U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/_____/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File No. 1-13048
HEALTHY PLANET PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2601764
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 Corporate Circle, Petaluma, California 94954
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (707) 778-2280
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of November 3, 1997, there were issued and outstanding 2,127,362
shares of common stock of the registrant (exclusive of 186,341 shares of voting
Series D Preferred Stock convertible into 186,341 shares of common stock).
Transitional Small Business Disclosure Format Yes No X
----- -----
Page 1 of 15
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
INDEX
Page
----
Form 10-QSB Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at September 30, 1997 3
Statements of Operations for the three-months ended 5
and nine months ended September 30, 1997 and 1996
Statements of Cash Flows for the three-months ended 6
and nine months ended September 30, 1997 and 1996
Notes to the Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Page 2 of 15
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET
ASSETS
September 30,
1997
-----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $1,583,844
Marketable securities 1,016,116
Accounts receivable - net of allowances for doubtful
accounts and returns of $160,753 1,183,495
Inventories 1,740,704
Advance on royalties 128,671
Prepaid expenses 139,414
Deferred income taxes 194,080
----------
Total current assets 5,986,324
----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization 449,602
----------
OTHER ASSETS
Deferred income taxes 1,471,000
Security deposits 34,277
Publishing rights - net of accumulated
amortization of $383,353 115,789
Other 118,417
----------
Total other assets 1,739,483
----------
TOTAL ASSETS $8,175,409
==========
The accompanying notes are an integral
part of these financial statements.
Page 3 of 15
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
BALANCE SHEET (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30,
1997
-------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 391,863
Royalties payable 15,789
Commissions payable 104,661
Income taxes payable 4,700
Dividends payable 61,500
Accrued wages, bonus' and payroll taxes 71,008
Accrued liabilities 2,667
------------
Total current liabilities 652,188
ACCRUED RENT PAYABLE 75,715
------------
TOTAL LIABILITIES 727,903
------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 12,000,000 shares
authorized, 1,827,362 shares issued and outstanding 18,273
Preferred stock, Series B, $.10 par value, with
aggregate liquidation preferences of $100,080,
14,250 shares authorized, 834 shares issued
and outstanding 83
Preferred stock, Series D, $.10 par value, with
aggregate liquidation preferences of $952,203,
371,009 shares authorized, 186,341 issued and
outstanding 18,634
Additional paid-in capital 12,308,071
Accumulated deficit (4,897,555)
------------
Total shareholders' equity 7,447,506
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,175,409
============
The accompanying notes are an integral
part of these financial statements.
Page 4 of 15
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,425,463 $ 1,910,038 $ 3,138,656 $ 3,730,434
COST OF GOODS SOLD 792,356 792,830 1,572,129 1,433,637
----------- ----------- ----------- -----------
GROSS PROFIT 633,107 1,117,208 1,566,527 2,296,797
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, shipping and marketing 344,615 280,074 802,660 662,885
General and administrative 437,361 569,073 1,227,645 1,301,475
----------- ----------- ----------- -----------
781,976 849,147 2,030,305 1,964,360
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (148,869) 268,061 (463,778) 332,437
----------- ----------- ----------- -----------
OTHER INCOME:
Interest income 43,211 40,028 116,616 121,945
Other income 467 135 5,138 135,144
----------- ----------- ----------- -----------
43,678 40,163 121,754 257,089
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES (105,191) 308,224 (342,024) 589,526
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES 0 123,289 222,000 235,810
----------- ----------- ----------- -----------
NET INCOME (LOSS) (105,191) 184,935 (564,024) 353,716
DIVIDENDS ACCUMULATED
ON PREFERRED STOCK 0 0 0 (4,504)
INCOME (LOSS) APPLICABLE TO
COMMON STOCK ($ 105,191) $ 184,935 ($ 564,024) $ 349,212
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE ($ .06) $ .09 $ .31 $ .17
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,827,362 2,020,849 1,827,362 2,015,971
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
Page 5 of 15
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ($ 105,191) $ 184,935 ($ 564,024) $ 353,716
Non-cash items included in net income (loss)
Depreciation and amortization 52,797 45,956 152,226 137,888
Increase/(decrease) in allowances for
doubtful accounts and returns 62,518 144,163 (233,869) (220,823)
Change in inventory reserves 0 (31,000) 81,000 (56,000)
Increase/decrease in deferred income taxes 0 123,289 217,920 222,630
Abandonment of leasehold improvements 0 0 0 12,493
Changes in:
Accounts receivables (489,607) (966,309) 53,779 (701,488)
Inventories 121,002 108,024 (403,764) (393,522)
Advances on royalties 97,179 110,422 (128,671) (105,473)
Prepaid expenses (7,641) 3,298 (14,195) (72,467)
Accounts payable 147,262 178,807 (2,919) 224,062
Royalties payable 5,770 7,647 8,374 9,500
Commissions payable 59,136 67,345 (13,319) (33,879)
Accrued wages, bonus and payroll taxes 44,692 70,873 435 (34,312)
Income taxes payable 0 0 (16,300) 0
Accrued liabilities (4,630) (24,731) (45,788) (25,352)
Accrued rent payable 9,933 20,966 35,203 (64,530)
----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities (6,780) 43,685 (873,912) (747,557)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/sale of marketable securities 979,919 (3,593) 973,103 (80,874)
Purchases of equipment and color
separations (29,343) (11,970) (92,225) (34,923)
Security deposits 0 (1,774) 2,075 (22,141)
Other (17,472) 3,437 (75,908) (131,160)
----------- ----------- ----------- -----------
Net cash provided (used) by
investing activities 933,104 (13,900) 807,045 (269,098)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised 0 0 0 90,000
----------- ----------- ----------- -----------
Net cash from financing activities 0 0 0 90,000
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 926,324 29,785 (66,867) (926,655)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 657,520 3,185,591 1,650,711 4,142,131
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,583,844 $ 3,215,376 $ 1,583,844 $ 3,215,476
=========== =========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
INCLUDES THE FOLLOWING:
Cash paid during the period for
Interest $ 0 $ 0 $ 0 $ 0
Income taxes $ 0 $ 0 $ 20,380 $ 22,780
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Page 6 of 15
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
It is believed, however, that the disclosures are adequate to make the
information presented not misleading.
The financial statements, in the opinion of management, reflect all
adjustments necessary, which are of a normal recurring nature, to fairly state
the financial position and the results of operations. These results are not
necessarily to be considered indicative of the results for the entire year.
NOTE 2 - INVENTORIES
Inventories consist of the following:
September 30,
1997
-------------
Raw materials $ 70,883
Work-in-process 1,035,289
Finished goods 634,532
----------
$1,740,704
==========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
1997
-------------
Machinery, equipment and
leasehold improvements $ 703,833
Color separations 241,991
Furniture and fixtures 72,664
Computer software 38,171
----------
1,056,659
Less accumulated depreciation
and amortization (607,057)
----------
$449,602
==========
Page 7 of 15
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 4 - INCOME TAXES
Deferred income tax assets and liabilities are recognized using enacted
tax rates and reflect the expected future tax consequences of temporary
differences between recorded amounts of assets and liabilities for financial
reporting purposes and tax basis of such assets and liabilities. A valuation
allowance is recognized to offset a deferred tax asset if the eventual
realization of all or a portion of the asset is uncertain.
The provision for income taxes is based on pre-tax earnings as reported
in the financial statements and adjusted for requirements of current tax law,
and changes in deferred taxes.
The provision for income taxes at September 30, 1997 consists solely of
a valuation allowance on deferred taxes.
As of January 1, 1997 the Company had available federal net operating
loss carryovers of approximately $4,664,000 to be applied against future federal
taxable income, of which $2,862,000 of net operating losses are subject to a
limitation under Section 382 of the Internal Revenue Code of $476,950 per year.
Also available are approximately $25,500 of alternative minimum tax credit
carryforwards to reduce future federal and California regular income taxes over
an indefinite period.
The Company has substantial net operating loss carryforwards and
credits available to offset future income tax liabilities. The expected tax
effect of these losses and credits are reflected as deferred tax assets on the
accompanying balance sheet. A valuation allowance has been established since
the realization of tax benefits of net operating loss carryforwards is not
assured. The amount of the valuation allowance will be reviewed on a quarterly
basis. Deferred tax assets as of September 30, 1997 consist of the following:
Net operating loss carryforwards $1,645,800
AMT carryforwards 25,500
Other 215,780
----------
1,887,080
Valuation allowance on net operating
loss carryforwards (222,000)
Deferred income taxes expected
to be utilized currently (194,080)
----------
Deferred income taxes $1,471,000
==========
Page 8 of 15
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB, including information set forth
under this Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Company desires to avail itself of certain "safe harbor" provisions of the Act
and is therefore including this special note to enable the Company to do so.
Forward-looking statements included in this Form 10-QSB or hereafter included in
other publicly available documents filed with the Securities and Exchange
Commission, reports to the Company's stockholders and other publicly available
statements issued or released by the Company involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) achievements expressed or implied
by such forward looking statements. Such future results are based upon
management's best estimates taking into account current conditions and the most
recent results of operations and other factors. These factors include
management's forecasts for sales, the decrease in net sales and decline in gross
margins experienced by the Company in 1997, purchasing plans and programs of
certain large chain buyers relating to holiday product, general economic
conditions, competition generally and specifically relating to greeting cards,
stationery, and gifts having environmental, nature or wildlife themes and the
ability of the Company to sustain consumer demand for the Company's principal
Sierra Club product line. In addition, the ability of the Company to enhance and
expand its product mix and to successfully introduce new products which will
meet with consumer acceptance may also affect future results. The Company to
date has been materially dependent upon the efforts of Messrs. Bruce Wilson and
M. Scott Foster, who constitute the Company's core senior management. The loss
of either Mr. Wilson's or Mr. Foster's services may have a materially adverse
effect upon the business or operations of the Company.
Sales
For the nine months ended September 30, 1997, the Company's net sales
amounted to $3,138,656 which reflected a decline versus prior year's nine month
results of $591,778 or 15.9%. Everyday product sales finished the nine month
period marginally ahead of last year with seasonal shipments declining 49.4% to
result in the overall year to date decrease.
For the three months ended September 30, 1997, net sales amounted to
$1,425,463 which reflected a decrease of $484,575 or 25.4% versus the prior year
quarter of $1,910,038. A decline in seasonal shipments accounted for the quarter
to quarter decline.
Page 9 of 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Gross Profit
For the nine months ended September 30, 1997, gross profit amounted to
$1,566,527 or 49.9% of sales. For the comparable prior year period, gross profit
amounted to $2,296,797 or 61.6% of sales. Lower sales, one-time new product
allowances and one-time fixturing costs associated with the new product
introduction incurred during the 1997 period accounted for the gross profit
decline.
For the three months ended September 30, 1997, gross profit amounted to
$633,107 or 44.4% of sales. For the comparable prior year quarter, gross profit
amounted to $1,117,208 or 58.5% of sales. Lower sales on fixed overhead costs,
higher discounts offered on seasonal product to discourage returns and a
one-time sale to a royalty licensee accounted for the period to period decline
in gross margin.
Operating Expenses
For the nine months ended September 30, 1997, selling, shipping and
marketing expenses amounted to $802,660 reflecting an increase of $139,775
versus the prior year's level of $662,885. Increased commissions, advertising
and travel costs associated with the new product launch accounted for the year
to year increase.
For the three months ended September 30, 1997, selling, shipping and
marketing expenses amounted to $344,615 reflecting an increase of $64,541 versus
the prior year's level of $280,074. Increased advertising and travel costs
associated with the new product launch accounted for the increase.
General and administrative expenses for the nine months ended September
30, 1997 amounted to $1,227,645 representing a decrease of $73,830 versus the
prior year's level of $1,301,475. Increased rent and insurance costs associated
with the new facility were offset by lower staffing costs, lower professional
fees, plus the absence of non recurring moving expenses which was incurred last
year.
For the three months ended September 30, 1997, general and
administrative expenses amounted to $437,631 reflecting a decrease of $131,712
versus the prior year level of $569,073. Increased rent and higher triple net
costs associated with the new facility were offset by reduced staffing costs and
lower professional fees.
Income
An operating loss of $463,778 or $.25 per share was incurred for the
nine months ended September 30, 1997. Interest and other income of $121,754
reduced the operating loss to result in a loss before taxes of $342,024 or $.19
per share. For the prior year period, operating income amounted to $332,437 or
$.16 per share and income before taxes amounted to $589,526 or $.29
Page 10 of 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Income (continued)
per share. The decline at gross margin and increased operating costs resulted in
the higher current year to date loss. Net loss for the nine months ended
September 30, 1997, amounted to $564,024 or $.31 per share, compared to the
prior year's income of $3 49,212 o $.17 per share. The net loss includes a
$222,000 valuation allowance placed on deferred tax assets. Under Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes", a
valuation allowance is recognized to offset a deferred tax asset if the eventual
realization of all or a portion of the asset is uncertain. Due to the loss for
the nine months ended September 30, 1997, the realization of tax benefts from
net operating loss carryforwards expected to be used in 1997 is not assured. The
amount of the valuation allowance which was equal to the valuation allowance
included in the results for the quarter ended June 30, 1997 will be reviewed and
may be adjusted on a quarterly basis.
Balance Sheet
Total assets of $8,175,409 as of September 30, 1997 reflected a
decrease of $598,491 versus the December 31, 1996 level of $8,773,900. The
decrease was a result of a reduction in deferred taxes attributable to the
valuation allowance discussed above and decreased cash and accounts receivable
offset in part by increased inventories and royalty advances. Total current
liabilities amounted to $652,188 as of September 30, 1997 versus the December
31, 1996 level of $721,800. The decrease was a result of the paydown of seasonal
commissions and income taxes attributable to 1996 income.
Liquidity and Capital Resources
At September 30, 1997, the Company's working capital was $5,334,136
reflecting a decrease of $507,564 over working capital at December 31, 1996 of
$5,841,700. Cash of $873,912 was used during the period to support operating
activities. Cash of $166,058 was used during the period for capital
expenditures. Major capital expenditures for the period included the purchase of
new product rights and separations in support of an anticipated new product
launch for 1998 and an automated labeling machine.
The present primary sources of the Company's liquidity historically
have been cash internally generated from operations, proceeds obtained by the
Company through the public sale of its securities, and the availability of a
secured line of credit. The Company has a $500,000 secured line of credit from
Westamerica Bank. The Company draws on this line from time to time on a short
term basis. As of September 30, 1997, there was no outstanding amount under this
line of credit. Pursuant to an agreement dated September 29, 1997, the Company
received $975,000 in October 1997 in gross proceeds from the sale, in a private
transaction, of 300,000 shares of common stock and warrants to purchase an
additional 300,000 shares of common stock. For further information concerning
this transaction, see Part II, Item 2, "Changes in Securities and Use of
Proceeds".
Page 11 of 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERTIONS (continued)
Effects of Inflation
The Company does not view the effects of inflation as having a material
effect upon its business. Increases in paper and labor costs have been offset by
increases in the price of the Company's cards and through higher print runs,
which have reduced the unit cost of the Company's card product. While the
Company has in the past increased its prices to its customers, it has maintained
its relative competitive price position within the general range of greeting
cards.
Page 12 of 15
<PAGE>
<TABLE>
HEALTHY PLANET PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30,1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary earnings per share
Net income ($ 105,191) $ 184,935 ($ 564,024) $ 353,716
Dividends paid on preferred stock -- -- -- --
Cumulative dividends on preffered stock -- -- -- (4,504)
----------- ----------- ----------- -----------
Loss/Income applicable to common stock ($ 105,191) $ 184,935 ($ 564,024) $ 349,212
=========== =========== =========== ===========
Shares
Weighted average number of
common shares outstanding 1,827,362 1,827,362 1,827,362 1,822,362
Add dilutive effect of conversion
of preferred stock and outstanding
options and warrants, as
determined by the application of the
treasury stock method -- 193,487 -- 193,609
----------- ----------- ----------- -----------
1,827,362 2,020,849 1,827,362 2,015,971
=========== =========== =========== ===========
Primary earnings per share $ (.06) $ .09 $ (.31) $ .17
=========== =========== =========== ===========
</TABLE>
Page 13 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) and (b) Not applicable.
(c) Pursuant to an agreement dated September 29, 1997, the Company
issued a total of 300,000 shares of Common Stock and warrants
to purchase an additional 300,000 shares of Common Stock in a
private transaction exempt from registration under the
Securities Act of 1933, as amended (the "Act"), pursuant
Section 4(2) under the Act. Pursuant to the transaction, the
Company sold 150,000 shares to John Winfield for an aggregate
of $487,500 and 150,000 shares to InterGroup Corporation, an
affiliate of Mr. Winfield, for an aggregate of $487,500. As
part of the transaction, Mr. Winfield and InterGroup
Corporation each also received warrants to purchase 150,000
shares of the Company's Common Stock, one-third of which
warrants are exercisable at $4.00 per share, an additional
one-third of which are exercisable at $4.25 per share and the
remaining one-third of which are exercisable at $4.50 per
share. The warrants are exercisable for a five year period
ending September 29, 2002. Mr. Winfield and InterGroup
Corporation were each accorded certain demand and piggyback
registration rights with respect to the shares issued and the
shares issuable upon exercise of the warrants.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Securites Purchase Agreement dated September 29,
1997 between John Winfield and the Company.
2. Letter Agreement dated September 29, 1997 by and
among John Winfield, InterGroup Corporation and
the Company.
3. Warrant Agreement dated September 29, 1997 between
John Winfield and the Comapny.
4. Registration Rights Agreement dated September 29,
1997 between John Winfield and the Company.
b. Reports on Form 8-K
During the quarter ended September 30, 1997, there were no reports on
Form 8-K filed by the Registrant.
Page 14 of 15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHY PLANET PRODUCTS, INC.
(Registrant)
DATED: November 12, 1997 by: /s/ Bruce A. Wilson
------------------------------
Bruce A. Wilson
President, Chief Executive, Chief Operating
and Chief Financial Officer.
Page 15 of 15
Execution Copy
SECURITIES PURCHASE AGREEMENT
HEALTHY PLANET PRODUCTS, INC.
September 29, 1997
Mr. John Winfield
2121 Avenue of the Stars
Suite 2020
Los Angeles, California 90067
Dear Mr. Winfield:
Healthy Planet Products, Inc., a Delaware corporation (the
"Company") has agreed to sell to you (hereinafter referred to as the
"Purchaser") 300,000 shares (the "Shares") of Common Stock, par value $.01 per
share ("Common Stock"), at a price of $3.25 per share. In connection therewith,
the Company has also agreed to issue to the Purchaser warrants ("Warrants")
exercisable until September 29, 2002 to purchase an aggregate of 300,000 shares
of Common Stock ("Warrant Shares"), one-third of which will be exercisable at an
exercise price of $4.00 per share, one-third of which will be exercisable at an
exercise price of $4.25 per share and one-third of which will be exercisable at
an exercise price of $4.50 per share. The Warrants will be issued pursuant to a
warrant agreement in the form attached hereto as Exhibit A (the "Warrant
Agreement") to be entered into by the Company and the Purchaser concurrently
with the execution of this Agreement and will be evidenced by warrant
certificates in the form of Appendix I to the Warrant Agreement ("Warrant
Certificates"). The Shares and Warrants are hereinafter collectively referred to
herein as the "Securities."
The Securities being sold to the Purchaser in this private
transaction have not been registered under the registration provisions of the
Securities Act of 1933, as amended (the "Act"), and are being offered and sold
by the Company to the Purchaser in reliance upon an exemption from registration
under Sections 4(2) and/or 4(6) of the Act, and Regulation D promulgated
thereunder. The Company and the Purchaser will, concurrently with the execution
of this Agreement and the Warrant Agreement, enter into a Registration Rights
Agreement in the form attached hereto as Exhibit B ("Registration Agreement"),
which will require the Company to effect registration of the Shares and Warrant
Shares in certain circumstances.
<PAGE>
Section 1. Issue of Securities
Subject to the terms and conditions hereof and on the basis of
the representations and warranties hereinafter set forth, the Company hereby
agrees to issue and sell to Purchaser, and Purchaser agrees to purchase and
herewith purchases from the Company, the Securities. An aggregate of $975,000
will be payable upon the execution and delivery of this Agreement by wire
transfer or certified or cashier's check in same-day or next day funds as
directed by the Company.
The Company covenants and agrees to promptly deliver to
Purchaser, upon due execution of this Agreement, the Warrant Agreement and
Registration Agreement by the parties and receipt by the Company of the payment
referred to in the preceding paragraph, a Common Stock certificate and Warrant
Certificates representing the number of Shares and Warrants, respectively,
acquired by Purchaser hereunder.
Section 2. Representations and Warranties of the Company.
The Company represents and warrants that:
(A) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware, and duly
qualified to do business and in good standing as a foreign corporation in the
State of California and each state in which the nature of its business or
properties requires such qualification (except where failure as to qualify would
not have a material adverse effect on the Company taken as a whole), with full
power and authority, corporate and otherwise, to enter into and perform this
Purchase Agreement, and to execute and deliver the various instruments and
documents provided for herein.
(B) The execution, delivery and performance by the Company of
this Agreement, the Warrant Agreement and Registration Agreement and the making,
execution and delivery by the Company of the instruments contemplated hereby and
thereby, have been duly authorized by all necessary corporate action and will
not violate any provision of law, court order or decree, or of its Certificate
of Incorporation or Bylaws, or result in the breach of, or constitute a default
under, or result in the creation of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to any agreement or instrument to
which it is a party, or by which it or its property may be bound or affected.
Each of this Agreement, the Warrant Agreement and the Registration Agreement is
a valid and binding obligation of the Company, enforceable in accordance with
its terms subject to general principles of equity and bankruptcy and other laws
affecting creditors' rights generally.
(C) Except as set forth in the Company's Form 10-KSB for the
fiscal year ended December 31, 1996, (i) there are no material lawsuits or
proceedings pending, or, to
2
<PAGE>
the Company's knowledge, threatened against or affecting the Company and (ii)
there are no proceedings before any governmental commission, bureau or other
administrative agency pending, or, to the Company's knowledge, threatened
against the Company.
(D) The authorized capital stock of the Company consists of
12,000,000 shares of Common Stock, $0.01 par value per share, of which 1,827,362
shares are issued and outstanding as of the date hereof, and 750,000 shares of
Preferred Stock, $.10 par value per share, of which 186,341 shares, denominated
as Series D Preferred Stock, are issued and outstanding as of the date hereof. A
total of 779,458 shares of Common Stock are reserved for issuance pursuant to
the exercise of options and warrants and the conversion of convertible
securities issued and outstanding on the date hereof.
(E) The Shares issuable under this Agreement have been duly
authorized and, when issued against payment therefor, will be validly issued,
fully paid and nonassessable. The Warrants issuable pursuant to the Warrant
Agreement have been duly authorized and, when issued and delivered in accordance
with the Warrant Agreement, will be enforceable in accordance with their terms,
subject to general principles of equity and bankruptcy and other laws effecting
creditors rights generally.
(F) Except for any applicable requirements of state securities
laws (as to which no representations or warranties are made), no governmental
permit, consent, approval or authorization is required in connection with (i)
the execution, delivery and performance of this Agreement, the Warrant Agreement
and the Registration Agreement by the Company or (ii) the offer, sale, issuance
and delivery of the Shares and Warrants contemplated hereby by the Company;
provided that, all representations made to the Company by the Purchaser in this
Agreement and in any other document or instrument delivered in connection
herewith are assumed for purposes of this representation and warranty to be
accurate and complete.
(G) To the best knowledge of the Company, none of the
Company's reports and filings with the Securities and Exchange Commission
("SEC") contained a misstatement of a material fact or omitted to state a
material fact necessary to make the statements contained therein, in the light
of the circumstances in which they were made or omitted, not misleading.
(H) The Company Common Stock is traded on The American
Exchange, Inc. ("AMEX"), and the Shares and Warrant Shares are approved for
listing, subject to official notice of issuance. No assurance is made as to any
future AMEX listing of shares of Common Stock.
3
<PAGE>
Section 3. Purchaser's Representations and Warranties.
As an inducement to the Company to enter into this Securities
Purchase Agreement and sell the Securities to Purchaser, Purchaser represents
and warrants as follows:
(A) Purchaser acknowledges and understands that the offer and
sale of the Securities are intended to be exempt from registration under the
Act, by virtue of Section 4(2) and/or 4(6) of the Act, and Regulation D
promulgated thereunder ("Regulation D") and, in accordance therewith and in
furtherance thereof, Purchaser represents and warrants to and agrees with the
Company that he is an "accredited investor" as that term is defined pursuant to
Rule 501 of Regulation D. Purchaser has completed the Investor Questionnaire in
the form attached hereto as Exhibit C and has delivered it herewith and
represents and warrants that it accurately sets forth his financial condition on
the date hereof. Purchaser has no reason to expect there will be any material
adverse change in his financial condition and will advise the Company of any
such changes occurring prior to the issuance of the Securities to Purchaser
hereunder.
(B) Purchaser has such knowledge and experience in financial
and business matters as is required for evaluating the merits and risks of
making this investment, and Purchaser or his representatives have received such
information requested by him concerning the business, management and financial
affairs of the Company in order to evaluate the merits and risks of making this
investment. Except as specifically set forth herein, no representation or
warranty is made by the Company to induce Purchaser to make this investment, and
any representation or warranty not made herein is specifically disclaimed.
(C) Purchaser is making this investment for his own account
and is purchasing the Securities for investment purposes only and not with a
present view to the resale or other distribution thereof. Purchaser specifically
warrants and represents that the funds utilized for making this investment are
Purchaser's own funds, and Purchaser has no agreement or understanding with any
other person to grant a participation or interest, of whatever nature, kind or
description, in Purchaser's investment. Purchaser further represents and
warrants that he has not paid or agreed to pay any fee, commission or thing of
value to any person in connection with this transaction.
(D) Purchaser acknowledges that he has been advised that the
Securities being purchased by such Purchaser hereunder have not been registered
under the provisions of the Securities Act of 1933, as amended (the "Act"), and
that the Company has represented to such Purchaser that the Securities have been
offered and sold by the Company in reliance upon an exemption from registration
provided in Section 4(2) and/or 4(6) of the Act and Regulation D thereunder.
4
<PAGE>
(E) In entering into this Agreement and in purchasing the
Securities each Purchaser acknowledges that:
(i) The Shares and Warrants may not be resold by
Purchaser in the absence of registration under the Act or valid exemption from
registration.
(ii) The following legend shall be placed on the
Certificate(s) evidencing the Shares and Warrants:
"THE SHARES [WARRANTS] REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(iii) The Company may place a stop transfer order on
its transfer books against the Shares and Warrants (and underlying Warrant
Shares). Such stop order will be removed, and further transfer of the Shares or
Warrant Shares will be permitted upon an effective registration of the Shares
and Warrants solely as provided in the Registration Agreement, or the receipt by
the Company of an opinion of counsel that such further transfer may be effected
pursuant to an applicable exemption from registration.
(iv) The purchase of the Shares and Warrants involves
risks which Purchaser has evaluated, and Purchaser is able to bear the economic
risk of the purchase of such securities.
(F) Purchaser acknowledges receipt of copies of the following
reports filed by the Company with the Securities and Exchange Commission: Form
10-KSB for the year ended December 31, 1996, Forms 10-QSB for the quarters ended
March 31, 1997 and June 30, 1997, Form 8-K dated March 31, 1997 and the Proxy
Statement mailed to the Company's shareholders in connection with the 1997
Annual Meeting of Shareholders (collectively the "Disclosure Documents").
Purchaser has carefully reviewed the Disclosure Documents and acknowledges that
he has relied only on the information set forth therein and in this Agreement in
making a decision to purchase the Securities. Purchaser specifically disclaims
receipt of any other information and material, whether oral or in writing, from
the Company or anyone acting for or on behalf of the Company, and reliance upon
any such unauthorized oral or written information and material is specifically
disclaimed.
5
<PAGE>
(G) Purchaser understands that all documents, records, and
books pertaining to this investment (including, without limitation, the
Disclosure Documents) have been made available for inspection by him, his
attorney and/or his accountant.
(H) Purchaser has had a reasonable opportunity to ask
questions of and receive answers from a person acting on behalf of the Company
concerning the offering of the Securities and all such questions have been
answered to the full satisfaction of the undersigned.
(I) Purchaser is not purchasing any of the Securities as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, any seminar or meeting, or any solicitation of a
subscription by a person not previously known to the undersigned in connection
with investments in securities generally.
(J) Purchaser has reached the age of majority in the state in
which Purchaser resides, has adequate means of providing for Purchaser's current
needs and personal contingencies, is able to bear the substantial economic risks
of an investment in the Securities for an indefinite period of time, has no need
for liquidity in such investment, and Purchaser is prepared to lose his entire
investment in the Securities.
(K) Purchaser's overall commitment to investments that are not
readily marketable is not, and his acquisition of Securities will not cause such
overall commitment to become, disproportionate to his net worth.
(L) Purchaser acknowledges that he has made his own
investigation concerning the business and affairs of the Company and in that
connection, Purchaser acknowledges the previous receipt of the Disclosure
Documents.
(M) Purchaser acknowledges that he has been advised that the
Company has agreed to pay to Starr Securities, Inc. a fee of $48,750 for acting
as its investment banker and advisor in connection with this transaction.
(N) Purchaser acknowledges that the Company has advised him of
the requirements for the filing of Forms 3, 4, and 5 and Schedule 13D under
certain circumstances. Purchaser acknowledges that he has independently
consulted with his own counsel with respect to such filing requirements.
Purchaser covenants and agrees to timely make all filings with the SEC as is or
may be necessary by reason of Purchaser's ownership of securities in the
Company.
6
<PAGE>
Purchaser is making the foregoing representations and
warranties with the intent that they may be relied upon by the Company in
determining the suitability of the sale of the Securities to Purchaser for
purposes of federal and state securities laws. Purchaser agrees to indemnify and
hold harmless the Company, the officers, directors, and affiliates of the
Company, and each other person, if any, who controls the Company, within the
meaning of Section 15 of the Act, against any and all loss, liability, claim,
damage and all expenses reasonably incurred in investigating, preparing or
defending against any litigation commenced or threatened or any claim whatsoever
arising out of or based upon any false representation or warranty or breach or
failure by the undersigned to comply with any covenant or agreement made by
Purchaser herein or in any other document furnished by Purchaser to any of the
foregoing in connection with this transaction.
Section 5. Election of Purchaser to Company's Board of
Directors.
Concurrent with this investment, the Company cause Purchaser
to be elected to the Company's Board of Directors effective on the date hereof
and to remain as a Director until the earliest of (i) the third anniversary of
the date of this Agreement, (ii) the date on which the currently existing
members of the Board of Directors of the Company no longer constitute a majority
of the Board or (iii) the death of Purchaser. For purposes hereof, the term
"currently existing members of the Board of Directors" will also include any
person not currently on the Board of Directors who is subsequently elected to
the Board as a nominee of the Board of Directors.
Section 6. Binding Effect of Purchase.
Purchaser hereby acknowledges and agrees, subject to any
applicable state securities law, that the purchase hereunder is irrevocable,
that Purchaser is not entitled to cancel, terminate or revoke this Agreement or
any agreements of Purchaser hereunder and that this Agreement and such other
agreements shall survive the death or disability of the Purchaser and shall be
binding upon and inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives, and assigns.
Section 7. Miscellaneous.
(A) No Waiver. Neither this Agreement nor any provisions
hereof shall be waived, modified, discharged, or terminated except by an
instrument in writing signed by the party against whom any such waiver,
modification, discharge, or termination is sought.
(B) Notices. Any notice, demand or other communication which
any party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail box, stamped,
7
<PAGE>
registered or certified mail, return receipt requested, addressed to such
address as may be listed on the books of the Company or (b) delivered personally
at such address.
(C) Execution. This Agreement may be executed through the use
of separate signature pages or in any number of counterparts, and each of such
counterparts shall, or all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
(D) Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there are
no representations, covenants or other agreements except as stated or referred
to herein, and any representations or warranties not contained herein are
disclaimed.
(E) Severability. Each provision of this Agreement is intended
to be severable from every other provisions, and the invalidity or illegality of
any portion hereof, shall not affect the validity or legality of the remainder
hereof.
(F) Non-Assignability. This Agreement is not transferable or
assignable by the undersigned except as may be provided herein.
(G) Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied to
residents of that state executing contracts wholly to be performed in that
state.
Please countersign and return two copies of this Purchase
Agreement, the Warrant Agreement, the Registration Agreement and the completed
Investor Questionnaire. A countersigned copy of this Agreement, Warrant
Agreement and Registration Agreement
8
<PAGE>
will be returned to you, together with your share certificate and Warrant
Certificate. For the purpose of having the share certificate and Warrant
Certificate prepared, please indicate the exact manner in which the Securities
are to be made out in the space provided for below.
Very truly yours,
HEALTHY PLANET PRODUCTS, INC.
By /s/ Bruce Wilson
-------------------------------
Name: Bruce Wilson
Title: President
AGREED TO AND ACCEPTED:
/s/ John Winfield
- -----------------------------------
Signature of Purchaser
Date Executed: September 29, 1997.
Share and Warrant Certificates to made out as follows:
- -----------------------------------
Print Name
- -----------------------------------
Social Security Number
9
HEALTHY PLANET PRODUCTS, INC.
1700 Corporate Circle
Petaluma, California 94954
September 29, 1997
Mr. John Winfield
2121 Avenue of the Stars
Suite 2020
Los Angeles, California 90067
Dear Mr. Winfield:
Reference is made to the Securities Purchase Agreement
("Purchase Agreement") dated the date hereof between us regarding the purchase
by you of 300,000 shares of Common Stock and warrants to purchase 300,000 shares
of Common Stock of Healthy Planet Products, Inc. (the "Company"), the related
Warrant Agreement ("Warrant Agreement") and Registration Rights Agreement
("Registration Agreement"). You have advised us that, in lieu of your purchasing
all of the shares and warrants which are the subject of the Purchase Agreement,
you have designated InterGroup Corporation, a corp- oration of which you are
Chairman of the Board and a controlling shareholder, to purchase 150,000 of the
shares and 150,000 of the warrants. This will confirm the agreement of the
Company to issue and sell such shares and warrants to InterGroup, subject to
InterGroup's agreement to be bound by all the terms and conditions of the
Purchase Agreement, Warrant Agreement and Registration Agreement, and that the
representations and warranties relating to the "Purchaser" in the Purchase
Agreement, including but not limited to the representation regarding the
"accredited investor" status of the Purchaser, are true and correct with respect
to InterGroup.
Please signify your agreement, and the agreement of
InterGroup, with the foregoing, and the agreement of InterGroup to be bound by
the terms and conditions of the Purchase Agreement, Warrant Agreement and
Registration Agreement and confirmation of
<PAGE>
that the representations and warranties of the Purchaser in the Purchase
Agreement are true and correct with respect to InterGroup.
Very truly yours,
HEALTHY PLANET PRODUCTS, INC.
By:/s/Bruce Wilson
--------------------------------
Name:
Title:
ACCEPTED AND AGREED:
/s/John Winfield
- --------------------------------
John Winfield
INTERGROUP CORPORATION
By:
-----------------------------
Name:
Title:
Execution Copy
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") dated September 29,
1997, is made by and between Healthy Planet Products, Inc., a Delaware
corporation (the "Company"), and John Winfield (the "Warrantholder").
Pursuant to a Securities Purchase Agreement between the Company
and the Warrantholder dated the date hereof, the Company has agreed to issue
warrants (the "Warrants") to purchase an aggregate of 300,000 shares ("Warrant
Shares") of Common Stock, par value $0.01 per share, of the Company (the "Common
Shares") to the Warrantholder as follows:
(i) Warrants to purchase 100,000 of the Warrant Shares at
an exercise price of $4.00 per share;
(ii) Warrants to purchase an additional 100,000 of the
Warrant Shares at an exercise price of $4.25 per share; and
(iii) Warrants to purchase an additional 100,000 of the
Warrant Shares at an exercise price of $4.50 per share.
Each of the Warrants referred to in (i), (ii) and (iii) above and/or the Warrant
Shares issuable upon exercise of such Warrants is separately referred to herein
as a "Warrant Tranche."
In consideration of the foregoing and for the purpose of defining
the terms and provisions of the Warrants and the respective rights and
obligations thereunder, the Company and the Warrantholder, for value received,
hereby agree as follows:
Section 1. Form of Warrant Certificates; Transferability of
Warrants; Legend on Warrant Shares.
1.1 Form of Warrant Certificate. The Warrants shall be evidenced
by Warrant certificates substantially as set forth in Appendix I attached
hereto. One or more Warrant certificates will be issued with respect to each of
the separate Warrant Tranches. The Warrant certificates shall be executed on
behalf of the Company by its Chairman of the Board, President or a Vice
President, under its corporate seal reproduced thereon, and attested by its
Secretary or an Assistant Secretary. A Warrant certificate bearing the signature
of an individual who was at any time the proper officer of the Company shall
bind the Company, notwithstanding that such individual shall have ceased to hold
such office prior to the delivery of such Warrant certificate or did not hold
such office on the date of this
<PAGE>
Agreement. Each Warrant certificate shall be numbered and registered on the
books of the Company when it is issued, and shall be dated as of the date of
signature thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
1.2 Transfer. The Warrant certificate shall be transferable only
on the books of the Company maintained at its principal office in Petaluma,
California, or wherever its principal executive offices may then be located upon
delivery thereof duly endorsed by the Warrantholder or its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Company shall execute and deliver a new Warrant certificate to the person
entitled thereto. All transfers shall be made subject to the provisions of
Section 13 hereof. In the event the Warrants or any portion thereof is
transferred, the subsequent holder thereof shall have no greater rights than
those afforded the Warrantholder hereunder.
1.3 Division of Warrants. Subject to all Federal and state
securities laws, a Warrant certificate may be divided or combined, upon request
to the Company by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of Warrant Shares.
Unless the context indicates otherwise, the term "Warrantholder" shall include
any transferee or transferees of the Warrants pursuant to this subsection 1.3,
and the term "Warrants" shall include any and all Warrants outstanding pursuant
to this Agreement, including those evidenced by a certificate or certificates
issued upon division, exchange, substitution or transfer pursuant to this
Agreement.
1.4 Legend on Warrant Shares. Each certificate for Warrant Shares
initially issued upon exercise of the Warrant, unless at the time of exercise
such Warrant Shares are registered under the Securities Act of 1933, as amended
(the "Securities Act"), shall bear the following legend:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be sold, exchanged, hypothecated or transferred in any
manner in the absence of such registration or an exemption therefrom.
The Shares are subject to the terms of a certain Warrant Agreement
dated September 29, 1997 with Healthy Planet Products, Inc., pursuant
to which they were issued."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of the Warrant Shares represented thereby) shall also bear
the above legend unless, in the opinion of counsel satisfactory to the Company,
the securities represented thereby need no longer be subject to such
restrictions.
2
<PAGE>
Section 2. Exchange of Warrant Certificate. Any Warrant
certificate may be exchanged for another certificate or certificates entitling
the Warrantholder to purchase a like aggregate number of Warrant Shares which
are part of the same Warrant Tranche as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrants to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant
Certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
3.1 Term. Subject to the terms of this Agreement, the
Warrantholder shall have the right, at any time during the period commencing at
9:00 a.m., California time, on the date hereof and ending at 5:00 p.m.,
California time, on September 29, 2002 (the "Termination Date"), to purchase
from the Company up to the number of fully paid and nonassessable Warrant Shares
which the Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office in Petaluma,
California, or wherever its principal executive offices may then be located, of
the certificate evidencing the Warrants to be exercised, together with the
purchase form on the reverse thereof duly filled in and signed, and upon payment
to the Company of the applicable Exercise Price (as set forth in Section 7
hereof and as subject to adjustment pursuant to Section 8 hereof), for the
number of Warrant Shares in respect of which such Warrants are then exercised,
but in no event for less than 25 Warrant Shares, unless the Warrant entitled the
Warrantholder on exercise to less than 25 Warrant Shares, in which event the
Warrant can be exercised for such lesser number of Warrant Shares.
3.2 Exercise. Payment of the applicable Exercise Price shall be
made in cash or by check. Upon surrender of the Warrant Certificates and payment
of such Exercise Price as aforesaid, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Warrantholder and in such name or names as the Warrantholder may designate a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of the corresponding Warrants, together with cash, as provided
in Section 9 hereof, in respect of any fractional Warrant Shares otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the date
of the surrender of the Warrant certificate and the payment of the applicable
Exercise Price, as aforesaid, notwithstanding that the certificates representing
the Warrant Shares shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Warrant Shares specified therein at
any time prior to the Termination Date, a new certificate
3
<PAGE>
evidencing the remaining Warrants which are part of the same Warrant Tranche
will be issued by the Company.
Section 4. Payment of Taxes. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance of the Warrant Shares
hereunder.
Section 5. Mutilated or Missing Warrant Certificate. In case the
certificate or certificates evidencing the Warrants shall be mutilated, lost,
stolen or destroyed, the Company shall, at the request of the Warrantholder,
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of and substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant certificate
or certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrants and a bond of indemnity, if requested,
also satisfactory in form and amount, at the applicant's cost. Applicants for
such substitute Warrant certificate shall also comply with such other reasonable
requirements and pay such other reasonable charges as the Company may prescribe.
Section 6. Reservation of Warrant Shares. There has been
reserved, and the Company shall at all times keep reserved so long as all or any
portion of the Warrants remains outstanding, out of its authorized Common
Shares, such number of Warrant Shares as shall be subject to purchase under such
portion of the Warrants which remains outstanding. Every transfer agent for the
Common Shares and other securities of the Company issuable upon the exercise of
the Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized Warrant Shares and other securities as shall be
requisite for such purpose. The Company will keep a copy of this Agreement on
file with every transfer agent for the Common Shares and other securities of the
Company issuable upon the exercise of the Warrants. The Company will supply such
transfer agent with duly executed stock and other certificates for such purpose
and will provide or otherwise make available any cash which may be payable as
provided in Section 9 hereof.
Section 7. Exercise Prices. The prices per Share (the "Exercise
Prices") at which Warrant Shares shall be purchasable upon the exercise of the
Warrants shall be as follows: (i) 100,000 Warrant Shares at an exercise price of
$4.00 per share; (ii) 100,000 Warrant Shares at an exercise price of $4.25 per
share; and (iii) 100,000 Warrant Shares at an exercise price of $4.50 per share.
The respective Exercise Prices for each Warrant Tranche set forth herein shall
be subject to further adjustment pursuant to Section 8 hereof.
4
<PAGE>
Section 8. Adjustment of Exercise Prices and Number of Warrant
Shares.
8.1 General. The number of Warrant Shares purchasable upon the
exercise of the Warrants and the Exercise Prices shall be subject to adjustment
from time to time upon the happening of certain events, as follows: (For
purposes of this Section 8, the requirement for any adjustment and the size of
an adjustment in any particular circumstance shall be determined separately for
each Warrant Tranche. Any reference to "Exercise Price" in this Section shall be
deemed to refer to the Exercise Price for the applicable Warrant Tranche, and
the terms "Warrants" and "Warrant Shares" in this Section 8 shall refer to the
number Warrants or Warrant Shares, as the case may be, to the extent such
Warrants have not been exercised as of the close of business on the day prior to
the date when any determination pursuant to this Section 8 is required to be
made.)
(a) In case the Company shall (i) pay a dividend in
Common Shares or make a distribution in Common Shares, (ii) subdivide its
outstanding Common Shares, (iii) combine its outstanding Common Shares into a
smaller number of Common Shares (by way of a reverse stock split or otherwise)
or (iv) issue by reclassification of its Common Shares other securities of the
Company, the number of Warrant Shares purchasable upon exercise of the Warrants
immediately prior thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company which it would have owned or would have been entitled to receive
after the happening of any of the events described above, had the Warrants been
exercised immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this subsection 8.1(a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options,
warrants or convertible securities to all or substantially all of the holders of
its Common Shares, without any charge to such holders, entitling them to
subscribe for or purchase Common Shares at a price per share which is lower at
the record date mentioned below than the Exercise Price, the number of Warrant
Shares thereafter purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of the Warrants by a fraction, of which the numerator shall be
the number of Common Shares outstanding immediately prior to the issuance of
such rights, options, warrants or convertible securities plus the number of
additional Common Shares offered for subscription or purchase, and of which the
denominator shall be the number of Common Shares outstanding immediately prior
to the issuance of such rights, options, warrants or convertible securities plus
the number of Common Shares which the aggregate offering price of the total
number of Common Shares offered would purchase at the Exercise Price. Such
adjustment shall be made whenever such rights, options, warrants or convertible
securities are issued, and shall become effective immediately and retroactively
after the record date for the determination of shareholders entitled to receive
such rights, options, warrants or convertible securities.
5
<PAGE>
(c) In case the Company shall distribute to all or
substantially all of the holders of its Common Shares evidences of its
indebtedness or assets (excluding cash dividends or distributions out of
earnings) or issue, to all or substantially all of such holders, without any
charge to such holders, rights, options, warrants or convertible securities
containing the right to subscribe for or purchase Common Shares (excluding those
referred to in paragraph (b) above), then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon exercise of the Warrants by a fraction, of which the numerator shall be the
Exercise Price on the date of such distribution, and of which the denominator
shall be the Exercise Price on such date minus the then fair value of the
portion of the assets or evidences of indebtedness so distributed or of such
rights, options, warrants or convertible securities applicable to one share.
Such adjustment shall be made whenever any such distribution is made and shall
be made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(d) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent in the aggregate number of Warrant
Shares then purchasable upon the exercise of the Warrants or, if the Warrants
are not then exercisable, the number of Warrant Shares purchasable upon the
exercise of the Warrants on the first date thereafter that the Warrants become
exercisable; provided however, that any adjustments which by reason of this
subsection 8.a(d) are not required to be made immediately shall be carried
forward and taken into account in any subsequent adjustment.
(e) Whenever the number of Warrant Shares purchasable
upon the exercise of the Warrants is adjusted as herein provided in this
subsection 8.1, the Exercise Price payable upon exercise of the Warrants shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
so purchasable immediately thereafter.
(f) To the extent not covered by paragraphs (b) or (c)
hereof, in case the Company shall sell and issue Common Shares or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Shares at a price per share (determined, in the case of
such rights, options, warrants or convertible securities, by dividing (i) the
total amount received or receivable by the Company in consideration of the sale
and issuance of such rights, options, warrants or convertible securities, plus
the total consideration payable to the Company upon exercise or conversion
thereof, by (ii) the total number of shares covered by such rights, options,
warrants or convertible securities) lower than the Exercise Price in effect
immediately prior to such sale and issuance, then the Exercise Price shall be
reduced to a price (calculated to the nearest cent) determined by
6
<PAGE>
dividing (i) an amount equal to the sum of (A) the number of Common Shares
outstanding immediately prior to such sale and issuance multiplied by the then
existing Exercise Price, plus (B) the consideration received by the Company upon
such sale and issuance, by (ii) the total number of Common Shares outstanding
immediately after such sale and issuance. The number of Warrant Shares
purchasable upon the exercise of the Warrants shall be that number determined by
multiplying the number of Warrant Shares issuable upon exercise immediately
prior to such adjustment by a fraction, of which the numerator is the Exercise
Price in effect immediately prior to such adjustment and the denominator is the
Exercise Price as so adjusted. For the purposes of such adjustments, the Common
Shares which the holders of any such rights, options, warrants or convertible
securities shall be entitled to subscribe for or purchase shall be deemed to be
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants or convertible
securities, plus the consideration stated in such rights, options, warrants or
convertible securities to be paid for the Common Shares covered thereby. In case
the Company shall sell and issue Common Shares or rights, options, warrants or
convertible securities containing the right to subscribe for or purchase Common
Shares for a consideration consisting, in whole or in part, of property other
than cash or its equivalent, then in determining the "price per share" of Common
Shares and the "consideration received by the Company" for purposes of the first
sentence of this paragraph (f), the Board of Directors shall determine the fair
value of said property, and such determination, if reasonable and based upon the
Board of Directors' good faith business judgment, shall be binding upon the
Warrantholder. There shall be no adjustment of the Exercise Price pursuant to
this paragraph (f) if the amount of such adjustment would be less than $.01 per
Warrant Share; provided, however, that any adjustment which by reason of this
provision is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(g) Whenever the number of Warrant Shares purchasable
upon the exercise of the Warrants or the Exercise Price is adjusted as herein
provided in this subsection 8.1, the Company shall cause to be promptly mailed
to the Warrantholder in accordance with the provisions of Section 12 hereof,
notice of such adjustment or adjustments and a certificate of a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) setting forth the
number of Warrant Shares purchasable upon the exercise of the Warrants and the
Exercise Price after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(h) For the purpose of this subsection 8.1, the term
"Common Shares" shall mean (i) the class of shares designated as the Common
Shares of the Company at the date of this Agreement or (ii) any other class of
shares resulting from successive changes or reclassifications of such Common
Shares including changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to
7
<PAGE>
purchase any shares of the Company other than Common Shares, thereafter the
number of such other shares so purchasable upon exercise of the Warrants and the
Exercise Price of such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Shares contained in this Section 8.
(i) Upon the expiration of any rights, options, warrants
or conversion privileges referred to in this Section 8, if such shall not have
been exercised, the number of Warrant Shares purchasable upon exercise of the
Warrants and the Exercise Price, to the extent the Warrants have not then been
exercised, shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis of (A)
the fact that the only Common Shares so issued were the Common Shares, if any,
actually issued or sold upon the exercise of such privileges, options, warrants
or conversion rights and (B) the fact that such Common Shares, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise plus the consideration , if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
rights whether or not exercised; provided, however, that no such readjustment
shall have the effect of increasing the Exercise Price by an amount in excess of
the amount of the adjustment initially made in respect of the issuance, sale or
grant of such rights, options, warrants or convertible rights.
8.2 No Adjustment of Dividends. Except as provided in subsection
8.1, no adjustment in respect of dividends shall be made during the term of the
Warrants or upon the exercise thereof.
8.3 No Adjustment in Certain Cases. No adjustments shall be made
hereunder in connection with the issuance of Common Shares or warrants or any
other rights to purchase Common Shares: (a) pursuant to any underwriting
agreement relating to any public offering or the issuance of Common Shares upon
exercise of an underwriter's warrant issued in connection with any public
offering, (b) in connection with the exercise of options or warrants outstanding
on the date hereof, (c) in connection with the grant and/or exercise, pursuant
to stock option plans of the Company, of stock options to employees and
consultants of the Company outstanding as of the date hereof, (d) in connection
with the conversion of any Series D Preferred Stock issued and outstanding on
the date of this Agreement, and (e) in connection with the grant and/or exercise
of stock options to non-employee directors pursuant to a director stock option
plan of the Company.
8.4 Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another person of the property, assets or business of the Company as an entirety
or substantially as an entirety, the Company or such successor or purchaser, as
the case may be, shall execute with the Warrantholder an
8
<PAGE>
agreement that the Warrantholder shall have the right thereafter upon payment of
the Exercise Price in effect immediately prior to such action to purchase upon
exercise of the Warrants the kind and amount of shares and other securities and
property which the Warrantholder would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants been exercised immediately prior to such action. In the event
of a merger described in Section 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended, in which the Company is the surviving corporation, the right
to purchase Warrant Shares under the Warrants shall terminate on the date of
such merger and thereupon the Warrants shall become null and void but only if
the controlling corporation shall agree to substitute for the Warrants other
warrants which entitle the holders thereof to purchase, upon exercise thereof,
the kind and amount of shares and other securities and property which the
Warrantholder would have owned or had been entitled to receive had the Warrants
been exercised immediately prior to such merger. The adjustments required by
this Subsection 8.4 shall be effected in a manner which shall be as nearly
equivalent as may be practicable to the adjustments provided for elsewhere in
this Section 8. The provisions of this Subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5 Statement on Warrant Certificate. Irrespective of any
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, the Warrant certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
Section 9. Fractional Shares. The Company shall not be required
to issue fractional Warrant Shares on the exercise of the Warrants. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Shares are traded on a national
securities exchange or on the Nasdaq Stock Market, the average for the 30
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common Shares on the principal securities
exchange on which they are listed or on Nasdaq, as the case may be, or (ii) if
the Common Shares are traded in the over-the-counter market and not on any
national securities exchange or on the Nasdaq Stock Market, the average of the
mean between the per share closing bid and asked prices of the Common Shares on
the 30 consecutive trading days immediately preceding the date in question, as
reported by Nasdaq or an equivalent generally accepted reporting service. The
closing price referred to in clause (i) above shall be the last reported sales
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices on such exchange or Nasdaq, as the
case may be, for the days in question.
9
<PAGE>
Section 10. Registration Rights. Any Warrant Shares issued upon
exercise of the Warrants shall be subject to, and have the benefit of, the
registration rights set forth in the Registration Rights Agreement dated the
date hereof by and between the Company and the Warrantholder.
Section 11. No Rights as Shareholder; Notices to Warrantholder.
Nothing contained in this Agreement or in the Warrant Certificate shall be
construed as conferring upon the Warrantholder, or its transferees, any rights
as a shareholder of the Company, including the right to vote, receive dividends,
consent or receive notices as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or any other matter.
If, however, at any time prior to the expiration of the Warrants and prior to
the exercise thereof, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1 or 8.4; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 11 hereof at least 20
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be.
Section 12. Notices. Any notice pursuant to this Agreement by the
Company or by the Warrantholder shall be in writing and shall be deemed to have
been duly given if delivered by hand or if mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Warrantholder - to the address as set forth in a
certain separate Securities Purchase Agreement entered into between the
Warrantholder and the Company.
(b) If to the Company - addressed to Healthy Planet Products,
Inc., 1700 Corporate Circle, Petaluma, California 94954, Attention: President;
with a copy to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York,
New York 10019, Attention: Charles P. Axelrod, Esq.
10
<PAGE>
or to such other address as any such party may designate by notice to the other
party. Notices shall be deemed given at the time they are delivered personally
or three days after they are mailed in the manner set forth above.
Section 13. Assignment. This Agreement is binding upon and inures
to the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. This Agreement cannot be assigned, amended or modified by the
parties hereto, except by written agreement executed by the parties.
Section 14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 15. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 16. Merger or Consolidation of the Company. The Company
will not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another person, unless the provisions of
Section 8.4 are complied with.
Section 17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed entirely within such State, without regard
to its principles of conflicts of laws.
Section 18. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, on the day and year first above written.
Attest: HEALTHY PLANET PRODUCTS, INC.
By: By: /s/ Bruce Wilson
---------------------------------- -------------------------------
Name: Name: BRUCE WILSON
Title: Title: PRESIDENT
/s/ John Winfield
--------------------------------
John Winfield
12
<PAGE>
Appendix I to Warrant Agreement
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.
WARRANTS TO PURCHASE 100,000 COMMON SHARES
VOID AFTER 5:00 P.M., CALIFORNIA TIME, ON THE DATE
INDICATED BELOW
HEALTHY PLANET PRODUCTS, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received, John Winfield, the
registered holder hereof, or assigns (the "Warrantholder"), is entitled to
purchase from Healthy Planet Products, Inc., a Delaware corporation (the
"Company"), the number of Shares set forth above, at any time during the period
commencing at 9:00 a.m., California time, on the date hereof and ending at 5:00
p.m., California time, on September 29, 2002, at the purchase price per Share
(the "Exercise Price") of $____. The number of Shares purchasable upon exercise
of the Warrants represented by this certificate and the Exercise Price per Share
shall be subject to further adjustment from time to time as set forth in the
Warrant Agreement.
The Warrants represented by this certificate may be exercised in
whole or in part by presentation of this Certificate with the Purchase Form
attached hereto duly executed and simultaneous payment of the Exercise Price
(subject to adjustment) at the principal office of the Company. Payment of such
price shall be made, at the option of the Warrantholder, in cash or by check.
This Warrant Certificate is issued under and in accordance with
the Warrant Agreement dated the date hereof (the "Warrant Agreement") among the
Company and the Warrantholder and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which the Warrantholder by
acceptance hereof consents.
13
<PAGE>
Upon any partial exercise of the Warrants represented by this
certificate, there shall be signed and issued to the Warrantholder a new
certificate in respect of the Warrants which shall not have been exercised. This
Warrant certificate may be exchanged at the principal office of the Company for
new certificates in respect of the same aggregate number of Warrants as are
evidenced by this certificate. No fractional shares will be issued upon the
exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more Warrants. This Warrant
certificate is transferable at the office of the Company in the manner and
subject to the limitations set forth in the Warrant Agreement.
This Warrant does not entitle the Warrantholder to any of the
rights of a shareholder of the Company.
HEALTHY PLANET PRODUCTS, INC.
By:/s/ Bruce Wilson
-------------------------------
Name: BRUCE WILSON
Title: PRESIDENT
[Corporate Seal]
Attest:
By:
------------------------------
Name:
Title:
Dated: September 29, 1997
14
<PAGE>
HEALTHY PLANET PRODUCTS, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right
of purchase represented by the within Warrant certificate for, and to purchase
thereunder, ____________ shares (the "Shares"), provided for therein, and
requests that certificates for the Shares be issued in the name of:
- -----------------------------------------------------------------
(Please Print Name, Address and Social Security Number)
- -----------------------------------------------------------------
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the Shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Warrantholder or its Assignee as below indicated and delivered to the address
stated below.
The undersigned hereby makes payment of the aggregate amount of
$_________, representing $______ for each such Share.
Dated: _______________, 19___
Name of Warrantholder or Assignee: ____________________
Address: ________________________________________________________
_________________________________________________________________
Signature: ______________________________________________________
Signature Guaranteed: Note: Signature must conform in all respects to
name of holder as specified on the face
of the Warrant Certificate.
15
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- -----------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
- ------------------------------------------------------------------
Warrants evidenced by the within Warrant certificate, hereby irrevocably
constituting and appointing __________________ Attorney to transfer said
Warrants on the books of the Company, with full power of substitution in the
premises.
Dated: ___________, 19__ ___________________________________
Signature of Registered Holder
Signature Guaranteed: Notice: Signature must conform in all respects to
name of holder as specified on the face
of the Warrant certificate.
16
Execution Copy
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of
September, 1997, between John Winfield, having an address of 2121 Avenue of the
Stars, Suite 2020, Los Angeles, California 90067 (the "Holder") and Healthy
Planet Products, Inc., a Delaware corporation having its principal place of
business at 1700 Corporate Circle, Petaluma, California 94954 (the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holder is purchasing from the Company, pursuant to a
Securities Purchase Agreement dated the date hereof (the "Purchase Agreement"),
an aggregate of (a) 300,000 shares (the "Shares") of Common Stock, par value
$.01 per share ("Common Stock") and (b) 300,000 warrants ("Warrants") entitling
the Holders to purchase an aggregate of 300,000 shares ("Warrant Shares") of
Common Stock until September 29, 2002 at an exercise prices ranging from $4.00
per share to $4.50 per share. The Shares and Warrants are collectively referred
to herein as the "Securities."
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Shares and the Warrant
Shares (collectively the "Registrable Shares").
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Restrictions on Transfer. The Holder agrees that
prior to making any disposition of any of the Shares, Warrants or Warrant
Shares, the Holder shall give written notice to the Company describing briefly
the manner in which any such proposed disposition is to be made and no such
disposition shall be made if the Company has notified the Holder that, in the
opinion of counsel reasonably satisfactory to the Holder, a registration
statement or other notification or post-effective amendment thereto (hereinafter
collectively referred to as a "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") is required with respect to such
disposition and no such Registration Statement is then in effect with respect
thereto.
Section 2. Registration Rights. (a) The Company shall be
obligated to the Holder to file a Registration Statement only as follows:
(i) Whenever, during the period commencing upon the
date hereof and continuing until September 29, 2002, the Company
proposes to file with the Securities and Exchange Commission (the
"Commission") a Registration Statement (other than a Form S-4 or S-8,
or an S-3 used in conjunction with an S-8 (which S-3 is filed solely to
facilitate resales by affiliates of the Company of shares issued under
employee stock incentive plans), or comparable registration
statements), it shall, at least 30 days prior to such filing, give
written notice of such proposed filing to the Holder at the Holder's
<PAGE>
address appearing on the records of the Company, and shall offer to
include and shall include in such filing all or a portion of the
Registrable Shares upon receipt by the Company, not less than 10 days
prior to the proposed filing date, of a request therefor, subject to
the right of the managing underwriter, in any such offering that is
underwritten, to limit or eliminate entirely the number of securities
that may be included in such offering on a pro rata basis with any
other person on whose behalf securities are being registered.
(ii) In addition to any Registration Statement
pursuant to subparagraph (i) above, the Company will, as promptly as
practicable (but in any event within 60 days) after receipt of written
notice, at any time commencing on the first anniversary of the date
hereof and continuing until September 29, 2002, prepare and file at the
written request of the persons holding not less than 50% of the
Registrable Shares (the "Demand Holders"), a registration statement
with the Commission and appropriate state securities authorities
sufficient to permit the public offering of the Registrable Shares
which are held and issuable to such Demand Holders, and will use its
best efforts, at its own expense, through its officers, directors,
auditors and counsel, in all matters necessary or advisable, to cause
such registration statement to become effective as promptly as
practicable following filing thereof; provided, however, that the
Company shall be obligated to file only one registration statement
under this subparagraph (ii), shall only be required to file such
registration statement on Form S-3 or any successor "short form"
registration statement, and shall only be required to file such
registration statement if the Market Value (as hereinafter defined) of
the Registrable Shares to be registered is not less than $1,500,000 on
the date on which the notice requesting registration is sent by the
Demand Holders. "Market Value" for purposes hereof shall be determined
by multiplying the number of Registrable Shares to be registered by (i)
if the Common Stock is traded on a national securities exchange or on
the Nasdaq Stock Market, the average for the 30 consecutive trading
days immediately preceding the date of the notice of the daily per
share closing prices of the Common Stock on the principal securities
exchange on which the Common Stock is listed or on Nasdaq, as the case
may be, or (ii) if the Common Stock is traded in the over-the-counter
market and not on any national securities exchange or on the Nasdaq
Stock Market, the average of the mean between the per share closing bid
and asked prices of the Common Stock on the 30 consecutive trading days
immediately preceding the date of the notice, as reported by Nasdaq or
an equivalent generally accepted reporting service. Promptly upon
receipt of such notice, the Company will begin to prepare the necessary
Registration Statement. Within 10 days after receiving notice hereunder
from the Demand Holders, the Company shall give notice to the other
holders of the Registrable Shares and offer to include in the
Registration Statement such other Registrable Shares.
(b) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under Section 2(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holder shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Shares being
2
<PAGE>
registered and the fees and expenses of its counsel. The Company shall use its
best efforts to qualify any of the securities for sale in such states as such
Holder reasonably designates and shall furnish indemnification in the manner
provided in Section 3 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers. The Company at its expense will supply the
Holder with copies of such Registration Statement and the prospectus or offering
circular included therein and other related documents in such quantities as may
be reasonably requested by the Holder.
(c) The Company shall not be required by this Section 2 to
include any Registrable Shares in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Holder and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Securities Act.
(d) The Company agrees that until all Registrable Shares have
been sold under a Registration Statement or pursuant to Rule 144 under the
Securities Act, it will keep current in filing all materials required to be
filed with the Commission in order to permit the holders thereof to sell the
Registrable Shares under such Rule 144.
(e) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Shares pursuant to this Section 2.
Section 3. Indemnification.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Shares pursuant to Section 2 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Securities Act ("Distributing
Holders") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular,
3
<PAGE>
notification or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Holders, specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which the Company or any such controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in a
Registration Statement requested by such Distributing Holder, or any related
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement contained in this Section 3(b) shall not inure to the
benefit of the Company with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Shares which are the subject
thereof if the Company failed to send or give (in violation of the Securities
Act or the rules and regulations promulgated thereunder) a copy of the
prospectus contained in such Registration Statement to such person at or prior
to the written confirmation to such person of the sale of such Registrable
Shares, where the Company was obligated to do so under the Securities Act or the
rules and regulations promulgated thereunder. This indemnity agreement will be
in addition to any liability which the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 3 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 3, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 3. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 3 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of
4
<PAGE>
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is the Distributing Holder, the fees and expenses
of such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action (including any
impleaded parties) include both the Distributing Holder and the indemnifying
party and the Distributing Holder shall have been advised by such counsel that
there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the Distributing Holder (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the Distributing Holder,
it being understood, however, that the indemnifying party shall, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the Distributing Holder, which firm shall be
designated in writing by the Distributing Holder). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Section 4. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder makes a claim for indemnification pursuant to Section 3
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 3 hereof provide for indemnification in such case or (ii) contribution
under the Securities Act may be required on the part of any Distributing Holder,
then the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 4. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 4 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent
5
<PAGE>
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.
Section 5. Notices. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by hand or if mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to the Holder, to his address set forth on the first
page of this Agreement.
(b) If to the Company, to the address set forth on the first
page of this Agreement, with a copy to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attention: Charles P. Axelrod,
Esq.
or to such other address as any such party may designate by notice to the other
party. Notices shall be deemed given at the time they are delivered personally
or three days after they are mailed in the manner set forth above.
Section 6. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. This Agreement cannot be assigned, amended or
modified by the parties hereto, except by written agreement executed by the
parties.
Section 7. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed entirely within such State, without regard
to its principles of conflicts of laws.
Section 10. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: HEALTHY PLANET PRODUCTS, INC.
By: By:/s/ Bruce Wilson
----------------------------- ---------------------------------
Name: Name:
Title: Title:
/s/John Winfield
---------------------------------
John Winfield
7
