Park 2000, 6380 South Eastern Avenue, Suite 3, Las Vegas,
Nevada, 89119
(hereinafter referred to as "Licensee")
OF THE SECOND PART
WHEREAS:
A. The Licensor is the owner of a product (the"Product") which it has
developed as a substitute for milk in beverages and other products in
which milk is used and such Product has certain stated and represented
advantages, including a low lactose formulation, a low fat content, and
other benefits, including a competitive cost of formulation (the
Commercial Products produced from the Product are hereinafter referred
to as "Commercial Product");
B. The Licensor has agreed, on the terms of this Agreement, to grant unto
the Licensee the sole right and capacity to employ the Product to
produce, manufacture and market Commercial Product for a territory
encompassing the entirety of the United States, including Alaska,
Hawaii, and its administered territory of Puerto Rico (such
geographical jurisdictions hereinafter referred to as the "Territory").
ARTICLE I
GRANT
1.1 Grant of License. The Licensor hereby grants unto the Licensee an
exclusive license to employ the Product in the Territory for the
production and manufacture and marketing of Commercial Product for all
uses including, without limitation, as a beverage, as a frozen product,
for cheeses, and as an ingredient for other food products.
1.2 Delivery of Product. The Licensor will deliver to such location or
locations as the Licensee may reasonably require the Product in such
quantity as the Licensee may require for its production and
manufacture. Payment terms of such deliveries will be net thirty (30)
days.
1.3 Specifications. The Licensor will, at cost, provide to the Licensee all
necessary technical assistance and marketing assistance as may be
required by the Licensee to produce Commercial Product.
ARTICLE II
FEE
2.1 License Fee. As consideration for the grant of the license herein for
the Territory, the Licensee will pay to the Licensor an aggregate of Five
Hundred Thousand Dollars ($500,000.00) (U.S.) In the following portions:
(a) Twenty-five Thousand Dollars ($25,000.00) (U.S.) within thirty (30)
days of execution of this Agreement;
(b) One Hundred and Twenty-Five Thousand Dollars ($125,000.00) (U.S.) upon
the first non-private financing of the Licensee;
(c) One Hundred and Twenty-Five Thousand Dollars ($125,000.00) (U.S.) upon
the second non-private financing of the Licensee; and
(d) the balance on the third non-private financing of the Licensee.
In addition, the Licensee will distribute, on demand, Two Million, Five Hundred
Thousand (2,500,000) common shares (qualified pursuant to Rule 144) and such
shares shall have all of the same rights of common shares on the date of this
Agreement, and accordingly, shall be altered for any re-designation of the
authorized capital of the Company, the issued capital, in respect to any merger
or amalgamation, or any other capital change affecting common shares generally,
but shall not be adjusted for the mere issuance of common shares for cash for
the purpose of financing the Company or acquiring services or rights.
2.2 Product Fee to Licensor. Licensor shall publish a price list of its
products applicable to the Licensee. The initial base cost per litre of
concentrate will be twenty dollars ($20.00) (U.S.) And Licensor states
that such product is sufficient for production of four hundred and nine
(409) U.S.
gallons of end fluid milk product.
Such price lists may be amended annually at January 1st and no price increase
will exceed five percent (5%) unless mutually agreed to by both parties. It is
acknowledged that during the first twelve (12) months of this Agreement, the
base cost will be jointly reviewed every ninety (90) days and amended if
required.
2.3 Payment of Product Fees. The fee for Product delivered by the Licensor
shall be paid for by the Licensee on a net thirty (30) day basis.
ARTICLE III
TRADEMARKS AND PATENTS
3.1 Trademarks and Patents. The Licensee agrees that all trademarks,
patents and other intellectual property and proprietary information of
the Product and all improvements, derivatives or successors (all
collectively referred to as the "Technology") belong to and shall
belong to the Licensor and that the fee for the trademark, patents and
proprietary information for use by the Licensee is acknowledged to be
included in the price of concentrate sold by the Licensor.
3.2 Prohibition Against Dispute. The Licensee covenants and agrees that,
during and after the term of this Agreement, it will not contest the
Licensor's Technology, nor will it in any way dispute or impugn the
validity of the Licensor's ownership and trademark or patent therein.
3.3 Challenges to Trademark or Proprietary Information. The Licensee shall
immediately notify the Licensor of any infringement or challenge to the
trademark or patent or proprietorship of the Technology as soon as the
Licensee becomes aware of such infringement or challenge, and such
challenge shall be defended or prosecuted by the Licensor at the cost
of the Licensee where such infringement or challenge occurs within the
Territory of the Licensee.
ARTICLE IV
RELATIONSHIP OF PARTIES
4.1 Independent Contractor. The relationship between the Licensee and the
Licensor is that of independent contractors. The parties to this
Agreement are not partners, nor shall they be construed as the same,
nor, except as specifically permitted from time to time, shall either
party hold itself out as the agent or representative of the other
party.
4.2 Production Responsibility. It is specifically agreed that all
manufacturing or processing, services, or other work performed by the
Licensee in the production of the Commercial Product from the Product
shall be the sole responsibility of the Licensee, with the provision
that such work shall be performed in accordance with the specifications
and quality standards required by the Licensor and performed in such
manner and with such intent as shall protect the Technology of the
Licensor.
ARTICLE V
TERM
5.1 Term. This Agreement shall be effective commencing the date of
execution hereinbelow stated, and shall continue for a term of
ninety-nine (99) years, subject to termination in accordance with this
Agreement.
ARTICLE VI
INSURANCE
6.1 Product Liability Insurance. Both parties will obtain, and will
maintain throughout the term of this Agreement, product liability
insurance of the Product, with coverage limits considered reasonable in
the industry and in accordance with specifications required by the
Licensor. Licensor will also require any manufacturer that contracts
any Product production on behalf of the Licensor to also maintain such
insurance.
ARTICLE VII
RESTRICTIONS TO TERRITORY
7.1 Restriction to Territory. The Licensee covenants, agrees and warrants
with the Licensor that it will not at any time manufacture, market,
sell or distribute, whether directly or indirectly, Commercial Product
or engage or license others to do so, in any geographical area other
that the Territory.
ARTICLE VIII
PROPRIETARY INDEMNITY
8.1 Indemnity. During the term of this Agreement, and after termination for
default or otherwise, the Licensee covenants, warrants and agrees that
it will indemnify and compensate the Licensor for any loss of the
Technology or damage to the Technology or its reputation by any act,
commission, negligence, failure to act, or failure to defend the
Technology.
8.2 Product Protection. The Licensor covenants and agrees to protect the
Territory from any infringement by other parties attempting or
purporting to produce Product, or any competing equivalent which
infringes the Technology, and the Licensee shall indemnify the Licensor
for all such endeavors to protect the Territory and the Technology in
the Territory.
ARTICLE IX
RIGHT OF ENTRY
9.1 Investigation of Licensee Operations and Accounts. The Licensor shall
have unimpeded right and authority to enter on the premises of the
Licensee, its representatives, its agents, its counsel or any other
party having control or possession of records or premises of the
Licensee or in relation to its production of the Commercial Product for
the purpose of all such investigations as the Licensor may require to
assure itself as to the compliance by the Licensee with appropriate
technical standards, quality controls, security of the of the
Technology and use of the Technology. The Licensee covenants to allow
and assist the Licensor, and its duly authorized representatives,
access to all the aforesaid premises and locations and access to all
such personnel and other persons as the Licensor may require, and the
Licensee shall make such premises, records and persons available within
forty-eight (48) hours of notice by the Licensor.
ARTICLE X
ASSIGNMENT
10.1 Assignment. Neither this Agreement nor any rights or interests
hereunder may be assigned without the prior written permission of the
Licensor to all of the terms and conditions of an assignment or
sub-license.
ARTICLE XI
CONFIDENTIALITY
11.1 Confidential Information. All information in respect to the Technology,
whether documentary, electronic storage, or otherwise, shall be
maintained in confidence by the Licensee and the Licensee shall
establish security systems and control systems to the satisfaction of
the Licensor to protect the Technology.
ARTICLE XII
LICENSEE BUSINESS CONDUCT
12.1 Product Goodwill and Licensee Conduct. In the event that the Licensor
has a reasonable concern that the business of the Licensee, or the
conduct of any individual thereof, is being conducted in a way contrary
to law or is reasonably likely to bring disrepute to the Licensee, the
Technology or the Licensee's reputation, and thereby the reputation of
the Licensor, and the Licensee warrants and agrees to comply with, the
Licensor may require that the Licensee make such alterations in its
business conduct, personnel, or structure, whether of management or
board representation or employee representation, as the Licensor may
reasonably require, failing which the Licensor, at its discretion, may
cancel the licence with sixty (60) days' notice. In the event of any
debate or dispute as to the reasonableness of the Licensor's request or
requirements, the judgment of the Licensor shall be deemed correct
until such time as the matter has been determined by arbitration and,
accordingly, all such persons as have been determined by the Licensor
to be of concern shall be suspended from the Licensee's operations and
its premises at the cost of the Licensee until determination of the
matter.
ARTICLE XIII
DEFAULT AND TERMINATION
13.1 Default. In the event that a party hereof breaches a term of this
Agreement, the injured party may terminate the Agreement if the
defaulting party has not remedied the default within thirty (30) days
of notice of the default. If the injured party does not wish to
terminate the Agreement for default, it may instead insist and enforce
specific performance.
13.2 Termination. In the event that this Agreement is terminated, or at its
natural termination, the Licensee shall return to the Licensor all
information and documents it may have in respect to the Technology,
return all Technology in its possession, and cease the business of
producing Commercial Product. It shall not produce Commercial Product,
or any competing product for a period of five (5) years after
termination. Further, the Licensee shall not enter into any
partnerships, share ownerships, or any other relationship with any
party to produce products similar to the Product or the Commercial
Product for the said term of five (5) years, nor shall it provide any
assistance to any parties, whether technical, informational, or
otherwise, to compete with the Product or Commercial Products.
ARTICLE XIV
NOTICES
14.1 Notices. All notices, directions, or payments required to be given
hereunder shall be made at the addresses first herein set forth, or at
such other addresses as may be notified by the parties hereto. Any
notice, if sent by mail, shall be deemed delivered on the third
business day following mailing, absent postal disruption, and if
delivered or sent by facsimile transmission, shall be deemed to be
given or made on the business day following such delivery or facsimile
transmission.
14.2 Time of the Essence. Time shall be of the essence of this Agreement
-------------------
and shall continue to be of the essence of this Agreement.
ARTICLE XV
ENUREMENT
15.1 Enurement. This Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted
assigns.
ARTICLE XVI
ENTIRE AGREEMENT
16.1 Entire Agreement. This Agreement contains and constitutes the entire
agreement of the parties hereto and there are no representations,
inducements, promises, or agreements, whether verbal or otherwise,
collateral hereto.
ARTICLE XVII
GOVERNING LAW
17.1 Jurisdiction. This Agreement shall be governed in accordance with the
------------
laws of the State of Nevada.
ARTICLE XVIII
ARBITRATION
18.1 Arbitration. The parties hereto agree that any dispute arising between
them in regard to this Agreement shall be resolved by arbitration
before a panel of three (3) arbitrators. One arbitrator shall be
selected by the Licensor, one by the Licensee, and the third by the two
appointed arbitrators. The arbitration shall determine by majority
vote, all matters, including matters of procedure and evidence of the
arbitration. Notwithstanding the within requirement for arbitration,
the Licensor, if it reasonably suspects that a breach of this Agreement
is occurring which may jeopardize the Technology, compromise
confidentiality of the Technology and information thereto, or assists
or causes any other party to acquire information thereto, or in the
event of non-compliance by the Licensee of Technical and Quality
Standards, or of clauses 9.1 or 12.1, and Licensor may immediately
apply to a court of competent jurisdiction, without notice to the
Licensee, and acquire thereto an injunction and the Licensee agrees
hereby to attorn to such injunction for the period of any dispute and
arbitration.
18.2 Decision of Arbitrators. The parties hereto agree that the decisions of
the arbitrator panel shall be binding as to issues of fact and may only
be appealed in the event of mistake by law.
IN WITNESS WHEREOF the parties hereto have executed this Agreement by their duly
authorized officers as of the 5 day of February , 1996.
GLOBAL DAILY PRODUCTS, LTD.
For:
Authorized Signatory
SAY YES FOODS, INC.
For:
Authorized Signatory
EXHIBIT NO. DESCRIPTION
10.2 License Option Agreement between the Company
and Global Dairy Products Ltd. 8/8/97
GLOBAL DAIRY PRODUCTS LTD.
94 Dowdeswell Street
P.O. Box N-7521 Tel: (242) 322-3997
Nassau, Bahamas Fax: (242) 325-3345
August 8, 1997
Say Yes Foods Inc.
6380 South Eastern Avenue
Suite 3
Las Vegas, NV 89119
Attention: Charles Thomas
Dear Sir:
Re: Option to Acquire Additional Territorial Rights
Say Yes Foods Inc. has acquired the manufacturing and marketing rights to
our proprietary fat free milk formulation for the United States.
You have indicated that you have interest in acquiring rights to additional
territories.
Global Dairy Products Inc. hereby provides an option to Say Yes Foods Inc.
to acquire rights to all worldwide territories on the following conditions:
1. Presentation of a territory specific Business Plan outlining in detail
your plans for commercializing the product in such territory.
2. Financial estimates outlining your market development costs and
projected revenues including sub-licensing fee if any.
3. That a territory specific fee be negotiated in each case.
Such option is valid for a period ending August 15, 2005 and may be extended if
mutually agreed.
Yours truly,
GLOBAL DAIRY PRODUCTS LTD.
Isaac Collie
President
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Say Yes Foods, Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our audit report dated August 8, 1997 on
the financial statements of Say Yes Foods, Inc. as of December 31, 1996. We also
consent to the reference to our firm under the caption "Experts" in such
Prospectus.
BRADSHAW, SMITH & CO.
Las Vegas, Nevada
January 28, 1998
EXHIBIT NO. DESCRIPTION
23.2 Consent of Stibel & Toulan, LLP
Counsel to the Company 1/29/98
STIBEL & TOULAN LLP
Attorneys At Law
183 State Street
Boston, Massachusetts 02109
Telephone: 617-523-6000 Internet E-Mail:
Facsimile: 617-523-6100 [email protected]
January 29, 1998
To the Board of Directors
of Say Yes Foods, Inc.
We hereby consent to the use in the Prospectus to be included in the
Registration Statement on Form SB-2 being filed by Say Yes Foods, Inc. of our
opinion dated December 29, 1997 and December 31, 1997 in connection with the
Convertible Preferred Stock Purchase Agreements of even dates therewith. We also
hereby consent to the reference to our firm under the caption "Counsel" in such
Prospectus.
STIBEL & TOULAN, LLP
By
Roy D. Toulan, Jr.
A Member of the Firm
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001009661
<NAME> 0
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 511,200
<SECURITIES> 0
<RECEIVABLES> 25,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 536,300
<PP&E> 2,900
<DEPRECIATION> 0
<TOTAL-ASSETS> 539,200
<CURRENT-LIABILITIES> 58,300
<BONDS> 0
0
500
<COMMON> 19,100
<OTHER-SE> 461,300
<TOTAL-LIABILITY-AND-EQUITY> 539,200
<SALES> 66,000
<TOTAL-REVENUES> 66,000
<CGS> 26,500
<TOTAL-COSTS> 1,592,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,552,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,552,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,552,500)
<EPS-PRIMARY> (0.092)
<EPS-DILUTED> 0
</TABLE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
REPORT ON COMPILATION OF FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
CONTENTS
PAGE
Financial statements:
Balance sheets 1
Statements of operations 2
Statements of changes in stockholders' equity (deficit) 3
Statements of cash flows 4
Notes to financial statements 5-7
<PAGE>
See Notes to Financial Statements.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
<TABLE>
BALANCE SHEETS
ASSETS September 30, December 31,
1997 1996
============ ============
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 117,200 $ 511,200
Accounts receivable (net allowance for doubtful 159,600 25,100
accounts of $-0-)
------------ ------------
Total current assets 276,800 536,300
Property and equipment (net of accumulated 31,700 2,900
depreciation of $600, $-0-, and $4,500)
Other assets 2,300 --
------------ ------------
$ 310,800 $ 539,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 11,900 $ 41,300
Account payable to related party 15,000 15,000
Other liabilities 3,100 2,000
------------ ------------
Total current liabilities 30,000 58,300
------------ ------------
Commitments and contingencies -- --
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value; 500 500
authorized 510,000 shares: Series A; authorized
510,000 shares; issued and outstanding 510,000
and -0- shares (aggregate liquidation preference
of $510 and $-0-).
Common stock, $.001 par value; authorized 19,500 19,100
50,000,000 shares; issued and outstanding
19,543,299 shares.
Additional paid-in capital 4,798,100 1,769,500
Stock options 270,000 270,000
Accumulated deficit (4,807,300) (1,578,200)
------------ ------------
280,800 480,900
------------ ------------
$ 310,800 $ 539,200
============ ============
</TABLE>
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
<TABLE>
STATEMENTS OF OPERATIONS
Nine months ended
September 30,
==================================
1997 1996
================= ================
<S> <C> <C>
(unaudited) (unaudited)
Revenues $ $ 19,400
369,500
Cost of revenues 228,300 7,800
----------------- ----------------
Gross profit 141,200 11,600
----------------- ----------------
Operating expenses:
Advertising and promotion 1,775,700 30,900
General and administrative 1,217,000 219,300
Depreciation 3,800 5,900
Research and development 234,600 113,000
Consulting services 149,500 153,300
Option compensation -- 270,000
Product licensee fee -- 275,000
----------------- ----------------
3,380,600 1,067,400
----------------- ----------------
Loss from continuing operations before (3,239,400) (1,055,800)
other income taxes
Interest and other income 10,300 --
----------------- ----------------
Loss from continuing operations before (3,229,100) (1,055,800)
provision for income taxes
Provision for income taxes -- --
----------------- ----------------
Net loss $ $
(3,229,100) (1,055,800)
================= ================
Net loss per common share $ (0.17) $ (0.07)
================= ================
Weighted average common shares outstanding 19,297,230 16,108,367
================= ================
</TABLE>
<PAGE>
See Notes to Financial Statements.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
Total
stock
Preferred stock Common stock Additional holders'
===================== ===================== paid-in Stock Accumulated equity
Shares Amount Shares Amoun capital options deficit (deficit)
========== ========== ========== ========== =========== ========== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 510,000 $ 500 19,115,563 $19,100 $1,769,500 $ 270,000 $(1,578,200)$ 480,900
Net loss (unaudited) -- -- -- -- -- -- (3,229,100)(3,229,100)
Capital contributions (unaudited) -- -- -- -- 1,954,000 -- -- 1,954,000
Issuance for cash (unaudited) -- -- 427,736 400 1,074,600 -- -- 1,075,000
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Balance, September 30, 1997 (unaudited) 510,000 $ 500 19,543,299 $19,500 $4,798,100 $270,000 $(4,807,300)$ 280,800
========== ========== ========== ========== ========== ========== ========== ===========
</TABLE>
<PAGE>
See Notes to Financial Statements.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
Nine months ended
September 30,
=======================
1997 1996
=========== ===========
<S> <C> <C>
(unaudited)(unaudited)
Cash flows from operating activities:
Net loss $(3,229,100)$(1,055,800)
Charges to net loss not requiring cash outlays:
Stock issued in exchange for services and supplies -- --
Stock bonuses awarded to employees -- --
Stock options issued to non-employees -- 270,000
Operating expenses paid by stockholder 1,954,000 5,100
Depreciation 3,800 5,900
Product license agreement -- 275,000
Changes in:
Accounts receivable (134,500) --
Inventory -- (7,200)
Accounts payable (29,400) (700)
Other liabilities 1,100 --
Current note payable -- 15,000
----------- -----------
Net cash used by operating activities (1,434,100) (492,700)
----------- -----------
Cash flows from investing activities:
Purchase of assets (34,900) (3,500)
----------- -----------
Net cash used by investing activities (34,900) (3,500)
----------- -----------
Cash flows from financing activities:
Repayment of debt to related parties -- (150,000)
Proceeds from issuance of common stock 1,075,000 1,352,200
----------- -----------
Net cash provided by financing activities 1,075,000 1,202,200
----------- -----------
Net increase in cash (394,000) 706,000
Cash, beginning of period 511,200 --
----------- -----------
Cash, end of period $ 117,200 $706,000
=========== ===========
Schedule of non-cash investing and financing activities:
Non-cash assets acquired in merger $ -- $ 12,400
=========== ===========
Loan payable to related party for license agreement $ -- $275,000
=========== ===========
</TABLE>
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
1. Summary of significant accounting policies:
Organization:
The Company was organized March 23, 1989 under the laws of the State of
Nevada, as Moneyline Financial Group, Inc. The Company amended its
Articles of Incorporation February, 1996 changing its name to Say Yes
Foods, Inc. ("SYF").
Interim financial information (unaudited):
The unaudited interim financial statements for the nine-month periods ended
September 30, 1997 and 1996 and as of September 30, 1996 have been
prepared on the same basis as the Company's audited financial statements
as of and for the year ended December 31, 1996. In the opinion of
management, all adjustments, consisting of normal, recurring accruals,
necessary to present fairly the financial position of the Company's at
September 30, 1997, and the results of operations and cash flows for the
nine-month periods ended September 30, 1997 and 1996 have been included.
The results of operations for such interim periods are not necessarily
indicative of the results expected for the full year ending December 31,
1997.
2. Licensing rights:
SYF acquired the exclusive rights to a product (the "Product") which is a
fat free dairy concentrate used to produce milk and other products in
which milk is used. The license covers the United States and Puerto Rico
for a period of ninety-nine years.
SYF agreed to pay $275,000 and issued 2,500,000 shares of common stock at
par value in exchange for the license agreement. The license was recorded at
cost and charged to earnings in 1996.
SYF has also been granted an option to acquire additional territorial
rights if certain conditions are met including 1) presentation of a
business plan regarding commercializing the product in the respective
territories; 2) presention of financial estimates outlining market
development costs and project revenues; and 3) negotiation of a territory
specific fee. This option expires August, 2005 and may be extended at the
discretion of the licensor.
3. Stockholders' equity (deficit):
Change in capital structure:
During the nine months ended September 30, 1997, the Company raised
$1,075,000 of capital by selling 37,736 shares at 75% of closing price
and by selling equity units for $2.50 under offerings pursuant to
Regulation D, Rule 506 or Regulation "S" of the Securities Act of 1933.
Each equity unit consist of one share of restricted common stock and a
one half warrant to purchase one additional share of common stock for
$2.50
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
3. Stockholders' equity (deficit) (continued):
Convertible preferred stock:
InFebruary, 1996, the Company issued 510,000 shares of Series A
convertible preferred stock in connection with the purchase of assets.
The shares are convertible on a 1:1 basis to common shares and may be
converted at any time and have the same liquidation rights on a 1:1 basis
as with common stock. The preferred shares have super voting rights over
that of common shares by 100 to 1. The preferred shareholders will be
able to control any shareholder vote for the foreseeable future.
4. Related party transactions:
Capital contributions:
The licensor of the product rights (Note 2) holds less than 5% of the
shares of common stock. As of September 30, 1997, this
shareholder/licensor has paid marketing, advertising and stock promotion
costs for the benefit of SYF in the amount of $1,954,000. The
shareholder/licensor has not received nor has the Company agreed to issue
additional shares of stock.
5. Commitments and contingencies:
Litigation:
OnJuly 11, 1997, the Company commenced a declaratory judgment action in
Federal District Court for the State of Utah, Central Division, entitled
Say Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No.
2:97-CV-548C, seeking declaratory judgment that certain share
certificates representing 3,400,000 shares of the Company's common stock
were issued improperly without the knowledge or consent of the Company.
By order of a foreign court, such certificates were seized from a holding
account to satisfy a judgment in the United Kingdom, to which the Company
was not a party. A receiver appointed by the British Court has requested
that the canceled share certificates be transferred into the name of the
receiver. The Company refused, and commenced the action described herein
in response to an action commenced against the Company and its stock
transfer agent to recognize and transfer the certificate held by the
receiver. While management believes that the certificates were taken and
issued in an improper manner without the Company's knowledge and that,
accordingly, the Company will prevail in these actions, a litigation loss
and the resultant recognition of the shares of common stock held by the
receiver would represent a significant impact on the Company's capital
structure.
6. Subsequent events:
Through December 12, 1997, the Company raised $136,000 capital by issuing
55,110 shares of common stock pursuant to a Regulation "S" offering.
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
6. Subsequent events (continued):
OnDecember 24, 1997, the Company amended its Articles of Incorporation
increasing the authorized number of shares of preferred stock by
2,000,000 from 510,000 to 2,510,000. Out of the 2,000,000 additional
shares of preferred stock, 1,500,000 shares were designated by the Board
of Directors as Series B shares and 500,000 shares were designated as
Series C shares. The Company received approximately $4,500,000 (net
proceeds) for the issuance of the Series B and C shares of Preferred
Stock.
The holders of Series B and C shares are entitled to a 7% cumulative
dividend, payable quarterly in cash or common stock (at the option of the
Company). The Series B and C shares have no voting rights except that a
vote of a majority of the Series B shares is required for any adverse
change to the rights and preferences of any class of stock senior to the
Series B shares. The number of shares of common stock that would be
issuable upon the conversion of Series B and C shares shall be limited so
that no selling shareholder owns, at any one time, in excess of 4.99% of
the issued and outstanding common stock.
The Series B and C shares have dividend and liquidation preferences
entitling the holders thereof to receive such payments prior to any other
security holders of the Company.
The Series B and C preferred shares are convertible into shares of common
stock ( ) at the option of the holder thereof at any time and ( ) if not
earlier converted, on the second anniversary of their issuance, in each
case at a conversion price based on the market value of the Company's
common stock as determined by a formula specified in the Certificate of
Designation for the Series B and C shares, as applicable.
Inconnection with the Series B and C shares of preferred stock, Series B
and C warrants were issued allowing the holder to purchase an aggregate
of 500,000 shares of the Company's common stock at a present exercise
price of $2.50 per share. Each such warrant contains provisions for the
adjustment of the exercise price and the aggregate number of share
issuable upon exercise of the warrants under certain circumstances,
including stock dividends, stock splits, reorganizations,
reclassification and consolidations.
In addition, 236,423 warrants exist in connection with a 1997 Regulation S
placement having an exercise price of $5.00.
Shareholder advances:
From October 1, 1997 through December 31, 1997, a shareholder/licensor (as
discussed in Note 3) paid marketing, advertising and stock promotion fees
for the benefit of the Company in the amount of .
