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PRESS RELEASE
SOURCE: OMNI NUTRACEUTICALS, INC.
OMNI NUTRACEUTICALS ANNOUNCES SUCCESSFUL COMPLETION OF EQUITY FINANCING
LOS ANGELES, Oct. 31 /PRNewswire/ -- Omni Nutraceuticals, Inc. (Nasdaq: ZONE -
NEWS) today announced that it had completed a $3 million private equity
financing. The proceeds will be used entirely for working capital purposes. The
terms were not disclosed.
Klee Irwin, Omni's CEO commented, "After a great deal of due diligence by both
parties, we are quite satisfied to have closed this equity financing, which will
give us additional working capital to continue with our rebuilding effort and
the execution of our business plan. With this new financing, relaxed credit
restrictions and continuing cost reduction efforts, support for our portfolio of
popular brands should improve significantly."
Omni Nutraceuticals is a leading formulator and supplier of natural consumer
health products such as Diet System Six(R), Nature's Secret(R), Harmony
Formulas(R), Dr. Linus Pauling Vitamins(R), Inholtra(R) and 151 Bar(R). The
Company's products are sold over the Internet and in health food stores, chain
drug stores, supermarkets, club and convenience stores worldwide.
Some information herein may be forward-looking and reflect management's view of
future events that involve risk or uncertainty. Some factors that could cause
actual results to differ materially include: economic conditions and
developments within the industry; competition and pricing pressures; length of
the sales cycle; and management continuity.
CONTACT: John Liviakis of Liviakis Financial Communications, Inc., 415-389-4670,
or fax, 415-389-4694, or [email protected] for Omni Nutraceuticals, Inc.
Omni's corporate web site is at www.omninutra.com and Omni's primary e-commerce
web site is at www.healthshop.com.
SOURCE: OMNI NUTRACEUTICALS, INC.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of October __, 2000, between Omni
Nutraceuticals, a Utah corporation with principal executive offices located at
5310 Beethoven Street, Los Angeles, California 90066 (the "Company"), and the
persons signatory hereto (collectively, the "Buyers" and individually, "Buyer").
W I T N E S S E T H:
WHEREAS, Buyers desires to purchase from the Company, and the Company
desires to issue and sell to the Buyers, upon the terms and subject to the
conditions of this Agreement, (i) 3,000 shares of Series A Convertible Preferred
Stock, $0.01 par value (the "Preferred Stock"), having the rights, preferences
and privileges set forth in the Articles of Amendment of the
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Articles of Incorporation of the Company designating the rights, preferences,
privileges and restrictions of Series A Preferred Stock attached hereto as ANNEX
I (the "Certificate of Designations"), and (ii) warrants to purchase an
aggregate of 600,000 shares (the "Warrants") of the Company's common stock $0.01
par value (the "Common Stock");
WHEREAS, upon the terms and subject to the conditions set forth in the
Certificate of Designations, the Preferred Stock is convertible into shares of
Common Stock; and
WHEREAS, the Warrants, upon the terms and subject to the conditions in the
Warrants, will for a period of five (5) years be exercisable to purchase 600,000
shares of Common Stock.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
A. TRANSACTION. Each Buyer hereby agrees to purchase from the Company, and
the Company hereby agrees to issue and sell to each Buyer, in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), the number of shares
of Preferred Stock and Warrants set forth on the signature page hereof. The
purchase and sale of the Preferred Stock and Warrants shall be made pursuant to
the provisions of this Agreement, which is one of several substantially
identical counterparts executed by the Buyers in connection with the offering
("Offering") by the Company of the Preferred Stock and Warrants for an aggregate
purchase price of $3,000,000 and which together shall govern the purchase and
sale of the shares of Preferred Stock and Warrants. As used herein, the term
"Agreement" shall mean this Agreement and all Exhibits, Annexes, Schedules and
amendments thereto together with all the other Agreements executed by the Buyers
in the Offering.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the Preferred
Stock and Warrants to be purchased by each Buyer hereunder shall be equal to one
thousand dollars ($1,000) times the number of shares of Preferred Stock
purchased (the "Purchase Price"). Each Buyer shall pay the Purchase Price on the
date hereof by wire transfer of immediately available funds to the escrow agent
(the "Escrow Agent") identified in those certain Escrow Instructions of even
date herewith, a copy of which is attached hereto as ANNEX III (the "Escrow
Instructions").
Simultaneously against receipt by the Escrow Agent of the Purchase Price,
the Company shall deliver one or more duly authorized, issued and executed
certificates (I/N/O Buyer) evidencing the Securities, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer and the
Company each hereby agrees to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price shall be
made by wire transfer of immediately available funds to:
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Transfer Online Escrow 1
227 S W Pine, Suite 300
Portland, Oregon 97204
Key Bank of Oregon
ABA #123002011
Account #370591005548
For the account of Omni Nutraceuticals, Inc.
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Securities.
II. BUYERS' REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
Each Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Stock, the Warrants, the Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") and the shares of
Common Stock issuable upon conversion of the Preferred Stock, including payment
of the Additional Amounts, as defined in the Certificate of Designations (the
"Conversion Shares" and, collectively with the Preferred Stock, the Warrants and
the Warrant Shares, the "Securities") for its own account, for investment
purposes only and not with a view towards or in connection with the public sale
or distribution thereof in violation of the Securities Act.
B. Buyer (i) is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, (ii) is experienced in making investments
of the kind contemplated by this Agreement, (iii) is capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, (iv) acknowledges that and an investment in
the Securities involves a high degree of risk, and (v) is able to afford the
loss of its entire investment in the Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws; the
Securities are "restricted securities" as defined in Rule 144 promulgated under
the Securities Act, and that the Company is relying upon the accuracy of, and
Buyer's compliance with, Buyer's representations, warranties and covenants set
forth in this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
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E. Buyer acknowledges that it has been furnished with, or had access to
through the EDGAR system of the Securities and Exchange Commission (the "SEC"),
copies of the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999 and all other reports and documents heretofore filed by the
Company with the SEC pursuant to the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), since December 31, 1999
(collectively the "SEC Filings").
F. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the business, financial position and results of operations
of the Company, as well as the terms and conditions of the private placement of
the Securities by the Company.
G. Buyer understands that the Securities have not been approved or
disapproved by the SEC or any state securities commission and that the foregoing
authorities have not reviewed any documents or instruments in connection with
the offer and sale to it of the Securities and have not confirmed or determined
the adequacy or accuracy of any such documents or instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates, nor any person acting on its or their
behalf, has the intention of entering, or will enter into, or has entered within
the past 60 days, directly or indirectly, any put option, short position or
other similar instrument or position with respect to the Common Stock and
neither Buyer nor any of its affiliates, nor any person acting on its or their
behalf, will use at any time shares of Common Stock acquired pursuant to this
Agreement to settle any put option, short position or other similar instrument
or position that may have been entered into prior to the execution of this
Agreement; provided, however, that the Buyer may enter into any short sale or
other hedging or similar arrangement it deems appropriate with respect to
Conversion Shares commencing on the day it delivers a Conversion Notice with
respect to such Conversion Shares, so long as such arrangements do not involve
more than the number of such Conversion Shares (determined as of the date of
such Conversion Notice). Neither Buyer nor any of its affiliates will engage in
any action which will have the effect of rendering unavailable the exemption
from the registration requirements of the Securities Act and all applicable
state securities laws relied upon by the Company in issuing the Securities. Each
Buyer hereby agrees to comply with all applicable requirements of federal and
state securities laws in connection with any proposed offer, sale or other
disposition of its Securities and to execute and deliver to the Company all such
documents and other instruments as the Company may reasonably require in order
to comply with all applicable federal and state securities laws and the
regulations of any stock exchange or quotation system on which the Common Stock
may be listed for trading.
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III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that except as disclosed on
Schedule III hereto:
A. CAPITALIZATION. 1. The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, of which 32,767,507 shares are outstanding
on the date hereof and no shares of preferred stock, par value $0.01, none of
which are outstanding on the date hereof. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable. Exhibit III.A sets forth the number of
outstanding stock options and warrants to purchase shares of Common Stock. The
Conversion Shares and Warrant Shares have been duly and validly authorized and
reserved for issuance by the Company, and when issued by the Company upon
conversion of the Preferred Shares (including payment of the Additional Amount),
or on exercise of the Warrants in accordance with their terms, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive, subscription, "call" or other similar rights to acquire the Common
Stock (including the Conversion Shares and Warrant Shares) that have been issued
or granted to any person.
2. The Company does not have any subsidiaries and does not own or control,
directly or indirectly, any interest in any other corporation, partnership,
limited liability company, unincorporated business organization, association,
trust or other business entity.
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and is duly
qualified as a foreign corporation in all jurisdictions in which the failure to
so qualify would have a material adverse effect on the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole, or on the consummation of any of
the transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to Section 12 of
the Exchange Act and has timely filed with the SEC all reports and information
required to be filed by it pursuant to all reporting obligations under Section
13(a) or 15(d), as applicable, of the Exchange Act for the 12-month period
immediately preceding the date hereof. The Common Stock is currently listed and
traded on the NASDAQ National Market ("NASDAQ") and the Company has not received
any notice regarding, and to its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Common Stock for such
listing.
C. AUTHORIZED SHARES. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section III.C.
a Conversion Price (as defined in the Certificate of Designations) of $0.75) and
the exercise of the Warrants, without regard to the
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anti-dilution provisions of the Preferred Stock and Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Conversion Shares upon conversion of the Preferred Stock
and the Warrant Shares upon exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company, notwithstanding the commencement of any case under
11 U.S.C. Section 101 ET SEQ. (the "Bankruptcy Code"). In the event the Company
is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the conversion of the Preferred Stock and the exercise of the
Warrants. The Company agrees, without cost or expense to the Buyer, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the requisite
corporate power and authority to enter into this Agreement, the Certificate of
Designations, the Registration Rights Agreement of even date herewith between
the Company and Buyer, a copy of which is annexed hereto as Annex IV (the
"Registration Rights Agreement") and the Warrants and to perform all of its
obligations hereunder and thereunder (including the issuance, sale and delivery
to Buyer of the Securities). The execution, delivery and performance by the
Company of this Agreement, the Certificate of Designations, the Warrants and the
Registration Rights Agreement, and the consummation by the Company of the
transactions contemplated hereby and thereby (the issuance of the Preferred
Stock, the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares), has been duly authorized by all necessary
corporate action on the part of the Company and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, except to the extent stockholder approval is required under NASDAQ
rules. Each of this Agreement, the Certificate of Designations, the Warrants and
the Registration Rights Agreement has been duly validly executed and delivered
by the Company and each instrument constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and general equitable principles. The Securities have been duly and validly
authorized for issuance by the Company against receipt of the consideration
therefor, and, when executed and delivered by the Company, will be valid and
binding obligations of the Company enforceable against it in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and general equitable principles.
E. NON-CONTRAVENTION. The execution and delivery by the Company of this
Agreement, the Certificate of Designations, the Warrants and the Registration
Rights Agreement, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, do not and
will not conflict with or result in a breach by the Company of any of the terms
or provisions of, or constitute a default (or an event which, with notice, lapse
of time or both, would constitute a default) under (i) Articles of Incorporation
or by-laws
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of the Company, (ii) except for such conflict, breach or default which would not
have a Material Adverse Effect, any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which
their respective properties or assets are bound, or (iii) any law, rule,
regulation, decree, judgment or order of any court or public or governmental
authority having jurisdiction over the Company or any of the Company's
properties or assets, nor is the Company otherwise in violation of, conflict
with or in default under any of the foregoing, except for such conflict, breach
or default which would not have a Material Adverse Affect.
F. APPROVALS. Except for the issuance of a Notice of Issuance to NASDAQ and
the filing of the Certificate of Designations with the Division of Corporations
and Commercial Code of the State of Utah, no authorization, approval or consent
of any court or public or governmental authority is required to be obtained by
the Company for the issuance and sale of the Preferred Stock and the Warrants
(and the Conversion Shares and Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. SEC FILINGS. None of the SEC Filings contained at the time they were
filed any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company has not provided to Buyer any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed.
H. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC Filings or
the Financial Statements (as defined in Section III.L. hereto), since the
Balance Sheet Date (as defined in Section III.L.), there has not occurred any
change, event or development in the business, financial condition, prospects or
results of operations of the Company, and there has not existed any condition
having or reasonably likely to have, a Material Adverse Effect.
I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in the SEC Filings or otherwise in writing to the Buyer
that (i) reasonably would be expected to have a Material Adverse Effect or (ii)
reasonably would be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement, the
Certificate of Designations, the Warrants or the Registration Rights Agreement.
J. ABSENCE OF LITIGATION. Except as set forth in the SEC Filings or
Schedule III.J, there is no action, suit, claim, proceeding, inquiry or
investigation pending or, to the Company's knowledge, threatened, by or before
any court or public or governmental authority which, if determined adversely to
the Company, would have a Material Adverse Effect.
K. ABSENCE OF EVENTS OF DEFAULT. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse
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of time or both, would constitute an Event of Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
L. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company has
delivered or made available to Buyer true and complete copies of its audited
balance sheet as at December 31, 1999 and the related audited statements of
operations and cash flows for the fiscal year ended December 31, 1999 including
the related notes and schedules thereto as well as the same unaudited financial
statements as of and for the six month period ended June 30, 2000 (collectively,
the "Financial Statements"), and all management letters, if any, from the
Company's independent auditors relating to the dates and periods covered by the
Financial Statements. Each of the Financial Statements has been prepared in
accordance with United States Generally Accepted Accounting Principles ("GAAP")
(subject, in the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the accounting
principles used in the preparation thereof, and fairly presents the financial
position, results of operations and cash flows of the Company as at the dates
and for the periods indicated. For purposes hereof, the audited balance sheet of
the Company as at December 31, 1999 is hereinafter referred to as the "Balance
Sheet" and December 31, 1999 is hereinafter referred to as the "Balance Sheet
Date". The Company has no indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date or was not previously disclosed to Astor
Capital, Inc. as agent for Buyers or Buyer or disclosed in an SEC Filing.
M. COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
non-compliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. RELATED PARTY TRANSACTIONS. Neither the Company nor any of its officers,
directors or "Affiliates" (as such term is defined in Rule 12b-2 under the
Exchange Act) has borrowed any moneys from or has outstanding any indebtedness
or other similar obligations to the Company. Neither the Company nor any of its
officers, directors or Affiliates (i) owns any direct or indirect interest
constituting more than a one percent equity (or similar profit participation)
interest in, or controls or is a director, officer, partner, member or employee
of, or consultant to or lender to or borrower from, or has the right to
participate in the profits of, any person or entity which is (x) a competitor,
supplier, customer, landlord, tenant, creditor or debtor of the Company, (y)
engaged in a business related to the business of the Company , or (z) a
participant in any transaction to which the Company is a party (other than in
the ordinary course
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of the Company's business) or (ii) is a party to any contract, agreement,
commitment or other arrangement with the Company.
O. INSURANCE. The Company maintains property and casualty, general
liability and workers' compensation, insurance with financially sound and
reputable insurers that is adequate in light of the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
P. SECURITIES LAW MATTERS. Based, in part, upon the accuracy and
completeness of the representations, covenants and warranties of Buyer set forth
in Section II hereof, the offer and sale by the Company of the Securities is
exempt from (i) the registration and prospectus delivery requirements of the
Securities Act and the rules and regulations of the SEC thereunder and (ii) the
registration and/or qualification provisions of all applicable state securities
and "blue sky" laws. Other than pursuant to an effective registration statement
under the Securities Act, the Company has not issued, offered or sold Preferred
Stock or any shares of Common Stock (including for this purpose any securities
of the same or a similar class as the Preferred Stock or Common Stock, or any
securities convertible into or exchangeable or exercisable for Preferred Stock
or Common Stock or any such other securities) within the six-month period next
preceding the date hereof, except as previously publicly disclosed or disclosed
in writing to Buyer or in a SEC Filing, and the Company shall not directly or
indirectly take, and shall not permit any of its directors, officers or
Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of Preferred Stock or
shares of Common Stock), so as to make unavailable the exemption from Securities
Act registration being relied upon by the Company for the offer and sale to
Buyer of the Preferred Stock (and the Conversion Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Preferred Stock (and the Conversion
Shares) as contemplated by this Agreement or any other agreement to which the
Company is a party.
Q. ENVIRONMENTAL MATTERS. 1. The operations of the Company are in material
compliance with all applicable Environmental Laws and all permits issued
pursuant to Environmental Laws or otherwise;
2. to its knowledge, the Company has obtained or applied for all material
permits required under all applicable Environmental Laws necessary to operate
its business;
3. to its knowledge, the Company is not the subject of any outstanding
written order of and the Company is not a party to any agreement with, any
governmental authority or person respecting (i) Environmental Laws, (ii)
Remedial Action or (iii) any Release or threatened Release of Hazardous
Materials;
4. the Company has not received, since the October 14, 1999, any written
communication alleging that it may be in violation of any Environmental Law or
any permit
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issued pursuant to any Environmental Law, or may have any liability under any
Environmental Law;
5. to its knowledge, the Company does not have any current contingent
liability in connection with any Release of any Hazardous Materials into the
indoor or outdoor environment (whether on-site or off-site);
6. to the Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property of the
Company pending or threatened which could lead to the imposition of any
liability pursuant to any Environmental Law;
7. to its knowledge, there is not located at any of the properties of the
Company any (A) underground storage tanks, (B) asbestos-containing material or
(C) equipment containing polychlorinated biphenyls; and,
8. the Company has provided to Buyer all environmentally related audits,
studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.Q.:
"ENVIRONMENTAL LAW" means any federal, state or local statute, regulation,
ordinance, or rule of common law as now or hereafter in effect in any way
relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Hazardous
Materials Transportation Act (49 U.S.C. App. Section 1801 ET SEQ.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Clean Water
Act (33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401
ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 ET
SEQ.), and the Occupational Safety and Health Act (29 U.S.C. Section 651 ET
SEQ.), and the regulations promulgated pursuant thereto.
"HAZARDOUS MATERIAL" means any substance, material or waste which is
regulated by the United States or any state or local governmental authority
including, without limitation, petroleum and its by-products, asbestos, and any
material or substance which is defined as a "hazardous waste," "hazardous
substance," "hazardous material," "restricted hazardous waste," "industrial
waste," "solid waste," "contaminant," "pollutant," "toxic waste" or toxic
substance" under any provision of any Environmental Law;
"RELEASE" means any release, spill, filtration, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the indoor
or outdoor environment, or into or out of any property, in each case in
violation of any Environmental law.
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"REMEDIAL ACTION" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material in violation of any Environmental law so it does not endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment; or (z) perform pre-remedial studies and investigations or
post-remedial monitoring and care.
R. LABOR MATTERS. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company. No employees of the Company are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
S. ERISA MATTERS. The Company and its ERISA Affiliates are in compliance in
all material respects with all provisions of ERISA applicable to it. Neither the
Company nor any ERISA Affiliate maintains, contributes, maintained or
contributed to a plan subject to the provisions of Title IV of ERISA or Section
412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the final regulations promulgated thereunder,
as the same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member
and which is treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code").
T. TAX MATTERS. 1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects and
have been prepared in compliance with all applicable Laws; the Company has paid
all Taxes due and owing by it (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which they are required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
December 31, 1999, the charges, accruals and reserves for Taxes with respect to
the Company (including any provisions for deferred
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<PAGE>
income taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as ending on
the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. To the Company's knowledge, there
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the Company;
no information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority; and, except as disclosed above, no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority. To the Company's knowledge, there are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to Section 7121
of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or
is required to make any adjustments pursuant to Section 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law
by reason of a change in accounting method initiated by the Company or has
any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
the business or operations of the Company. The Company has not been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Internal Revenue Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement
that could obligate it to make any payments that would not be deductible
under Section 28OG of the Internal Revenue Code.
For purposes of this Section III.T.:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
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<PAGE>
U. PROPERTY. The Company does not own any real property. Except as
disclosed in the SEC Filings or the Financial Statements, the Company has good
and marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and any real property and
buildings held under lease by the Company are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company.
V. INTELLECTUAL PROPERTY. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, the Company is not infringing upon or in conflict
with any right of any other person with respect to any Intangibles. No claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
W. INTERNAL CONTROLS AND PROCEDURES. The Company maintains accurate books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company is a party or by which its
properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
X. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Y. NO MISREPRESENTATION. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or
16
<PAGE>
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Z. RIGHT OF FIRST REFUSAL. The Company has not granted any right of first
refusal to any person with respect to the issuance of the Preferred Stock,
Common Stock or securities convertible into Common Stock.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that it will not
offer, sell or otherwise dispose of any of its Securities in violation of
federal and state securities laws, and upon issuance pursuant to this Agreement,
the certificates or other evidence of the Securities (and any shares of Common
Stock issued upon conversion of the Preferred Stock or upon exercise of the
Warrants) shall have endorsed thereon a legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the Securities
to the same effect):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary SEC and "blue sky"
filings required to be made by the Company in connection with the sale of the
Securities to the Buyer as required by all applicable Laws, and shall provide a
copy thereof to the Buyer promptly after such filing.
C. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to file all reports required
to be filed by it with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act.
D. LISTING. So long as the Buyer beneficially owns any of the Securities,
except to the extent the Company lists its Common Stock on The New York or
American Stock Exchanges, the NASDAQ SmallCap Market or the OTC Bulletin Board,
the Company shall use its best efforts to maintain its listing of the Common
Stock on NASDAQ.
E. RESERVED CONVERSION SHARES. Subject to Section 5.11 of the Certificate
of Designations and Section 2(d) of the Registration Rights Agreement, the
Company at all times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and reserved for
issuance to satisfy the conversion, in full, of the
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<PAGE>
Preferred Stock, including payment of the Additional Amount (assuming for
purposes of this Section IV.E., a Conversion Price of $0.75), and upon the
exercise of the Warrants. In the event the Market Price (as defined in the
Registration Rights Agreement) for any five consecutive Trading Days (as defined
in the Certificate of Designations) is $1.00 or less, the Company shall, within
10 days of the occurrence of such event, authorize and reserve for issuance such
additional shares of Common Stock sufficient in number for the conversion, in
full, of the Preferred Stock, assuming for purposes of this Section IV.E. a
Conversion Price of $0.50 per share, subject to Section 5.11 of the Certificate
of Designations.
F. REGISTRATION RIGHTS AGREEMENT. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
G. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The Company will
immediately notify the Buyer upon the occurrence of any of the following events
in respect of a registration statement or related prospectus in respect of an
offering of the Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement to be supplied
by amendments or supplements to the registration statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to Buyer any such supplement or amendment to the
related prospectus.
H. CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to Buyer such shares of stock and/or securities as
Buyer is entitled to receive pursuant to this Agreement.
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<PAGE>
I. ISSUANCE OF PREFERRED SHARES AND WARRANT SHARES. The sale of the
Preferred Stock and the issuance of the Warrant Shares pursuant to exercise of
the Warrant and the Conversion Shares upon conversion of the Preferred Stock
shall be made in accordance with the provisions and requirements of Section 4(2)
of the Securities Act and Regulation D promulgated thereunder and any applicable
state securities law. The Company shall make all necessary SEC and "blue sky"
filings required to be made by the Company in connection with the sale of the
Securities to Buyer as required by all applicable Laws, and shall provide a copy
thereof to Buyer promptly after such filing; provided, however, that each Buyer
agrees to furnish all such information as may reasonably be requested by the
Company in order to effect all such filings.
J. LIMITATION ON FUTURE FINANCING. The Company agrees that as long as the
Buyers own Preferred Stock it will not sell or enter into any agreement to sell
any of its securities or incur any indebtedness outside the ordinary course of
business, until twelve months after the Closing, without the written consent of
Astor Capital, Inc., as agent for the Buyers; provided, however, anything to the
contrary appearing herein notwithstanding, neither this Section nor any other
provision hereof shall be construed to restrict or prohibit the Company's right
to restructure, amend or modify any financing facility existing on the date
hereof.
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Stock, including the payment of the Additional Amount, and upon
exercise of the Warrants otherwise shall be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement and applicable Law, including, without limitation,
the provisions of the Securities Act and state securities laws. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably acceptable to the Company in form and substance reasonably
satisfactory to the Company that registration of the resale by Buyer of such
Common Stock is not required under the Securities Act and that the removal of
restrictive legends is permitted under applicable law, the Company shall permit
the transfer of such Common Stock and, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without any restrictive
legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company shall transmit the certificates evidencing the
shares of Common Stock issuable upon conversion of any Preferred Stock to Buyer
via express courier, by electronic transfer or otherwise, within four business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
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<PAGE>
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants in accordance with
its applicable terms of the Warrants. The last date that the Company may deliver
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the shares of
Common Stock issuable upon the conversion of the Preferred Stock (including the
payment of the Additional Amount) or upon exercise of the Warrants beyond the
applicable Delivery Date or Warrant Delivery Date could result in economic loss
to Buyer. As compensation to Buyer for such loss (and not as a penalty), the
Company agrees to pay to Buyer for late issuance of Common Stock issuable upon
conversion of the Preferred Stock or exercise of the Warrants in accordance with
the following schedule (where "No. Business Days" is defined as the number of
business days beyond four (4) days from the Delivery Date or the Warrant
Delivery Date, as applicable):
<TABLE>
<CAPTION>
Compensation For Each
5 Shares of Preferred
Stock Not Converted
Timely or Shares of Common
Stock Issuable Upon Exercise
of Each 250 Warrants
No. Business Days Not Issued Timely
----------------- -----------------
<S> <C>
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1000
more than 10 $ 200 for each
Business Day Late
beyond 10 days
</TABLE>
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer (which actual damages shall be reduced by the
amount of any compensation paid by the Company as described above in this
Section V.D.), and in addition to any other remedies which may be available to
Buyer, in the event the Company fails for any reason to effect delivery of such
shares of Common Stock within five business days after the relevant Delivery
Date or the
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<PAGE>
Warrant Delivery Date, as applicable, Buyer shall be entitled to rescind the
relevant Notice of Conversion or exercise of Warrants by delivering a notice to
such effect to the Company whereupon the Company and Buyer shall each be
restored to their respective original positions immediately prior to delivery of
such Notice of Conversion on delivery. The Company may pay the compensation
described above in additional shares of Common Stock based upon the Market Price
(as defined in the Certificate of Designations) as determined on the date of
payment.
E. Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions relating to the
Securities. Such instructions shall be irrevocable by the Company from and after
the date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, to require the transfer agent for the Common Stock from time
to time upon transfer of Securities by Buyer to issue certificates evidencing
such Registrable Securities free of legends and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or Buyer.
VI. DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company on a "delivery-against-
payment basis" at the Closing.
VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares (the
"Closing Date") shall be the date hereof or such other as shall be mutually
agreed upon in writing. The issuance and sale of the Securities shall occur on
the Closing Date at the offices of the Escrow Agent.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer of the Purchase Price; provided, however, that the
Company shall have received not less that an aggregate of $3,000,000 in gross
proceeds from the sale of the Preferred Stock and Warrants to the Buyers (the
"Gross Proceeds") as contemplated by the Agreement.
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyers contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified
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<PAGE>
date, in which case such accuracy shall be measured as of such specified date)
and the performance by Buyers in all material respects on or before the Closing
Date of all covenants and agreements of Buyers required to be performed by them
pursuant to the Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Securities
on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all material respects on or before the Closing Date of all
covenants and agreements of the Company required to be performed by it pursuant
to this Agreement on or before the Closing Date;
C. Buyer having received an opinion of counsel for the Company, dated the
Closing Date, in form, scope and substance reasonably satisfactory to counsel
for Astor Capital, Inc., as agent for the Buyer.
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably would have a
Material Adverse Effect.
F. The Company shall have authorized the Escrow Agent in the Release
Notice annexed to the Escrow Instructions to pay out of the Gross Proceeds
Buyers' out-of-pocket costs and expenses (not to exceed $30,000) incurred in
connection with the transactions contemplated by the Preferred Stock and the
Agreement (including the fees and disbursements of legal counsel).
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<PAGE>
G. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
H. Delivery of Irrevocable Instructions to the Transfer Agent.
I. The Company shall have delivered to Buyers the written agreement of
(1) American Equities, addressed to the Company and the principal market maker
for the Common Stock, not to sell any shares of Common Stock prior to September
25, 2001; (2) John Liviakis, addressed to the Company and the principal market
maker for the Common Stock, not to sell any shares of Common Stock (other than
shares purchased in the open-market) prior to September 25, 2001; (3) former
officers and directors of the Company owning more than 1% of the outstanding
Common Stock, addressed to the Company and the principal market maker for the
Common Stock, not to sell shares of Common Stock prior to September 25, 2001.
J. The Company shall have entered into an agreement with First Source
Financial, reasonably satisfactory to Astor Capital, Inc., restructuring its
outstanding indebtedness, which provides for no principal payments prior to June
15, 2001, extends the maturity date of the indebtedness until July 30, 2002 and
confirms that none of the proceeds from the sale of the Preferred Stock will be
used to pay down the indebtedness.
K. The Company shall have received an irrevocable proxy from Klee Irwin
granting Jacques Tizabi and Ali Moussavi of Astor Capital, Inc., or either of
them acting in the absence of the other, a proxy to vote the shares of Common
Stock beneficially owned by him at a meeting of the stockholders of the Company
in favor of a proposal authorizing the issuance upon conversion of the Preferred
Stock and exercise of the Warrants of more than 19.9% of the shares of Common
Stock outstanding on the date upon which the Preferred Stock is first issued.
X. TERMINATION.
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on October 31, 2000; PROVIDED, HOWEVER, that the right
to terminate this Agreement pursuant to this Article X.B(i) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or
23
<PAGE>
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement.
C. TERMINATION BY BUYER. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement,
(ii) there shall have been a breach by the Company with respect to any
representation or warranty made by it in this Agreement, or (iii) there shall
have occurred any event or development, or there shall be in existence any
condition, having or reasonably and foreseeably likely to have a Material
Adverse Effect.
D. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) any Buyer shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement or (ii) there shall have been a breach by any Buyer with respect to
any representation or warranty made by it in this Agreement or (iii) there is a
failure of any condition to the Company's obligations as set forth in Section
VIII hereof.
E. FEES AND EXPENSES OF TERMINATION. If this Agreement is terminated for
any reason, the Company shall reimburse Astor Capital, Inc. as agent for the
Buyers for their out-of-pocket costs and expenses incurred in connection with
the transactions contemplated by this Agreement in an amount not to exceed
$20,000 in the aggregate (including, but not limited to, the fees and
disbursements of Buyers' legal counsel.)
XI. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby until the second anniversary of the
Closing Date. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement , irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
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<PAGE>
1. any material misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
2. any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any material misrepresentation, omission of fact, or breach of
any of Buyer's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by Buyer pursuant to this Agreement;
or
2. any failure by Buyer to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or
delivered by Buyer pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as
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reasonably-determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified Party
that are in addition to or disparate from those available to the Indemnifying
Party and which can not be presented by counsel to the Indemnifying Party, or
(z) the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
Jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment and does involve any continuing
obligations.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration in San Francisco, California
conducted in accordance with the commercial procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any arbitrators may
be entered in any court having competent jurisdiction thereof.
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XII. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of Los Angeles
or the state courts of the State of California sitting in the City of Los
Angeles in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on FORUM NON CONVENIENS, to the bringing of any such proceeding
in such jurisdictions. In any action or proceeding brought by a party arising
out of, resulting from or relating to the transactions contemplated by this
Agreement, the prevailing party shall be entitled to recover the reasonable
costs and expenses incurred by it in connection with that action or proceeding,
including but not limited to, attorney's fees. A facsimile transmission of this
signed Agreement shall be legal and binding on all parties hereto. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
XIII. NOTICES. Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to the Company, to:
Omni Nutraceuticals, Inc.
5310 Beethoven Street
Los Angeles, California 90066
Attention: President
with a copy to:
Rosenthal and Smith, LLP
Encino Office Park II, Suite 330
6345 Balboa Boulevard
Encino, California 91316-1524
Attention Jerome B. Smith, Esq.
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(2) if to Buyer, to the address set forth on the signature page hereof.
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Mark Orenstein, Esq.
The Company or Buyer may change the foregoing address by notice given pursuant
to this Section XVIII.
XIV. CONFIDENTIALITY. Each of the Company and Buyer agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XV. ASSIGNMENT. This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; PROVIDED, HOWEVER, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
XVI. BROKERS. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party, except for Astor
Capital who is the agent of the Company and whose fee shall be paid by the
Company. The Company on the one hand, and Buyer, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
XVII. FEES AND EXPENSES. The Company agrees to pay Buyers' expenses
incident to the performance of their obligations hereunder (including, but not
limited to the fees, expenses and disbursements of Buyers' legal counsel) in an
amount not to exceed $30,000 in the aggregate.
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
OMNI NUTRACEUTICALS, INC.
By:___________________________
Name:
Title:
BUYER
Name:_________________________
By:__________________________
Name:
Title:
Jurisdiction of Incorporation:
Address:
____________________
____________________
Telephone No. ____________________
Fax No. ____________________
e-mail ____________________
Social Security or E.I.N Number: ___________________
Amount of Investment:
Number of Preferred Shares to be Purchased:
Number of Warrants to be Purchased:
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ANNEX I
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
OMNI NUTRACEUTICALS, INC.
(Pursuant to Sections 16 -10a-602 and 16-10a-1002 of the Utah Revised
Business Corporation Act)
THE UNDERSIGNED duly authorized officers of OMNI NUTRACEUTICALS, INC., a
Utah corporation (the "Corporation"), hereby certify that:
I. The name of the Corporation is Omni Nutraceuticals, Inc.
II. Article III of the Articles of Incorporation of the Corporation is
hereby amended by the addition of the following provision stating the
number, designation, preferences, limitations and relative rights of
the shares of a new series of preferred stock, par value $0.01 per
share, of the Corporation designated as "Series A Convertible
Preferred Stock" ("Series A Preferred Stock").
ARTICLE 1
AUTHORIZED SHARES; DEFINITIONS
SECTION 1.1 AUTHORIZED SHARES. The Corporation shall be authorized to issue
three thousand (3,000) shares of Series A Preferred Stock.
SECTION 1.2 DEFINITIONS. The terms defined in this Article whenever used in
this Certificate of Designations have the following respective meanings:
"ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section 5.1(c).
"AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
"ADDITIONAL AMOUNT" means the result of the following formula:
[(0.06)(N/365)($1,000)], where N means the number of days from, but excluding
the Issue Date through and including (1) the Conversion Date for the Series A
Preferred Stock for which conversion is being elected, or (2) such other date of
determination, as the case may be.
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"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which
banks located in the State of California are authorized or obligated to close.
"CAPITAL SHARES" means the Common Shares and any other shares of any other
class or series of common stock, whether now or hereafter authorized and however
designated, which have the right to participate in the distribution of earnings
and assets upon dissolution, liquidation or winding-up) of the Corporation.
"CLOSING DATE" has the meaning set forth in the Securities Purchase
Agreement.
"CLOSING PRICE" per share of Common Stock means the closing bid price as
reported on the Principal Market for the Trading Day immediately preceding the
Closing Date.
"COMMON SHARES" or "COMMON STOCK" means shares of common stock, $0.01 par
value, of the Corporation.
"COMMON STOCK ISSUED AT CONVERSION" when used with reference to the
securities issuable upon conversion of the Series A Preferred Stock, means all
Common Shares now or hereafter outstanding and securities of any other class or
series into which the Series A Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
"CONVERSION AMOUNT" has the meaning set forth in Section 5.1.
"CONVERSION DATE" means any day on which all or any portion of shares of
the Series A Preferred Stock is converted in accordance with the provisions
hereof.
"CONVERSION NOTICE" has the meaning set forth in Section 5.2.
"CONVERSION PRICE" means on any date of determination the applicable price
for the conversion of shares of Series A Preferred Stock into Common Shares on
such day as set forth in Section 5.1.
"CONVERSION RATIO" on any date means determination of the applicable
percentage of the Market Price for conversion of shares of Series A Preferred
Stock into Common Shares on such day as set forth in Section 5.1.
"CORPORATION" means Omni Nutraceuticals, Inc., a Utah corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
"CURRENT MARKET PRICE" on any date of determination means the closing bid
price of a Common Share on such day as reported on the Principal Market.
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"EFFECTIVE DATE" means the date upon which the Registration Statement, as
defined in the Registration Rights Agreement, is declared effective by the SEC.
"HOLDER" means the persons signatory to the Securities Purchase Agreement
(other than the Corporation), any successor thereto, or any Person to whom the
Series A Preferred Stock is subsequently transferred in accordance with the
provisions hereof as they appear in the books and records of the Corporation.
"ISSUE DATE" means the date upon which the shares of Series A Preferred
Stock being sold pursuant to the Securities Purchase Agreement are issued.
"MARKET DISRUPTION EVENT" means any event that results in a material
suspension or limitation of trading of Common Shares on the NASDAQ.
"MARKET PRICE" on any given date shall mean the average of the lowest
closing bid prices of the Common Stock on the Principal Market as reported by
Bloomberg L.P. for the two Trading Days during any Valuation Period for which
the closing bid price of the Common Stock is the lowest.
"MAXIMUM CONVERSION PRICE" has the meaning set forth in Section 5.1.
"OUTSTANDING" when used with reference to Common Shares or Capital Shares
(collectively, "Shares"), means, on any date of determination, all issued and
outstanding Shares, and includes all such Shares issuable in respect of
outstanding warrants, options, scrip or any certificates representing fractional
interests in such Shares; PROVIDED, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
"PERSON" means an individual, a corporation, a partnership, an association,
a limited liability company, an unincorporated business organization, a trust or
other entity or organization, and any government or political subdivision or any
agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the NASDAQ National Market, the NASDAQ
SmallCap Market, the American Stock Exchange, the New York Stock Exchange, or
the OTC Bulletin Board, whichever is at the time the principal trading exchange
or market for the Common Stock.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement related to the Series A Preferred Stock between the Corporation and
the other persons signatory to the Securities Purchase Agreement.
"SEC" means the United States Securities and Exchange Commission.
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"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
"SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement related to the Series A Preferred Stock between the Corporation and
the other persons signatory thereto.
"SERIES A PREFERRED STOCK" means the Series A Convertible Preferred Stock
of the Corporation or such other convertible Preferred Stock exchanged therefor
as provided in Section 2.1.
"STATED VALUE" means $1,000 per share of Preferred Stock.
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
"TRADING DAY" means any day on which purchases and sales of securities
authorized for quotation on the Principal Market are reported thereon and on
which no Market Disruption Event has occurred.
"VALUATION EVENT" has the meaning set forth in Section 5.1.
"VALUATION PERIOD" means the ten Trading Day period immediately preceding
the Conversion Date.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
RANK
The Series A Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); and (iii) pari passu with any class or series of capital
stock of the Corporation hereafter created specifically ranking on parity with
the Series A Preferred Stock ("Pari Passu Securities").
ARTICLE 3
DIVIDENDS
No holder of Series A Preferred Stock shall be entitled to receive any
dividends.
ARTICLE 4
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LIQUIDATION PREFERENCE
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A Preferred Stock, subject
to Article 4, shall have received the Liquidation Preference (as defined in
subparagraph(c) of this Article 4) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders of
any class or series of capital stock ranking on a party as to preference upon
liquidation ("Pari Passu Securities") with the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series A Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate liquidation preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person or Persons when the Corporation is not the survivor shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to, such transaction an amount equal to the
Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock in accordance with and subject to the terms of this Article 4;
PROVIDED, that all holders of Series A Preferred Stock shall be deemed to elect
the option set forth above if at least a majority in interest of such Holders
elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series A Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the Additional Amount.
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(d) The Series A Preferred Stock shall rank on a parity with the
Corporation's Series A Convertible Preferred Stock as to the distribution of the
assets of the Corporation upon liquidation, dissolution or winding up of the
Corporation.
ARTICLE 5
CONVERSION AND REDEMPTION OF SERIES A PREFERRED STOCK
SECTION 5.1 CONVERSION; CONVERSION PRICE. Subject to the terms, conditions
and restrictions of this Section 5, at the option of the Holder, commencing on
the Issue Date, the shares of Series A Preferred Stock may be converted into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), equal to the sum of the Stated Value and the Additional Amount of such
share or shares of Series A Preferred Stock (such sum being hereinafter referred
to as the "Conversion Amount"), divided by the Market Price, after discounting
the Market Price by 20% to determine the conversion price (the "Conversion
Price"); provided that in no event shall the Conversion Price be greater than
115% of the average of the lowest closing bid prices of the Common Stock on the
Principal Market as reported by Bloomberg L.P. for the two Trading Days during
the five Trading Days preceding the Issue Date for which the closing bid price
of the Common Stock is the lowest (the "Maximum Conversion Price"). The right of
each holder to convert shares of Series A Preferred Stock into shares of Common
Stock is subject to the limitations set forth in Sections 5.10 and 5.11 below,
and for the purpose of complying with the limitation in Section 5.11, shall be
prorated among the original purchasers of the shares of Series A Preferred Stock
(the "Initial Holders") and their transferees, if any, based upon the number of
shares of Series A Preferred Stock purchased by the Initial Purchasers.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; PROVIDED, further, that the Holder may, in
its discretion, postpone such Conversion Date to a Trading Day which is no more
than three (3) Trading Days after the occurrence of the latest Valuation Event
by delivering a notification to the Corporation within two (2) Business Days of
the receipt of the Valuation Event Notice. In the event that the Holder deems
the Valuation Period to be other than the three (3) Trading Days immediately
prior to the Conversion Date, the Holder shall give written notice of such fact
to the Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 5.1, a "Valuation Event" shall mean an event
in which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
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(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 5.1(a) and 5.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under presently outstanding warrants ,
options or convertible securities, or for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities to officers, directors
or employees of the Corporation, or otherwise under the Corporation's stock
option plans or upon exercise of the Warrants or upon conversion of the Series A
Preferred Stock;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to all
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 5.1(a) through 5.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 5.1(a) through
5.1(f), inclusive, which in the opinion of the Corporation's Board of Directors,
determined in good faith, would have a material adverse effect upon the rights
of the Holder at the time of a conversion of the Preferred Stock.
SECTION 5.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the Series
A Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation, confirmed by
mailing an original copy of the executed Conversion Notice to the Corporation;
provided, however, that the failure to mail such Conversion Notice shall not
prejudice the right of the Holder to receive the shares of Common Stock Issued
at Conversion to which that Conversion Notice relates. Each date on which a
Conversion Notice is telecopied to and received by the Corporation in accordance
with the provisions of this Section 5.2 shall constitute a Conversion Date. The
Conversion Notice also shall state the name or names (with addresses and, if
applicable, social security or employer tax identification numbers) of the
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Persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. If such conversion shall result in the
conversion of all of such Holder's shares of Series A Preferred Stock, the
Holder shall deliver the certificate(s) accompanied by a proper assignment
thereof to the Corporation or be endorsed in blank to the Corporation by express
courier within 30 days following the date on which the telecopied Conversion
Notice has been transmitted to the Corporation. As promptly as practicable after
the receipt of the Conversion Notice as aforesaid, but in any event not more
than four Business Days after the Corporation's receipt of such Conversion
Notice (and, if applicable, such other documentation as aforesaid), the
Corporation shall (i) issue the Common Stock Issued at Conversion in accordance
with the provisions of this Article 5, and (ii) cause to be mailed for delivery
by overnight courier to the Holder a certificate or certificate(s) representing
the number of Common Shares to which the Holder (or such other Person or
Persons) is entitled by virtue of such conversion, together with cash, as
provided in Section 5.3, in respect of any fraction of a Share issuable upon
such conversion. Holder shall indemnify the Corporation for any damages to third
parties as a result of a claim by such third party to ownership of the Series A
Preferred Stock converted prior to the receipt of the Series A Preferred Stock
by the Corporation. Such conversion shall be deemed to have been effected at the
close of business on the date the Conversion Notice is received by the
Corporation so long as the Series A Preferred Stock shall have been surrendered,
if required, as aforesaid on such date, and at the close of business on such
date the rights of the Holder of the Series A Preferred Stock, as such, shall
cease and the Person and Persons in whose name or names the Common Stock Issued
at Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby. The Conversion
Notice shall constitute a contract between the Holder and the Corporation,
whereby the Holder shall be deemed to subscribe for the number of Common Shares
which it will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription (and for any cash adjustment to which it is
entitled pursuant to Section 5.4), to surrender the Series A Preferred Stock and
to release the Corporation from all liability thereon . The Corporation shall
not be required to register shares in the name of any Person who acquired shares
of Series A Preferred Stock or part hereof) or any Common Stock Issued at
Conversion,, except as provided in Section 8.3 hereof.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series A Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 5.2 (other than with respect to the
calculation of the number of Common Shares covered by the Conversion Notice) or
(ii) any third party commences any lawsuit or proceeding or otherwise asserts
any claim before any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder
hereof to effect the conversion of the Series A Preferred Stock into Common
Shares, then the Holder shall have the right, by written notice to the
Corporation, to require the Corporation to promptly redeem the Series A
Preferred Stock for cash at a redemption price equal to one hundred and forty
percent (140%) of the Conversion Amount of the shares sought to be converted by
the Holder that are the subject of such injunction (the "Mandatory Purchase
Amount"). Under any of the circumstances set forth above, the Corporation shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred
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in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of the Holder), except and unless the Holder is finally
adjudicated not to have been entitled to exercise any such conversion right.
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code").In the event the Corporation is a debtor under
the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the Holder's conversion privilege. The Corporation hereby waives
to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the conversion of the Series A Convertible
Preferred Stock. The Corporation agrees, without cost or expense to the
Holder, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. Section 362.
SECTION 5.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series A Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction based upon the Current Market Price as of the
Conversion Date.
SECTION 5.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE; ADJUSTMENTS FOR SPLITS, COMBINATIONS. (a) At any time while the Series
A Preferred Stock remains outstanding and any shares thereof have not been
converted, in case of any reclassification or change of Outstanding Common
Shares issuable upon conversion of the Series A Preferred Stock (other than a
change in par value, or from par value to no par value per share, or from no par
value per share to par value or as a result of a subdivision or combination of
outstanding securities issuable upon conversion of the Series A Preferred Stock)
or in case of any consolidation, merger or mandatory share exchange of the
Corporation with or into another corporation (other than a merger or mandatory
share exchange with another corporation in which the Corporation is a continuing
corporation and which does not result in any reclassification or change, other
than a change in par value, or from par value to no par value per share, or from
no par value per share to par value, or as a result of a subdivision or
combination of Outstanding Common Shares upon conversion of the Series A
Preferred Stock), or in the case of any sale or transfer to another corporation
of the property of the Corporation as an entirety or substantially as an
entirety, the Corporation, or such successor, resulting or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, the Series A Preferred Stock shall be automatically
amended with no further action required by the Corporation or the Holders to
provide that the Holder shall have the right to convert the Series A Preferred
Stock (upon terms and conditions not less favorable to the Holder than those in
effect pursuant to the Series A Preferred Stock immediately outstanding prior to
such event) and to receive upon such exercise, in lieu of each Common Share
theretofore issuable upon conversion of the Series A Preferred Stock, the kind
and amount of shares of stock, other securities, money or property receivable
upon such reclassification, change, consolidation, merger, mandatory share
exchange, sale or transfer by the holder of one Common Share issuable upon
conversion of the Series A Preferred Stock had the Series A Preferred Stock been
converted immediately prior to such
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reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 5.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
(b) The Conversion Price and the number of Common Shares into which the
Series A Preferred Stock shall be convertible shall be adjusted for stock
splits, combinations, or other similar events. Additionally, an adjustment will
be made in the case of an exchange of Common Shares, consolidation or merger of
the Corporation with or into another corporation or sale of all or substantially
all of the assets of the Corporation in order to enable the holder of Series A
Preferred Stock to acquire the kind and the number of shares of stock or other
securities or property receivable in such event by a holder of the number of
Common Shares that might otherwise have been issued upon the conversion of the
Series A Preferred Stock. No adjustment to the Conversion Price will be made for
dividends (other than stock dividends), if any, paid on the Common Shares.
SECTION 5.5 ADJUSTMENTS TO CONVERSION RATIO. For so long as any shares of
the Series A Preferred Stock are outstanding, if after the Issue Date the
Corporation issues and sells (A) Common Shares at a purchase price on the date
of issuance thereof that is lower than the Conversion Price at such date, other
than with respect to the exercise of warrants, options or convertible securities
outstanding on the Issue Date, or for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities to officers, directors
or employees of the Corporation, or otherwise under the Corporation's stock
option plans or with respect to the Warrants or on conversion of the Series A
Preferred Stock,(B) warrants or options with an exercise price representing a
percentage of the Current Market Price with an exercise price on the date of
issuance of the warrants or options that is lower than the Conversion Price at
such date, except for employee stock option agreements or stock incentive
agreements of the Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Conversion Price on the
Issue Date, as applicable, of such convertible, exchangeable or exercisable
securities, except, in each case, for stock option agreements or stock incentive
agreements, then the Conversion Ratio shall be reduced to equal the lowest of
any such lower rates since the most recently received Conversion Notice, and
such Adjusted Conversion Price shall apply to any future Conversion Notices
received by the Corporation. The Adjusted Conversion Price as it may exist from
time to time shall not apply retroactively to any shares of Series A Preferred
Stock converted prior to the implementation of such Adjusted Conversion Price.
SECTION 5.6 OPTIONAL REDEMPTION. At any time after the Issue Date, the
Corporation, upon notice delivered to the Holder as provided in Section 5.7, may
redeem the Series A Preferred Stock (but only with respect to such shares as to
which the Holder has not theretofore furnished a Conversion Notice in compliance
with Section 5.2), at a price per share (the "Optional Redemption Price") equal
to the greater of (i) the sum of $1,400 and the Additional Amount per share of
such Series A Preferred Stock and (ii) the Market Price of the Common Stock into
which such shares of Series A Preferred Stock could be converted on the date of
such notice.
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SECTION 5.7 NOTICE OF REDEMPTION. (a)Notice of redemption pursuant to
Section 5.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than thirty
(30) days prior to the date stipulated by the Corporation for the redemption of
the Series A Preferred Stock (the "Redemption Date"), which notice shall specify
the Redemption Date and refer to Section 5.6 and this Section 5.7.
(b) Upon receipt of the Redemption Notice, the recipient thereof shall
have the option, at its sole election, to specify what portion of the Series A
Preferred Stock called for redemption in the Redemption Notice shall be redeemed
as provided in Section 5.6 or converted into Common Stock in the manner provided
in Section 5.1. If the Holder of the Series A Preferred Stock called for
redemption elects to convert any of such shares, then such conversion shall take
place on the Conversion Date specified by the Holder, but in no event after the
Redemption Date, in accordance with the terms of Section 5.1.
SECTION 5.8 SURRENDER OF PREFERRED STOCK. Upon any redemption of the
Series A Preferred Stock pursuant to Sections 5.6 or 5.7, the Holder shall
either deliver the Series A Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 5.6 shall be made by the Corporation to the Holder against receipt of
the Series A Preferred Stock (as provided in this Section 5.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify in
writing to the Corporation. If payment of such Optional Redemption Price is not
made in full by the Redemption Date, the Holder shall again have the right to
convert the Series A Preferred Stock as provided in Article 5 hereof.
SECTION 5.9 MANDATORY CONVERSION. On the fourth anniversary of the Issue
Date (the "Mandatory Conversion Date"), the Corporation shall convert all Series
A Preferred Stock outstanding, together with the Additional Amount thereon, at
the Conversion Price or, at the option of the Corporation, buy out all such
holders (including the Additional Amount on the shares of Series A Preferred
Stock then outstanding) in cash, at the then effective Conversion Price.
Notwithstanding the previous sentence, unless the Corporation shall have
obtained the approval of its voting stockholders to such issuance in accordance
with the rules of the NASDAQ or such other stock market as the Corporation shall
be required to comply with, the Corporation shall not issue shares of Common
Stock upon conversion of any shares of Series A Preferred Stock if such issuance
of Common Stock, when added to the number of shares of Common Stock previously
issued by the Corporation (i) upon conversion of shares of the Series A
Preferred Stock and (ii) upon exercise of the Warrants issued pursuant to the
terms of the Securities Purchase Agreement, would equal or exceed twenty percent
(20%) (or such lower or higher percentage as may then be provided under the
applicable rules of the NASDAQ or such other stock market) of the number of
shares of the Corporation's Common Stock which were issued and outstanding on
the Closing Date (the "Maximum Issuance Amount"). In the event that a Mandatory
Conversion would require the Corporation to issue shares of Common Stock equal
to or in excess of the Maximum Issuance Amount, the Corporation shall complete
such
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Mandatory Conversion by (i) converting shares of Series A Preferred Stock
which would result in the Corporation issuing shares of Common Stock equal to
one less than an amount which would result in the Corporation issuing shares
equal to the Maximum Issuance Amount and (ii) redeeming the remaining shares of
Series A Preferred Stock in cash at a price equal to the Optional Redemption
Price.
SECTION 5.10 COMPLIANCE WITH SECTION 13(d). Notwithstanding anything herein
to the contrary, except on the Mandatory Conversion Date, the Holder shall not
have the right, and the Corporation shall not have the obligation, to convert
all or any portion of the Series A Preferred Stock if and to the extent that the
issuance to the Holder of shares of Common Stock upon such conversion would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"Redemption Shares") of Series A Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series A Preferred Stock and the Holder shall have no interest in or
rights under such Redemption Shares. Such redemption shall be for cash at the
Optional Redemption Price.
SECTION 5.11 STOCKHOLDER APPROVAL. Unless the Corporation shall have
obtained the approval of its voting stockholders to such issuance in accordance
with the rules of the NASDAQ or such other stock market as the Corporation shall
be required to comply with, the Corporation shall not issue shares of Common
Stock upon conversion of any shares of Series A Preferred Stock, if such
issuance of Common Stock, when added to the number of shares of Common Stock
previously issued by the Corporation (i) upon conversion of shares of the Series
A Preferred Stock and (ii) upon exercise of the Warrants issued pursuant to the
terms of the Securities Purchase Agreement, would equal or exceed Maximum
Issuance Amount. If in the event of the circumstances provided in the preceding
sentence, a properly executed Conversion Notice is received by the Corporation
which would require the Corporation to issue shares of Common Stock equal to or
in excess of the Maximum Issuance Amount, the Corporation shall honor such
conversion request by (i) converting the number of shares of Series A Preferred
Stock stated in the Conversion Notice not in excess of the Maximum Issuance
Amount and (ii) redeeming the number of shares of Series A Preferred Stock
stated in the Conversion Notice equal to or in excess of the Maximum Issuance
Amount in cash at the Optional Redemption Price of the shares of Series A
Preferred Stock to be so redeemed.
SECTION 5.12 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of any
event described in subparagraphs (a), (b) or (f) of Section 5.1 or Section 5.4
of this Certificate of Designations, the Corporation shall cause to be mailed to
the Holder of the Series A Preferred Stock at its last address as it appears in
the Corporation's security registry, at least twenty (20) days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such twenty (20)
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days notice is not practicable, at the earliest practicable date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
taken, the date as of which the holders of record of Series A Preferred Stock to
be entitled to such dividend, distribution, issuance or granting of rights,
options or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of Series A Preferred Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
ARTICLE 6
VOTING RIGHTS
Holders of the Series A Preferred Stock have no voting power, except as
otherwise provided by the Utah Business Corporation Act ("UBCA"), in this
Article 6, and in Article 7 below.
Notwithstanding the above, the Corporation shall provide each Holder of
Series A Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to (or such shorter period that the
Corporation first becomes aware of) the consummation of the transaction or
event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the UBCA or pursuant to the provisions of this
Certificate of Designations the vote of the holders of the Series A Preferred
Stock, voting separately as a class or Series, as applicable, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of a majority of the outstanding shares of Series A
Preferred Stock (except as otherwise may be required under the UBCA) shall
constitute the approval of such action by the class. Holders of the Series A
Preferred Stock shall be entitled to notice of all stockholder meetings or
written consents (and copies of proxy materials and other information sent to
stockholders) with
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respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the UBCA.
ARTICLE 7
PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the UBCA) of the holders of at least 85% of the then
outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of Series A Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Certificate
of Designations which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least 85% of the then outstanding shares of
Series A Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series A Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series A Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series A Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert their shares of Series A Preferred Stock
pursuant to the terms of this Certificate of Designations as they exist prior to
such alteration or change or continue to hold their shares of Series A Preferred
Stock as so amended or changed.
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ARTICLE 8
MISCELLANEOUS
SECTION 8.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series A Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series A Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series A Preferred Stock, new shares of Series A Preferred
Stock of like tenor. The Series A Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 8.1 are exclusive with
respect to the replacement of mutilated, destroyed, lost or stolen shares of
Series A Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 8.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the Person
in whose name the Series A Preferred Stock shall be registered upon the registry
books of the Corporation (the "Registered Holder") to be, and may treat it as,
the absolute owner of the Series A Preferred Stock for the purpose of the
conversion of the Series A Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series A Preferred Stock to the extent of the
sum or sums so paid or the conversion so made. Shares of Series A Preferred
Stock may not be transferred or disposed of by a Registered Holder, nor may
shares of Common Stock Issued at Conversion be issued in a name other than the
Registered Holder unless the Registered Holder submits to the Corporation the
certificates evidencing the shares of Series A Preferred Stock to be transferred
or otherwise disposed of, or to be converted, as the case may be, together with
instruments of assignment and such other documents as the Corporation may
reasonably request to establish compliance with applicable federal and state
securities laws, including without limitation, an opinion in form and substance
satisfactory to the Corporation of counsel for the Registered Holder reasonably
acceptable to the Corporation.
SECTION 8.3 REGISTER. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series A Preferred Stock register.
SECTION 8.4 RESERVATION OF STOCK. The Corporation, upon the effective date
of this Certificate of Designations, has a sufficient number of shares of Common
Stock available to reserve for issuance upon the conversion of all outstanding
shares of Series A Preferred Stock, including the Additional Amount, at an
assumed Conversion Price of $0.75. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Preferred Stock as herein provided,
such
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number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Series A Preferred Stock. The Corporation covenants
that all shares of Common Stock which shall be so issued shall be duly and
validly issued, fully paid and non-assessable. The Corporation will take all
such action as may be so taken without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed to have a sufficient number of authorized but
unissued shares of Common Stock to issue upon conversion of the Series A
Preferred Stock. The Corporation will not take any action which results in any
adjustment of the conversion rights if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Corporation's Articles of Incorporation, as amended.
SECTION 8.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
A Preferred Stock.
SECTION 8.6 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
III. The foregoing amendment to the Corporation's Articles of Incorporation
was duly adopted by unanimous written consent dated October 25, 2000
in lieu of a meeting of the Board of Directors pursuant to authority
conferred on the Board of Directors by the provisions of the Articles
of Incorporation of the Corporation (as amended) and in accordance
with the provisions of the Utah Revised Business Corporation Act,
without shareholder approval and, pursuant to Section 16-10a-602 of
the Utah Revised Business Corporation Act, shareholder approval of
such amendment was not required.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to the Articles of Incorporation of the Corporation to be signed by its duly
authorized officers on this ____ day of October, 2000.
OMNI NUTRACEUTICALS, INC.
By:____________________
Name:
Title:
By:____________________
Name:
Title:
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ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series A Convertible Preferred Stock (the
"Series A Preferred Stock") issued by Omni Nutraceuticals, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert _______ shares
of the Series A Preferred Stock into shares of the common stock, $.01 par value,
of the Corporation ("Common Stock"), in accordance with the terms of the
Certificate of Designations. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series A Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 5 of the Certificate of Designations. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series A Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designations.
Dated:_______________
----------------------------
Signature
Fill in for registration of Series A Preferred Stock:
Please print name and address (including zip code number):
-----------------------------------------
-----------------------------------------
-----------------------------------------
Social Security or Employer Identification Number
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ANNEX II
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OR SUCH OTHER LAWS.
No. of Shares of Common Stock: ____________
Warrant No. A-1
WARRANT
To Purchase Common Stock of
Omni Nutraceuticals, Inc.
THIS IS TO CERTIFY THAT ____________ ____________, or registered assigns,
is entitled, at any time prior to October __, 2005 (the "Expiration Date"), to
purchase from Omni Nutraceuticals, Inc., a Utah corporation (the "Company"),
____________ shares of Common Stock (as hereinafter defined and subject to
adjustment as provided herein), in whole or in part, at a purchase price per
share of $_____ [ 120% of the average of the lowest closing bid prices of the
Common Stock on the Principal Market (as reported by Bloomberg L.P.) for the two
Trading Days during the five Trading Days preceding the Closing Date (as defined
in the Securities Purchase Agreement) on which the closing bid price for the
Common Stock is the lowest], all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of
California.
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"Closing Date" shall have the meaning set forth in the Securities Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, $0.01 par value, of the Company as constituted on the Closing
Date, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean a date five (5) years from the date hereof.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, outstanding on such date, and other
options or warrants to purchase, or securities convertible into, shares of
Common Stock outstanding on such date which would be deemed outstanding in
accordance with GAAP for purposes of determining book value or net income per
share.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
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"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" per Common Share means the average of the lowest closing bid
prices of the Common Shares on the NASDAQ National Market ("NASDAQ") as reported
by Bloomberg L.P. for two of the five Trading Days immediately preceding the
Closing Date, or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, on the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
NASDAQ member firm of the National Association of Securities Dealers, Inc.
selected from time to time by the Board of Directors of the Company for that
purpose, or a price determined in good faith by the Board of Directors of the
Company as being equal to the fair market value thereof, as the case may be.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and the other
persons signatory to the Securities Purchase Agreement, as it may be amended
from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement by and between the Company and the other signatories thereto with
respect to the Company's Series A Convertible Preferred Stock as it may be
amended from time to time.
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"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. At any time prior to 5:00 P.M., California time,
on the Expiration Date, Holder may exercise this Warrant, on any Business Day,
for all or any part of the number of shares of Common Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 5310 Beethoven Street, Los
Angeles, California 90066, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment of the Warrant Price in cash, by wire transfer or
cashier's check drawn on a United States bank or by the Holder's surrender of
Warrant Stock (or the right to receive such number of shares) having an
aggregate Market Price equal to the Warrant Price for all shares being purchased
and (iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. Upon receipt of the items referred
to in clauses (i), (ii) and (iii) above, the Company shall, as promptly as
practicable, and in any event within four (4) Business Days thereafter, execute
or cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as Holder shall request in the notice and shall be registered
in the name of Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the cash or check or checks and this Warrant, is
received by the Company as described above and all taxes required to be paid by
Holder, if any, pursuant to
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Section 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
The Holder shall be entitled to exercise the Warrant notwithstanding the
commencement of any case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. Section 362 in respect of the Holder's exercise
right. The Company hereby waives to the fullest extent permitted any rights
to relief it may have under 11 U.S.C. Section 362 in respect of the exercise
of the Warrant. The Company agrees, without cost or expense to the Buyer, to
take or consent to any and all action necessary to effectuate relief under 11
U.S.C. Section 362.
2.2. PAYMENT OF TAXES AND CHARGES. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof, unless such tax or charge is imposed by law upon Holder, in which case
such taxes or charges shall be paid by Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of Holder,
and in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
2.3. FRACTIONAL SHARES. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock as of the Closing Date.
2.4. CONTINUED VALIDITY. A holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part (other than a holder who acquires
such shares after the same have been publicly sold pursuant to a Registration
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under Sections 9, 10 and 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; PROVIDED, however, that if Holder shall fail
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to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to compliance with Sections 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be canceled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Company shall:
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(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account
to the nearest 1/10th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by
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the Holder, and any dispute shall be resolved by an investment banking firm
of recognized national standing selected by the Company and acceptable to
the Holder.
4.3. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION
OF ASSETS. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.3, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.3 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or dispositions of assets.
4.4. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time
to time the Company shall take any action in respect of its Common Stock, other
than any action described in this Section 4, which would have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
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4.5. CERTAIN LIMITATIONS. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
4.6. NO VOTING RIGHTS. This Warrant shall not entitle its Holder to any
voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 4 in an amount which constitutes, cumulatively, an
adjustment of 1% or greater of such number of shares or price, the Company shall
forthwith prepare a certificate to be executed by the chief financial officer of
the Company setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated, specifying
the number of shares of Common Stock for which this Warrant is exercisable and
(if such adjustment was made pursuant to Section 4.3 or 4.4) describing the
number and kind of any other shares of stock or Other Property for which this
Warrant is exercisable, and any change in the purchase price or prices thereof,
after giving effect to such adjustment or change. The Company shall promptly
cause a signed copy of such certificate to be delivered to the Holder in
accordance with Section 14.2. The Company shall keep at its office or agency
designated pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by the Holder or any prospective purchaser of a Warrant designated by the
Holder.
5.2. NOTICE OF CORPORATE ACTION. If at any time
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization,
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reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 30 days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause also shall specify (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof,
and (ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up. Each such written notice
shall be sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in accordance with
Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form satisfactory to
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
The
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Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of NASDAQ or any domestic
securities exchange upon which the Common Stock may be listed.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
9.1. RESTRICTIVE LEGEND. (a) The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion, in form and substance reasonably
satisfactory to the Company, of counsel for the Holder reasonably acceptable to
the Company that such securities may be sold pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Securities Act")
or (ii) a registration statement relating to such securities has been filed by
the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a legend
as follows unless such securities have been sold pursuant to an effective
registration statement under the Securities Act:
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"The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Act"). The securities may not be offered for
sale, sold or otherwise transferred except (i) pursuant to
an effective registration statement under the Act or (ii)
pursuant to an exemption from registration under the Act in
respect of which the Company has received an opinion of
counsel satisfactory to the Company to such effect. Copies
of the agreement covering both the purchase of the
securities and restricting their transfer may be obtained at
no cost by written request made by the holder of record of
this certificate to the Secretary of the Company at the
principal executive offices of the Company."
(b) Except as otherwise provided in this Section 9, the Warrant shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
"This warrant and the securities represented hereby have not been
registered under the securities act of 1933, as amended (the "Securities Act"),
or the securities laws of any state, and are being offered and sold pursuant to
an exemption from the registration requirements of the Securities Act and such
laws. These securities may not be offered, sold or transferred except pursuant
to an effective registration statement under the securities act or pursuant to
an available exemption from the registration requirements of the Securities Act
or such other laws."
9.2. NOTICE OF PROPOSED TRANSFERS. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give ten days, prior written notice (a "Transfer Notice") to the Company
of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to Holder who
shall be reasonably satisfactory to the Company, an opinion that the proposed
Transfer of such Warrants or such Restricted Common Stock may be effected
without registration under the Securities Act. After receipt of the Transfer
Notice and opinion, the Company shall, within five days thereof, notify the
Holder as to whether such opinion is reasonably satisfactory and, if so, such
Holder shall thereupon be entitled to Transfer such Warrants or such Restricted
Common Stock, in accordance with the terms of the Transfer Notice. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and the Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of such counsel such
legend is not required in order to ensure compliance with the Securities Act.
The Holder shall not be entitled to Transfer such Warrants or such Restricted
Common Stock until receipt of notice from the Company under this Section 9.2(a)
that such opinion is reasonably satisfactory.
9.3. REQUIRED REGISTRATION. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, the Company shall prepare and file with
the Commission not later than the 30th day after the Closing Date, a
Registration Statement relating to the offer and
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sale of the Common Stock issuable upon exercise of the Warrants and shall use
its best efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but no later than
90 days after the Closing Date.
9.4. TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it that such shares may be transferred without registration
thereof under the Securities Act. Whenever the restrictions imposed by Section 9
shall terminate as to this Warrant, as hereinabove provided, the Holder hereof
shall be entitled to receive from the Company upon written request of the
Holder, at the expense of the Company, a new Warrant bearing the following
legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
____________, ____, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5. LISTING ON SECURITIES EXCHANGE. If the Company shall list any shares
of Common Stock on any securities exchange or quotation system, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing of,
all shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this Warrant
so long as any shares of Common Stock shall be so listed during any such
Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
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Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; PROVIDED, in
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If the
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, the Company shall pay to
Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
14.2. NOTICE GENERAL. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
Omni Nutraceuticals, Inc.
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5310 Beethoven Street
Los Angeles, California 90066
Attention: President
(2) if to the Holder, to the address set forth on the signature page
of the Securities Purchase Agreement.
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; PROVIDED,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct.
14.4. REMEDIES. Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1 and
9, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof, Holders of Warrant Stock, and shall be enforceable by any such Holder or
Holder of Warrant Stock.
14.6. AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.
14.7. SEVERABILITY. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
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14.8. HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
14.9. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of California, without regard to the provisions thereof relating to
conflict of laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: ____________, 2000
OMNI NUTRACEUTICALS, INC.
By:____________________________
Name:
Title:
Attest:
By:__________________________
Name:
Title:
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of Shares of Common Stock of Omni Nutraceuticals, Inc.
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
__________, whose address is _____________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the shares
of Common Stock issuable hereunder be delivered to the undersigned.
---------------------------------
(Name of Registered Owner)
----------------------------------
(Signature of Registered Owner)
----------------------------------
(Street Address)
----------------------------------
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
NAME AND ADDRESS OF ASSIGNEE NO. OF SHARES OF COMMON STOCK
---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ____________ ____________
attorney-in-fact to register such transfer on the books of Omni Nutraceuticals,
Inc. maintained for the purpose, with full power of substitution in the
premises.*
Dated: ____________ Print Name:____________________________
Signature:______________________________
Witness:_______________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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ANNEX III
ESCROW INSTRUCTIONS
October __, 2000
Transfer Online
227 S W Pine, Suite 300
Portland, Oregon 97204
Attention: Lori Livingston
Gentlemen:
Reference is hereby made to that certain Securities Purchase Agreement
dated as of a date even herewith (the "Securities Purchase Agreement") , between
Omni Nutraceuticals, Inc., a Utah corporation (the "Company"), and the other
signatories thereto (the "Buyers") , pursuant to which, upon the terms and
subject to the conditions set forth therein, the Company has agreed to issue and
sell to the Buyers and the Buyers have agreed to purchase from the Company, on
the Closing Date, shares of Series A Convertible Preferred Stock, $0. 01 par
value per share ("Preferred Stock") , and warrants to purchase shares of the
Company's common stock (the "Warrants", and together with the Preferred Stock,
the "Securities"). Pursuant to Section 1 of the Securities Purchase Agreement,
the Company and the Buyers are required to deposit certain funds and other
property (more particularly referred to in the next succeeding paragraph) into
escrow to facilitate consummation of the transactions contemplated by such
agreement. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Securities Purchase Agreement.
In accordance with the terms and subject to the conditions specified in
these Escrow Instructions, Transfer Online, in its capacity as escrow agent (the
"Escrow Agent"), is hereby authorized and directed to accept the delivery of and
to hold in escrow the (i) certificate(s) evidencing the Securities to be
purchased by the Buyers under the Securities Purchase Agreement and deposited by
the Company into escrow hereunder (the "Escrowed Certificates"), (ii) a warrant
to purchase 50,000 shares of the Company's common stock (on the same terms as
the Warrants) registered in the name of Astor Capital, Inc. (the "Astor
Warrant") and (iii) the Purchase Price in the aggregate amount of $3,000,000
(the "Escrowed Funds", and together with the Escrowed Certificates and the Astor
Warrant, the "Escrowed Property") deposited by the Buyers into escrow hereunder,
in each case in accordance with the following:
1. The Escrow Agent shall, as promptly as practicable, notify the Company
of its receipt from the Buyers of the Escrowed Funds and notify the Buyers of
its receipt from the Company of the Escrowed Certificates and the Astor Warrant.
As promptly as practicable upon receipt of joint written notice from the Company
and the Buyers that the respective conditions precedent to the purchase and sale
of the Securities set forth in Articles 8 and 9 of the Securities Purchase
Agreement have been satisfied (the "Release Notice"), the Escrow Agent, after
first deducting from the Escrowed Funds the amount referred to in the next
sentence of this paragraph 1, shall release the Escrowed Funds to or upon the
order of the Company and release the Escrowed Certificates to the Buyers or its
designee and the Astor Warrant to Astor Capital, Inc. After receipt by the
Escrow Agent of the Release Notice and prior to the release by the Escrow Agent
of the Escrowed Funds as described in the preceding sentence, the Escrow Agent
shall deduct from the Escrowed Funds (and remit to Snow Becker Krauss P.C. or
its order) the amount of the Buyers' legal fees and expenses, (and remit to
Astor Capital, Inc.) the fees and expenses of Astor Capital, Inc., and remit to
R. Lindsey Duncan (or to his order) the sum of $40,000, and remit to Satterlee
Stephens Burke & Burke LLP (or to its order) the amount of $ 69,842.88.
If the Escrowed Certificates and the Astor Warrant are not deposited by the
Company with the Escrow Agent within three days after the Company has received
notice from
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the Escrow Agent that the Buyers have deposited the Escrowed Funds hereunder,
the Escrow Agent promptly shall notify the Buyers thereof and the Buyers shall
be entitled to demand immediate payment to it of the Escrowed Funds. If the
Escrowed Funds are not deposited by the Buyers with the Escrow Agent within
three days after the Buyers have received notice from the Escrow Agent that the
Company has deposited the Escrowed Certificates and the Astor Warrant hereunder,
the Escrow Agent promptly shall notify the Company thereof and the Company shall
be entitled to demand the immediate return to it of the Escrowed Certificates.
If at any time the Company or the Buyers notify the Escrow Agent that the
conditions precedent to the obligations of the Company or the Buyers, as the
case may be, under the Securities Purchase Agreement have not been satisfied or
waived, then the Escrow Agent promptly shall return the Escrowed Funds to the
Buyers and shall return the Escrowed Certificates and the Astor Warrant to the
Company. The Escrow Agent shall deposit all funds received hereunder in the
Escrow Agent's attorney escrow account at:
Transfer Online Escrow 1
ABA# 123002011
Account # 3705910055548
For the account of Omni Nutraceuticals, Inc.
If on or before November 30, 2000, the Escrow Agent has not received the
Release Notice directing the release to the Company of the Escrowed Funds and
the release to the Buyers of the Escrowed Certificates, the Escrow Agent shall
return the Escrowed Funds to the Buyers and return the Escrowed Certificates and
the Astor Warrant to the Company and all arrangements contemplated by these
Escrow Arrangements shall thereupon terminate without any further obligation of
the parties hereto except for the provisions of paragraph 9 hereof which shall
survive any such termination.
Notwithstanding any of the foregoing provisions of this paragraph 1, the
Escrow Agent shall release from escrow hereunder the Escrowed Property to the
parties, in the manner and to the extent set forth in a final judgment or order
of a court of competent jurisdiction, certified by the clerk of such court or
other appropriate official; PROVIDED that the Escrow Agent shall have received
from each party to whom the Escrowed Property is to be released (as provided in
such court judgment or order) an opinion of counsel, acceptable to the Escrow
Agent, to the effect that such judgment or order is final. For purposes of these
Escrow Instructions, any such judgment or order shall not be deemed to be final
until the time within which to take an appeal therefrom has expired and no
appeal has been taken, or until the entry of a judgment or order from which no
appeal may be taken.
2. The Escrow Agent shall not invest any of the Escrowed Funds.
3. The Escrow Agent shall be entitled to rely upon, and shall be fully
protected from all liability, loss, cost, damage or expense in acting or
omitting to act pursuant to, any instruction, order, judgment, certification,
affidavit, demand, notice, opinion, instrument or other writing delivered to it
hereunder without being required to determine the authenticity of
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such document, the correctness of any fact stated therein, the propriety of the
service thereof or the capacity, identity or authority of any party purporting
to sign or deliver such document.
4. The duties of the Escrow Agent are only as herein specifically
provided, and are purely ministerial in nature. The Escrow Agent shall neither
be responsible for or under, nor chargeable with any knowledge of, the terms and
conditions of any other agreement, instrument or document in connection
herewith, including, without limitation, the Securities Purchase Agreement, the
Certificate of Designations, the Warrants and the Registration Rights Agreement,
and shall be required to act in respect of the Escrowed Property only as
provided in these Escrow Instructions. These Escrow Instructions set forth all
the obligations of the Escrow Agent with respect to any and all matters
pertinent to the escrow contemplated hereunder and no additional obligations of
the Escrow Agent shall be implied from the terms hereof or any other agreement
or instrument. The Escrow Agent shall incur no liability in connection with the
discharge of its obligations hereunder or otherwise in connection therewith,
except such liability as may arise from the gross negligence or willful
misconduct of the Escrow Agent. In furtherance of and without limiting the
generality of the foregoing, the Escrow Agent shall incur no liability
whatsoever in respect of its selection in accordance with paragraph 2 hereof of
investments of the Escrowed Property, including, without limitation, any
liability for the rate or timing of the returns thereof resulting from
fluctuations in money market conditions or otherwise, or for prices resulting
from the need to liquidate an investment prior to maturity.
5. The Escrow Agent may consult with counsel of its choice and shall not
be liable for any action taken or omitted to be taken by the Escrow Agent in
accordance with the advice of such counsel.
6. The Escrow Agent shall not be bound by any modification, cancellation
or rescission of these Escrow Instructions unless in writing and signed by the
Escrow Agent and the other parties hereto.
7. The Escrow Agent is acting as a stakeholder only with respect to the
Escrowed Property. If any dispute arises as to whether the Escrow agent is
obligated to deliver the Escrowed Property or as to whom the Escrowed Property
is to be delivered or the amount or timing thereof, the Escrow Agent shall not
be required to make any delivery, but in such event the Escrow Agent may hold
the Escrowed Property until receipt by the Escrow Agent of instructions in
writing, signed by all parties which have, or claim to have, an interest in the
Escrowed Property, directing the disposition of the Escrowed Property, or in the
absence of such authorization, the Escrow Agent may hold the Escrowed Property
until receipt of a certified copy of a final judgment of a court of competent
jurisdiction providing for the disposition of the Escrowed Property. The Escrow
Agent may require, as a condition to the disposition of the Escrowed Property
pursuant to written instructions, indemnification and/or opinions of counsel, in
form and substance satisfactory to the Escrow Agent, from each party providing
such instructions. If such written instructions, indemnification and opinions
are not received, or proceedings for such determination are not commenced,
within 30 days after receipt by the Escrow Agent of notice of any such dispute
and diligently continued, or if the Escrow Agent is uncertain as to which party
or parties are entitled to the Escrowed Property, the Escrow Agent
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may either (i) hold the Escrowed Property until receipt of (x) such written
instructions and indemnification or (y) a certified copy of a final judgment of
a court of competent jurisdiction providing for the disposition of the Escrowed
Property, or (ii) deposit the Escrowed property in the registry of a court of
competent jurisdiction; PROVIDED, however, that notwithstanding the foregoing,
the Escrow Agent may, but shall not be required to, institute legal proceedings
of any kind.
8. The Company and the Buyers, jointly and severally, agree to reimburse
the Escrow Agent on demand for, and to indemnify and hold harmless the Escrow
Agent from, against and with respect to, any and all loss, liability, damage,
claim or expense (including, without limitation, attorneys' fees and costs) that
the Escrow Agent may suffer or incur in connection with agreeing to these Escrow
Instructions and the performance of its obligations hereunder or otherwise in
connection therewith, except to the extent such loss, liability, damage, claim
or expense arises from the gross negligence or willful misconduct of the Escrow
Agent. Without in any way limiting the foregoing, the Escrow Agent shall be
reimbursed for the reasonable cost of all legal fees and costs incurred by it in
acting as the Escrow Agent hereunder, based on the normal hourly rates in effect
at the time services are rendered. The Escrow Agent shall have the right at any
time and from time from time to charge, and reimburse itself from, the Escrowed
Property for all amounts to which it is entitled pursuant these Escrow
Instructions.
9. The Escrow Agent and any successor escrow agent may at any time resign
as such by delivering the Escrowed Property to either (i) any successor escrow
agent designated in writing by all the parties hereto (other than the Escrow
Agent), or (ii) any court having competent jurisdiction. Upon its resignation
and delivery of the Escrowed Property as set forth in this Section 10, the
Escrow Agent shall be discharged of, and from, any and all further obligations
arising in connection with the escrow contemplated by these Escrow Instructions.
10. If the Escrow Agent requires any further instruments or instructions
to effectuate these Escrow Instructions or obligations in respect hereof, the
necessary parties hereto shall join in furnishing the same.
11. The Escrow Agent shall have the right to represent any party hereto in
any dispute between the parties hereto with respect to the Escrowed Property or
otherwise.
12. These Escrow Instructions shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns.
Nothing contained herein, express or implied, shall give to anyone, other than
the parties hereto and their respective permitted successors and assigns, any
benefit, or any legal or equitable right, remedy or claim, under or in respect
of this Agreement or the escrow contemplated hereby.
13. All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered by hand or upon receipt when
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
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If to the Company, to:
Omni Nutraceuticals, Inc.
5310 Beethoven Street
Los Angeles, California 90066
Attention: President
If to Buyers, at the address set forth
on the signature pages to the Securities
Agreement
If to the Escrow Agent, to:
Transfer Online
227 S W Pine, Suite 300
Portland, Oregon 97204
Attention: Lori Livingston
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14. These Escrow Instructions shall be governed by and construed and
enforced in accordance with the laws of the State of California, without regard
to the conflicts of law doctrine of such state. All actions against the Escrow
Agent arising under or relating to this Agreement shall be brought against the
Escrow Agent exclusively in the appropriate court in the City of Los Angeles,
State of California. Each of the parties hereto agrees to submit to personal
jurisdiction and to waive any objection as to venue in the City of Los Angeles,
State of California. Service of process on any party hereto in any action
arising out of or relating to this Agreement shall be effective if mailed to
such party as set forth in the immediately preceding paragraph.
15. TO THE FULL EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THESE ESCROW INSTRUCTIONS, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ESCROW AGENT ENTERING INTO THIS
AGREEMENT.
16. These Escrow Instructions may be executed in counterparts, each of
which shall constitute an integral original part of one and the same original
instrument.
17. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
parties hereto taken within context may require.
18. The rights of the Escrow Agent contained herein, including without
limitation the right to indemnification, shall survive the resignation of the
Escrow Agent and the termination of the escrow contemplated hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused these Escrow
Instructions to be duly executed as of the date first written above.
OMNI NUTRACEUTICALS, INC.
By:
----------------------------
Name:
Title:
BUYER:
By:
----------------------------
Name:
Title:
TRANSFER ONLINE
By:
----------------------------
Name:
Title:
Annex IV
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this ____ day of October , 2000 (this
"Agreement"), between Omni Nutraceuticals, Inc., a Utah corporation, with
principal executive offices located at 5310 Beethoven Street, Los Angeles,
California 90066 (the "Company"), and the other signatories hereto (the "Initial
Investors").
W I T N E S S E T H
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of a date even herewith, between the Initial
Investors and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investors (i)3,000 shares of Series A
Convertible Preferred Stock, $0.01 par value ("Preferred Stock") which, upon the
terms and subject to the conditions set forth in the Articles of Amendment of
the Articles of Incorporation of the Company
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designating the rights, preferences and limitations of the Series A Convertible
Preferred Stock (the "Certificate of Designations") are convertible into shares
of common stock, $0.01 par value, of the Company ("Common Stock") and (ii)
warrants ("Warrants") to purchase 600,000 shares of Common Stock; and
WHEREAS, to induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable upon conversion of the Preferred Stock and
exercise of the Warrants certain registration rights under the Securities Act
(as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "AFFILIATE" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(ii) "COMMISSION" means the Securities and Exchange Commission.
(iii) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(iv) "INVESTORS" means the Initial Investors and any transferee or
assignee of Registrable Securities who agrees to become bound by all of the
terms and provisions of this Agreement in accordance with Section 8 hereof.
(v) "MARKET PRICE" on any date of determination means the closing bid
price of a share of Common Stock on such day as reported on the Nasdaq
National Market ("NASDAQ") or, if such security is not listed or admitted
to trading on the NASDAQ, on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so
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available, in such manner as furnished by any NASDAQ member firm of the
National Association of Securities Dealers, Inc. selected from time to time
by the Board of Directors of the Company for that purpose, or a price
determined in good faith by the Board of Directors of the Company as being
equal to the fair market value thereof, as the case may be.
(vi) "PERSON" means any individual, partnership, corporation, limited
liability company, joint stock company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
(vii) "PROSPECTUS" means the prospectus (including" without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(viii) "REGISTRABLE SECURITIES" means the Common Stock issued or
issuable (i) upon conversion of the Preferred Stock or (iii) upon exercise
of the Warrants; PROVIDED, however, a share of Common Stock shall cease to
be a Registrable Security for purposes of this Agreement when it no longer
is a Restricted Security.
(ix) "REGISTRATION STATEMENT" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and forming
a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits and other material
incorporated by reference in such registration statement and Prospectus.
(x) "RESTRICTED SECURITY" means any share of Common Stock issued or
issuable upon conversion of the Preferred Stock or exercise of the
Warrants, except any such share that (i) has been registered pursuant to an
effective registration statement under the Securities Act and sold in a
manner contemplated by the Prospectus included in the Registration
Statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or (iii)
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otherwise has been transferred and a new share of Common Stock not subject
to transfer restrictions under the Securities Act has been delivered by or
on behalf of the Company.
(xi) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and, regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. REGISTRATION.
(a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The Company
shall prepare and file with the Commission by not later than 30 days after the
Closing Date (as defined in the Securities Purchase Agreement), a Registration
Statement relating to the offer and sale of the Registrable Securities and shall
use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but not
later than 90 days after the Closing Date, assuming for purposes hereof a
Conversion Price (as defined in the Certificate of Designations) of $0.75 per
share. The Company shall not include any other securities in the Registration
Statement relating to the offer and sale of the Registrable Securities. The
Company shall notify the Initial Investors by written notice that such
Registration Statement has been declared effective by the Commission within one
business day of such declaration by the Commission.
(b) REGISTRATION DEFAULT. If the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities (as defined in
Section 2 (d) hereof) required to be filed by the Company pursuant to Section
2(a) or 2(d) hereof, as the case may be, is not (i) filed with the Commission
within 30 days after the Closing Date or (ii) declared effective by the
Commission within 90 days after the Closing Date, or if the Commission notifies
the Company that it will not review the Registration Statement and the
Registration Statement is not declared effective not later than five business
days thereafter (any of which, without duplication, an "Initial Date"), then the
Company shall make the payments to the Initial Investors as provided in the next
sentence as liquidated damages and not as a penalty. The amount to be paid by
the Company to the Initial Investors (pro rated on a daily basis) shall be
determined as of each Computation Date, and such amount shall be equal to one
percent (1%) (the "Liquidated Damage Rate") of the Purchase Price per share of
Preferred Stock (as defined in the Securities Purchase Agreement) from the
Initial Date to the first Computation Date in the event of late filing, and one
percent (1%) of the purchase price per share of Preferred Stock for every thirty
(30) day period thereafter until the Registration Statement has been filed and
in the event of late effectiveness, one percent (1%) of the purchase price per
share of Preferred Stock for every thirty (30) day period thereafter until the
Registration Statement has been declared effective. The full amount of
liquidated damages shall be paid by the Company to the Initial Investors by wire
transfer of
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immediately available funds within three days after each Computation Date. The
Company may pay the liquidation damages in additional shares of Common Stock
based upon the Market Price (so defined in the Certificate of Designations), as
determined on the date of payment.
As used in this Section 2 (b), "Computation Date" means the date which is
30 days after the Initial Date and, if the Registration Statement required to be
filed by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the previous
Computation Date until such Registration Statement is so declared effective.
Notwithstanding the above, if the Registration Statement covering the
Additional Registrable Securities (as defined in Section 2(d) hereof) required
to be filed by the Company pursuant to Section 2(d) hereof, is not filed with
the Commission within 15 days after the Market Price for any five consecutive
Trading Days (as defined in the Certificate of Designations) is $1.00 or less,
the Company shall be in default of this Registration Rights Agreement.
If the Company does not remit the damages to the Holder as set forth above,
the Company will pay the Holder reasonable costs of collection, including
attorneys fees, in addition to the liquidated damages. The registration of the
Securities pursuant to this provision shall not affect or limit Holder's other
rights or remedies as set forth in this Agreement.
(c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that at such time
as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) ADDITIONAL REGISTRATION STATEMENT. In the event the Market Price for
any five consecutive Trading Days is $1.00 or less, the Company shall, to the
extent required by the Securities Act (because the additional shares were not
covered by the Registration Statement filed pursuant to Section 2(a)), as
reasonably determined by the Initial Investors, file an additional Registration
Statement with the Commission for such additional number of Registrable
Securities as would be issuable upon conversion of the Preferred Stock (the
"Additional Registrable Securities"), in addition to those previously
registered, assuming a Conversion Price of $0.50 per share. The Company shall,
to the extent required by the Securities Act, as reasonably determined by the
Initial Investors, prepare and file with the Commission not later than the 15th
day thereafter, a Registration Statement relating to the offer and sale of such
Additional Registrable Securities and shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than 60 days thereafter. The
Company shall not include any other securities in the Registration Statement
relating to the offer and sale of such additional Registrable Securities.
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(e) PIGGY-BACK REGISTRATIONS. (i) If the Company proposes to register any
of its warrants, Common Stock or any other shares of common stock of the Company
under the Securities Act (other than a registration (A) on Form S-8 or S-4 or
any successor or similar forms, (B) relating to Common Stock or any other shares
of common stock of the Company issuable upon exercise of employee share options
or in connection with any employee benefit or similar plan of the Company or (C)
in connection with a direct or indirect acquisition by the Company of another
Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to the Initial Investors, which notice shall set forth such
Initial Investors' rights under this Section 2(e) and shall offer the Initial
Investors the opportunity to include in such registration statement such number
of Registrable Securities as the Initial Investors may request. Upon the written
request of an Initial Investors made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number of Registrable
Securities intended to be disposed of by such Initial Investors), the Company
will use its best efforts to effect the registration under the Securities Laws
of all Registrable Securities that the Company has been so requested to register
by the Initial Investors, to the extent requisite to permit the disposition of
the Registrable Securities so to be registered; PROVIDED, however, that (A) if
such registration involves a public offering, the Initial Investors must sell
their Registrable Securities to the underwriters selected as provided in Section
2(f) hereof on the same terms and conditions as apply to the Company and (B) if,
at any time after giving written notice of its intention to register any
Registrable Securities pursuant to this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to the Initial Investors and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(e) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(e) involves a public
offering and the managing underwriter thereof advises the Company that, in its
view, the number of shares of Common Stock, warrants or other shares of Common
Stock that the Company and the Initial Investors intend to include in such
registration exceeds the largest number of shares of Common Stock or warrants
(including any other shares of Common Stock or warrants of the Company) that can
be sold without having an adverse effect on such public offering (the "Maximum
Offering Size"), the Company will include in such registration, only that number
of shares of Common Stock or warrants, as applicable, such that the number of
Registrable Securities registered does not exceed the Maximum Offering Size,
with the difference between the number of shares in the Maximum Offering Size
and the number of shares to be issued by the Company to be allocated (after
including all shares to be issued and sold by the Company) among the Company and
the Initial Investors pro rata on the basis of the relative number of
Registrable
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Securities offered for sale under such registration by each of the Company and
the Initial Investors.
If as a result of the proration provisions of this Section 2 (e)(ii), any
Initial Investors is not entitled to include all such Registrable Securities in
such registration, such Initial Investors may elect to withdraw its request to
include any Registrable Securities in such registration. With respect to
registrations pursuant to this Section 2(e), the number of securities required
to satisfy any underwriters' over-allotment option shall be allocated pro rata
among the Company and the Initial Investors on the basis of the relative number
of securities otherwise to be included by each of them in the registration with
respect to which such over-allotment option relates.
(f) UNDERWRITTEN OFFERING. If the offering pursuant to a Registration
Statement contemplated by Section 2(e) hereof involves an underwritten offering,
the Investors who hold a majority-in-interest of the Registrable Securities
subject to such underwritten offering shall have the right to select one legal
counsel to represent their interests, and, unless such selection is deemed, in
good faith by the managing underwriter of the Company's underwritten offering to
interfere with the offer, sale or distribution of the Company's securities, an
investment banker (or bankers) and manager (or managers) to administer the
offering of their Registrable Securities, subject to the consent of the Company
(which consent shall not be unreasonably withheld). The Investors who hold the
Registrable Securities to be included in such underwriting shall pay all
underwriting discounts and commissions of such investment banker (or bankers)
and manager (or managers) so selected in accordance with this Section 2(f) with
respect to their Registrable Securities.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years (such period to be extended by a period
equal to any change in the Mandatory Conversion Date (as defined in the
Certificate of Designations) from the date on which the Registration Statement
is first declared effective by the Commission (the "Effective Time") or such
shorter period that will terminate when all the Registrable Securities covered
by the Registration Statement have been sold pursuant thereto in accordance with
the plan of distribution provided in the Prospectus, capable of being
transferred pursuant to Rule 144 under the Securities Act or otherwise
transferred in a manner that results in the delivery of new securities not
subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to
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make the statements therein, in light of the circumstances under which they were
made, not misleading and (B) the Prospectus forming part of the Registration
Statement, and any amendment or supplement thereto, does not at any time during
the Registration Period include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing provisions of this Section 3(a),
the Company may, during the Registration Period, suspend the use of the
Prospectus for a period not to exceed 20 days (whether or not consecutive) in
any 12-month period if the Board of Directors of the Company determines in good
faith that because of pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use, the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement or are no longer Registrable Securities;
(c)(i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose with regard to Holder
ownership and the Plan of Distribution included therein and (ii) furnish to each
Investor whose Registrable Securities are included in the Registration Statement
and its legal counsel identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus, and each
amendment or supplement thereto, and (B) such number of copies of the Prospectus
and all amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(d)(i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
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registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
PROVIDED, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d),(B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g)(i) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
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(j) Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable Securities
in accordance with the intended methods therefor provided in the Prospectus
which are customary under the circumstances;
(k) If required, make generally available to its security holders as soon
as practicable (including, without limitation, by means of a filing with the
Commission), but in any event not later than 18 months after (i) the effective
date (as defined in Rule 158(c) under the Securities Act) of the Registration
Statement, and (ii) the effective date of each post-effective amendment to the
Registration Statement, as the case may be, an earnings statement of the Company
and its subsidiaries complying with Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder (including, at the option of
the Company, Rule 158);
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) Enter into such customary agreements (including an underwriting
agreement in customary form in the event of an underwritten offering) and take
such other lawful and reasonable action to expedite and facilitate the
registration and disposition of the Registrable Securities, and in connection
therewith, if an underwriting agreement is entered into, use its best efforts to
cause the same to contain indemnification provisions and procedures
substantially identical to those set forth in this Agreement;
(n) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
PROVIDED, HOWEVER, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation
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of confidentiality; and PROVIDED FURTHER that, if the foregoing inspection and
information gathering would otherwise disrupt the Company's conduct of its
business, such inspection and information gathering shall, to the maximum extent
possible, be coordinated on behalf of the Investors and the other parties
entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Investors and other parties;
(o) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(p) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings;
(q) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(r) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(s) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
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indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
promptly furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. As
least seven days prior to the first anticipated filing date of the Registration
Statement, the Company shall promptly notify each Investor of the information
the Company requires from each such Investor (the "Requested Information") if
such Investor elects to have any of its Registrable Securities included in the
Registration Statement. If at least two business days prior to the anticipated
filing date the Company has not received the Requested Information from an
Investor (a "Non-Responsive Investor"), then the Company may file the
Registration Statement without including Registrable Securities of such
Non-Responsive Investor and have no further obligations to the Non-Responsive
Investor;
(b) Each Investor by its acceptance of the Registrable Securities agrees
to cooperate with the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its Registrable Securities
from the Registration Statement;
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f), it
shall immediately discontinue its disposition of Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(e) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice; and
(d) Enter into such customary agreements (including an underwriting
agreement in customary form in the event of an underwritten offering) and take
such other lawful and reasonable action to expedite and facilitate the
registration and disposition of the Registrable Securities, and in connection
therewith, if an underwriting agreement is entered into, use its best efforts to
cause the same to contain indemnification provisions and procedures
substantially identical to those set forth in Section 6(b) of this Agreement.
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5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualification fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company and
the reasonable fees and disbursements of one firm of counsel to the holders of a
majority in interest of the Registrable Securities (which fees and disbursements
shall not exceed $7,500) shall be borne by the Company.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold
harmless each Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their respective officers and
directors and each person who controls such Investor or underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or liabilities, joint or
several, to which such Indemnified 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 an
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Prospectus or an omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable legal and other
expenses incurred by them in connection with investigating or defending any such
action or claim as and when such expenses are incurred; PROVIDED, however, that
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable
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Securities shall agree, as a consequence of facilitating such disposition of
Registrable Securities, severally and not jointly, to (i) indemnify and hold
harmless the Company, its directors (including any person who, with his or her
consent, is named in the Registration Statement as a director nominee of the
Company), its officers who sign any Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other persons 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 (x) an untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus 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, in
light of the circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter expressly for use
therein, or (y) the use by the Investor or the underwriter of an outdated or
defective Prospectus after the Company has provided to such Investor or
underwriter an updated Prospectus correcting the untrue statement or alleged
untrue statement or omission or alleged omission giving rise to such loss,
claim, damage or liability, and (ii) reimburse the Company for any legal or
other expenses incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the defense of any Claim
by the Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim, and the
Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party if (and only
if): (x) the Indemnifying Party shall have agreed to pay such fees, costs and
expenses, (y) the Indemnified Party and the Indemnifying Party shall reasonably
have concluded that representation of the Indemnified Party by the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified Party
that are in addition to or disparate from those available to the Indemnifying
Party and which can not be presented by counsel to the Indemnifying Party, or
(z) the Indemnifying Party shall have
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failed to employ legal counsel reasonably satisfactory to the Indemnified Party
within a reasonable period of time after notice of the commencement of such
Claim. If the Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in connection
with any Claim in the same jurisdiction, be liable for the fees and expenses of
more than one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which consent shall not unreasonably
be withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnified Party
from all liabilities with respect to such Claim or judgment or which subjects
the Indemnified Party to any continuing obligations.
(d) CONTRIBUTION. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6 (d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
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
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of Section 6(d), in no event shall
any (i) Investor be required to undertake liability to any person under Section
6(d) for any amounts in excess of the dollar amount of the proceeds to be
received by such Investor
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from the sale of such Investor's Registrable Securities (after deducting any
fees, discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are to be registered under the
Securities Act and (ii) underwriter be required to undertake liability to any
Person hereunder for any amounts in excess of the aggregate discount, commission
or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to the
Registration Statement; provided, however, in the event of fraud by the Investor
(in the case of (i) above) or underwriter (in the case of (ii) above), there
shall be no such dollar amount limitation.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. RULE 144. With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), until
such time as the Registrable Securities may be sold pursuant to the provisions
of Rule 144(k) or its equivalent, the Company agrees to use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8. ASSIGNMENT. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to any permitted transferee of all or any portion of such securities
(or all or any portion of any Preferred Stock or Warrant of the Company which is
convertible into such securities) of Registrable Securities only if: (a) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name, address, and, if applicable, social security or taxpayer identification
number of such transferee or assignee and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment, the securities so transferred
or assigned to the transferee or assignee constitute Restricted Securities, (d)
at or before the time the Company received the written notice
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contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein
and (e) the Company has received an opinion in form and substance reasonably
satisfactory to the Company of counsel to the Holder reasonably acceptable to
the Company to the effect that the proposed transfer of the Registrable
Securities may be effected pursuant to available exemptions from the
registration requirements of the Securities Act and applicable state securities
laws.
9. AMENDMENT AND WAIVER. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) , only with the written
consent of the Company and Investors who hold a majority-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10. MISCELLANEOUS.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
Omni Nutraceuticals, Inc.
5310 Beethoven Street
Los Angeles, California 90066
Attention: President
(2) if to the Initial Investors, as set forth in the signature
pages of the Securities Purchase Agreement.
(3) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company.
The Company, the Initial Investors or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
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(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of Los Angeles or the state courts of the State of California sitting in
the City of Los Angeles in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection including any objection based on forum non conveniens, to the bringing
of any such proceeding in such jurisdictions.
(e) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(f) The Company shall not enter into any agreement with respect to its
securities that constitutes a breach of any of the provisions hereof. Except as
previously disclosed to the Investors, the Company is not currently a party to
any agreement granting any registration rights with respect to any of its
securities to any person which conflicts with the Company's obligations
hereunder or gives any other party the right to include any securities in any
Registration Statement filed pursuant hereto. The Company shall not file any
registration statement after the date hereof for the resale of any of its
securities at any time prior to the 30th day of the filing of the Registration
Statement, nor shall the Company cause any registration statement for the resale
of its securities to become effective prior to the 30th day after the date the
Registration Statement is declared effective.
(g) This Agreement, the Securities Purchase Agreement, the Certificate of
Designations and the Warrants constitute the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement, the Securities Purchase Agreement, the Certificate of
Designations and the Warrants supersede all prior agreements and undertakings
among the parties hereto with respect to the subject matter hereof.
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(h) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(i) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(j) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(k) The Company acknowledges that any failure by the Company to perform
its obligations under Section 3, or any delay in such performance could result
in direct damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct (but not any special, indirect or
consequential) damages caused by such failure or delay.
(l) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
OMNI NUTRACEUTICALS, INC.
By:
--------------------------
Name:
Title:
INVESTOR
-------------------------------
By:
--------------------------
Name:
Title:
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RELEASE NOTICE
The UNDERSIGNED, pursuant to the Joint Escrow Instructions, dated as of
October ___, 2000, among Omni Nutraceuticals, Inc., the other signatories to the
Securities Purchase Agreement (the "Buyers") and Transfer Online, as Escrow
Agent (the "Escrow Instructions"); capitalized terms used herein and not defined
shall have the meaning ascribed to such terms in the Escrow Instructions),
hereby notify the Escrow Agent that each of the conditions precedent to the
purchase and sale of the Securities set forth in Sections VIII and IX of the
Securities Purchase Agreement have been satisfied. The Company hereby authorizes
the release by the Escrow Agent of the Escrowed Certificates to the Buyers and
hereby authorize the release by the Escrow Agent of the Escrowed Funds.
The Escrow Agent shall:
(i) forward the Escrowed Certificates by overnight courier to Buyers'
counsel on behalf of the Buyers, as follows:
Snow Becker Krauss P.C.
605 Third Avenue
New York, NY 10158-0125
Attention: Mark Orenstein, Esq.
(ii) deduct from the Escrowed Funds and remit by wire transfer to Snow
Becker Krauss P.C. $15,000 in payment of the fees and disbursements of Buyers'
counsel:
Sterling National Bank & Trust Company
500 Seventh Avenue, 10th Floor New York, NY 10018
ABA# 026007773
For the Account of Snow Becker Krauss P.C.
Account 03-133423-01
(iii) deduct from the Escrowed Funds and remit by wire transfer to the
account of Astor Capital, Inc. the amount of $150,000, as follows:
Bank of America
Beverly Hills Main Branch
400 North Beverly Drive
Beverly Hills, CA 90210
ABA#: 131-000-350
Account Name: Astor Capital, Inc,.
Account #: 02452-08600
(iv) deduct from the Escrowed Funds and remit by wire transfer to the
account of R. Lindsey Duncan the amount of $40,000, as follows:
Wells Fargo Bank
1012 Swarthmore Drive
Pacific Palisades, CA 90272
ABA #: 121000248
Account #: 0375757531
Account Name: R. Lindsey Duncan and Cheryl Duncan
(v) deduct from the Escrowed Funds and remit by wire transfer to the
account of Satterlee Stephens Burke & Burke LLP the amount of $69,842.88, as
follows:
Chase Manhattan Bank
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380 Madison Avenue, NY, NY 10017
ABA#: 021000021
Account #: 006-977766
Account Name: Satterlee Stephens Burke & Burke LLP -
IOLA Account
Attention: Doris Graves
Client Number: 100869
(vi) transfer the balance of the Escrowed Funds by wire transfer to the
Company's account as follows:
LaSalle Bank National Association
> Chicago, IL 60603
> ABA #071000505
> Account #5800174491
> Beneficiary: Omni Nutraceuticals
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have caused this Release Notice to be
duly executed and delivered as of this _____ day of October 2000.
OMNI NUTRACEUTICALS, INC.
By:
----------------------------
Name:
Title:
BUYER:
By:
----------------------------
Name:
Title:
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<PAGE>
INSTRUCTIONS TO TRANSFER AGENT
Omni Nutraceuticals, Inc.
October __, 2000
American Securities Transfer and Trust, Inc.
12039 West Alameida Parkway
Lakewood, Colorado 80228
Attn:
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement and all Exhibits thereto
(the "Agreement") dated as of October __, 2000, between the Buyers named therein
("Buyers") and Omni Nutraceuticals, Inc. (the "Company"). Pursuant to the
Agreement, and subject to the terms and conditions set forth in the Agreement,
the Buyers have agreed to purchase from the Company, and the Company has agreed
to sell to the Buyers, (i) 3,000 shares of Series A Convertible Preferred Stock
of the Company, par value $0.01 per share (the "Preferred Stock"), and (ii)
warrants to purchase 600,000 shares of Common Stock (the "Warrants"). As a
condition to the effectiveness of the Agreement, the Company has agreed to issue
to you, as the transfer agent for the Common Stock (the "Transfer Agent"), these
instructions relating to the Common Stock to be issued to the Buyers (or a
permitted assignee) pursuant to the Agreement upon conversion of the Preferred
Stock or upon exercise of the Warrants. All terms used herein and not otherwise
defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Buyers (i) upon exercise of the Warrants and (ii) upon
conversion of the Preferred Stock. The Company will advise the Transfer Agent in
writing of the effectiveness of any such registration statement promptly upon
its being declared effective and provide the Transfer Agent with a copy of the
registration statement. The Transfer Agent shall be entitled to rely on such
advice and shall assume that the effectiveness of such registration statement
remains in effect unless the Transfer Agent is otherwise advised in writing by
the Company and shall not be required to independently confirm the continued
effectiveness of such registration statement. In the circumstances set forth in
the following two paragraphs, the Transfer Agent shall deliver to the Buyers
certificates representing Common Stock not bearing the Legend without requiring
further advice or instruction or additional documentation from the Company or
its counsel or the Buyers or its counsel or any other party (other than as
described in such paragraphs).
(a) In the event the Company files a Form S-3 or Form S-1, S-2 or SB-2
registration statement and such registration statement is declared effective by
the Securities and Exchange Commission in connection with any such event, each
Buyer (or its permitted assignee) shall confirm in writing to the Transfer Agent
that (i) the Buyer has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (ii) the Buyer confirms
to the transfer agent that the Buyer has complied with the prospectus delivery
requirement.
(b) In the event a registration statement is not filed by the Company, or for
any reason the registration statement which is filed by the Company is not
declared
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effective by the Securities and Exchange Commission or is withdrawn, the Buyer,
or its permitted assignee, or either of their brokers confirms to the Transfer
Agent, the Company and its counsel, that (i) the Buyer has beneficially owned
the shares of Common Stock for at least one year, (ii) counting the shares
surrendered as being sold upon the date the unlegended Certificates would be
delivered to the Buyer (or the Trading Day immediately following if such date is
not a Trading Day), the Buyer will not have sold more than the greater of (a)
one percent (1%) of the total number of outstanding shares of Common Stock or
(b) the average weekly trading volume of the Common Stock for the preceding four
weeks during the three months ending upon such delivery date (or the Trading Day
immediately following if such date is not a Trading Day), (iii) the Buyer and
its broker each has complied with the manner of sale and notice requirements of
Rule 144 under the Securities Act and (iv) the Transfer Agent receives an
opinion from counsel to the Company that such transfer is permissible.
Any advice, notice, or instructions to the Transfer Agent required or permitted
to be given hereunder may be transmitted via facsimile to the Transfer Agent's
facsimile number of (718) 921-8206.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any conversion of Preferred Stock or exercise of a Warrant
pursuant to which the Buyer acquires Common Stock under the Agreement, the
Transfer Agent shall deliver to the Buyer, certificates representing Common
Stock (with or without the Legend, as appropriate) immediately upon request of
the Company, and, if the Transfer Agent is able to deliver such Common Stock to
the Buyer's account pursuant to the DWAC system of the Depository Trust Company,
the Transfer Agent shall make delivery pursuant to such system and provide the
Buyer with confirmation thereof in lieu of such Common Stock certificates.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in connection
with these Irrevocable Instructions. The Company agrees to indemnify the
Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that each Buyer is an
express third party beneficiary of these Irrevocable Instructions and shall be
entitled to rely upon, and enforce, the provisions thereof.
Omni Nutraceuticals, Inc.
By:
--------------------------------
Name:
Title:
AGREED:
AMERICAN SECURITIES TRANSFER
AND TRUST, INC.
By:
--------------------------
Name:
Title:
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