SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "AGREEMENT") is made as of the
24th day of August, 2005 by and among PacificHealth Laboratories, Inc., a
Delaware corporation (the "COMPANY") and Hormel Health Labs, LLC, a Delaware
limited liability Company (the "PURCHASER").
The parties hereby agree as follows:
1. Purchase and Sale of Secured Convertible Promissory Note.
1.1. Sale and Issuance of Secured Convertible Promissory Note.
Subject to the terms and conditions of this Agreement, the Purchaser agrees to
purchase at the Closing and the Company agrees to sell and issue to the
Purchaser at the Closing a secured convertible promissory note in the principal
amount of $500,000 in substantially the form set forth as Exhibit A hereto (the
"NOTE") and secured by a blanket security interest in all the property of the
Company pursuant to the security agreement attached hereto as Exhibit B (the
"SECURITY AGREEMENT") subordinated only to the obligations of the Company to
Fidelity Funding Business Credit, Ltd., dba USA Funding, Ltd. pursuant to the
Purchase & Sale Agreement dated May 28, 2003 between the Company and Fidelity
Funding Business Credit, Ltd., dba USA Funding, Ltd. as amended by the First
Amendment to the Purchase & Sale Agreement dated June 1, 2004.
1.2. Closing; Delivery.
(a) The purchase and sale of the Note shall take place
remotely via the exchange of documents and signatures, at 12:00 Noon, central
time, on August 24, 2005, or at such other time and place as the Company and the
Purchasers mutually agree upon, orally or in writing (which time and place are
designated as the "CLOSING").
(b) At Closing, the Company shall deliver to the Purchaser
an executed copy of the Note against payment of the purchase price therefor by
check payable to the Company or by wire transfer of immediately available funds
to a bank account designated by the Company.
1.3. Defined Terms Used in this Agreement. In addition to the
terms defined above, the following terms used in this Agreement shall be
construed to have the meanings set forth or referenced below.
"AFFILIATE" means with respect to any person or entity (a
"PERSON") any Person which, directly or indirectly, controls, is controlled by,
or is under common control with such Person, including, without limitation, any
partner, officer, director, or member of such Person and any venture capital
fund now or hereafter existing which is controlled by or under common control
with one or more general partners or shares the same management company with
such Person.
"CODE" means the Internal Revenue Code of 1986, as amended.
"AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT" means the
agreement between the Company and the Purchasers(,) dated as of the date hereof,
in the form of Exhibit C attached to this Agreement.
"MANUFACTURING AGREEMENT AMENDMENT" means the Amendment No. 1
to the Exclusive Manufacturing Agreement dated as of the date hereof, in the
form of Exhibit D attached to this Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the business, assets (including intangible assets), liabilities, financial
condition, property, prospects or results of operations of the Company.
"PURCHASER" has the meaning given in the preamble of this
Agreement.
"SECURITIES" means the Note and the shares of the Company's
Common Stock issuable upon conversion of the Note.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRANSACTION AGREEMENTS" means this Agreement, the Investors'
Rights Agreement, the Note, the Security Agreement and the Manufacturing
Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser that, except as set forth on the
Disclosure Schedule attached as Schedule 1 to this Agreement which exceptions
shall be deemed to be part of the representations and warranties made hereunder,
the following representations are true and complete as of the date of the
Closing, except as otherwise indicated. The Disclosure Schedule shall be
arranged in sections corresponding to the numbered and lettered sections and
subsections contained in this Section 2, and the disclosures in any section or
subsection of the Disclosure Schedule shall qualify other sections and
subsections in this Section 2 only to the extent it is readily apparent from a
reading of the disclosure that such disclosure is applicable to such other
sections and subsections.
For purposes of these representations and warranties, the
phrase "to the Company's knowledge" shall mean the actual knowledge of Company
executive officers. In addition, for purposes of these representations and
warranties (other than those in Sections 2.1, 2.2, 2.3, 2.4 and 2.5), the term
"the Company" shall include any subsidiaries of the Company, unless otherwise
noted herein.
2.1. Organization, Good Standing, Corporate Power and
Qualification. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and has all requisite
corporate power and authority to carry on its business as presently conducted
and as proposed to be conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a Material Adverse Effect.
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2.2. Capitalization. The capitalization of the Company as of
the date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable and
reserved for issuance pursuant to securities (other than the Note) exercisable
or exchangeable for, or convertible into, any shares of capital stock and the
number of shares to be reserved for issuance upon conversion of the Note is set
forth in Section 2.2 of the Disclosure Schedule. All of such outstanding shares
of capital stock have been, or upon issuance in accordance with the terms of any
such exercisable, exchangeable or convertible securities will be, validly
issued, fully paid and non-assessable. No shares of capital stock of the Company
are subject to preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances. The shares of common stock issuable
upon conversion of the Note will not constitute "Additional Shares of Common
Stock" as defined in Section 4(d)(i)(D) of the certificate of designation of the
Company's Series A Preferred Stock. Except for the Securities and as set forth
in the SEC Documents or Section 2.2 of the Disclosure Schedule, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, nor are any such issuances, contracts,
commitments, understandings or arrangements contemplated, (ii) there are no
contracts, commitments, understandings or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of its or
their securities under the Securities Act (except the Investors' Rights
Agreement); (iii) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries that contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem or otherwise acquire any security of the Company or any of its
Subsidiaries; and (iv) the Company does not have any shareholder rights plan,
"poison pill" or other anti-takeover plans or similar arrangements. Section 2.2
of the Disclosure Schedule sets forth all of the securities or instruments
issued by the Company or any of its Subsidiaries that contain anti-dilution or
similar provisions, and, except as and to the extent set forth thereon, the sale
and issuance of the Securities will not trigger any anti-dilution adjustments to
any such securities or instruments. The Company has furnished to the Purchaser
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("Certificate of Incorporation"), the Company's Bylaws
as in effect on the date hereof (the "Bylaws"), and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for capital stock of the Company, all of which instruments and agreements are
set forth in Section 2.2 of the Disclosure Schedule. The Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or any such
Subsidiary.
2.3. Subsidiaries. Except as disclosed in its SEC Reports, the
Company does not currently own or control, directly or indirectly, any interest
in any other corporation, partnership, trust, joint venture, limited liability
company, association, or other business entity. The Company is not a participant
in any joint venture, partnership or similar arrangement.
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2.4. Authorization. All corporate action required to be taken
by the Company's Board of Directors and stockholders in order to authorize the
Company to enter into the Transaction Agreements, and to issue the Note at the
Closing and the Common Stock issuable upon conversion of the Note, has been
taken or will be taken prior to the Closing. All action on the part of the
officers of the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the Company under
the Transaction Agreements to be performed as of the Closing, and the issuance
and delivery of the Note has been taken or will be taken prior to the Closing.
The Transaction Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5. Valid Issuance of Note. The Note, when issued, sold and
delivered in accordance with the terms and for the consideration set forth in
this Agreement, will be a validly issued obligation of the Company and free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement, applicable state and federal
securities laws and liens or encumbrances created by or imposed by a Purchaser.
Assuming the accuracy of the representations of the Purchasers in Section 3 of
this Agreement and subject to the filings described in Section 2.6(ii) below,
the issuance of the Note will not require registration under any applicable
federal and state securities laws. The Common Stock issuable upon conversion of
the Note has been duly reserved for issuance, and upon issuance in accordance
with the terms of the Note, will be validly issued, fully paid and nonassessable
and free of restrictions on transfer other than restrictions on transfer under
the Transaction Agreements, applicable federal and state securities laws and
liens or encumbrances created by or imposed by a Purchaser. Based in part upon
the representations of the Purchaser in Section 3 of this Agreement, and subject
to Section 2.6 below, the Common Stock issuable upon conversion of the Note will
be issued in compliance with all applicable federal and state securities laws.
2.6. Governmental Consents and Filings. Assuming the accuracy
of the representations made by the Purchasers in Section 3 of this Agreement, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority is required on the part of the Company in connection with
the consummation of the transactions contemplated by this Agreement, except for
filings pursuant to Regulation D of the Securities Act, and applicable state
securities laws, which have been made or will be made in a timely manner.
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2.7. Compliance with Other Instruments. The Company is not in
violation or default (i) of any provisions of its Certificate of Incorporation
or Bylaws, (ii) of any instrument, judgment, order, writ or decree, (iii) under
any note, indenture or mortgage, or (iv) under any lease, agreement, contract or
purchase order to which it is a party or by which it is bound that is required
to be listed on the Disclosure Schedule, or, to its knowledge, of any provision
of federal or state statute, rule or regulation applicable to the Company, the
violation of which would have a Material Adverse Effect. The execution, delivery
and performance of the Transaction Agreements and the consummation of the
transactions contemplated by the Transaction Agreements will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either (i) a default under any such provision,
instrument, judgment, order, writ, decree, contract or agreement or (ii) an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, forfeiture, or nonrenewal
of any material permit or license applicable to the Company. The businesses of
the Company and its Subsidiaries are not being conducted, and shall not be
conducted so long as the Purchaser owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either individually or in the aggregate have
not had and would not have a Material Adverse Effect. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company or any Subsidiary, used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity, made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are material to the
conduct of its business, and neither the Company nor any of its Subsidiaries has
received any notice of proceeding relating to the revocation or modification of
any such certificate, authorization or permit.
2.8. Rights of Registration and Voting Rights. Except as
provided in the Amended and Restated Investors' Rights Agreement, the Company is
not under any obligation to register under the Securities Act any of its
currently outstanding securities or any securities issuable upon exercise or
conversion of its currently outstanding securities.
2.9. SEC Documents, Financial Statements. Since January 1,
2002, the Company has timely filed (within applicable extension periods) all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
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the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date hereof). As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except as may be otherwise
indicated in such financial statements or the notes thereto or, in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments). Except
as set forth in the financial statements of the Company included in the Select
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
the date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. To the extent required by the rules and regulations of the SEC
applicable thereto, the Select SEC Documents contain a complete and accurate
list of all material undischarged written or oral contracts, agreements, leases
or other instruments to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of the properties
or assets of the Company or any Subsidiary is subject (each, a "Material
Contract"). Except as set forth in the Select SEC Documents, none of the
Company, its Subsidiaries or, to the best knowledge of the Company, any of the
other parties thereto is in breach or violation of any Material Contract, which
breach or violation could have a Material Adverse Effect. For purposes of this
Agreement, "Select SEC Documents" means the Company's (A) Proxy Statement for
its most recent Annual Meeting, (B) Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2004 (the "2004 Annual Report"), (C) the Quarterly
Report on Form 10-QSB for the quarter ended ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇) the Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2005 and (E) all Reports on
Form 8-K filed since December 31, 2004.
2.10. Internal Controls. The Company and each of its
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(d)) for the
Company and designed such disclosures controls and procedures to ensure that
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material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's Annual Report on Form
10-KSB, Quarterly Reports on Form 10-QSB or Current Reports on Form 8-K, as the
case may be, is being prepared. The Company's certifying officers have evaluated
the effectiveness of the Company's controls and procedures as the end of the
period covered by the most recent Form 10-KSB and Form 10-QSBs filed during 2005
(each such date, an "Evaluation Date"). The Company presented in the 2004 Annual
Report the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
respective Evaluation Date. Since the Evaluation Date for the 2004 Annual
Report, there have been no significant changes in the Company's internal
controls (as such term is defined in Item 307(b) of Regulation S-K under the
Exchange Act) or, to the Company's knowledge, in other factors that could
significantly affect the Company's internal controls.
2.11. Anti-takeover Provisions. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under its Certificate of Incorporation or the laws of
the jurisdiction of its incorporation or other laws or regulations which are or
could become applicable to any Purchaser as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and any and all Purchaser's ownership of the
Securities.
2.12. Changes. Except as set forth in the Select SEC
Documents, since March 31, 2005, there has been no material adverse change and
no material adverse development in the business, properties, operations,
prospects, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, provided that the Company has continued to
experience losses and negative cash flow since March 31, 2005. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy or receivership law, nor does the Company
or any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings with respect to
the Company or any of its Subsidiaries.
2.13. No General Solicitation or Integrated Offering. Neither
the Company nor any distributor participating on the Company's behalf in the
transactions contemplated hereby (if any) nor any person acting for the Company,
or any such distributor, has conducted any "general solicitation" (as such term
is defined in Regulation D) with respect to any of the Securities being offered
hereby. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would require registration of the Securities being offered hereby under the
Securities Act or cause this offering of Securities to be integrated with any
prior offering of securities of the Company for purposes of the Securities Act,
which result of such integration would require registration under the Securities
Act, or any applicable stockholder approval provisions.
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2.14. Tax Returns and Payments. There are no federal, state, county,
local or foreign taxes due and payable by the Company which have not been timely
paid. There are no accrued and unpaid federal, state, country, local or foreign
taxes of the Company which are due, whether or not assessed or disputed. There
have been no examinations or audits of any tax returns or reports by any
applicable federal, state, local or foreign governmental agency. The Company has
duly and timely filed all federal, state, county, local and foreign tax returns
required to have been filed by it and there are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year.
2.15. Insurance. The Company and each of its Subsidiaries has in
force fire, casualty, product liability and other insurance policies, with
extended coverage, sufficient in amount to allow it to replace any of its
material properties or assets which might be damaged or destroyed or sufficient
to cover liabilities to which the Company may reasonably become subject, and
such types and amounts of other insurance with respect to its business and
properties, on both a per occurrence and an aggregate basis, as are customarily
carried by persons engaged in the same or similar business as the Company. No
default or event has occurred that could give rise to a default under any such
policy.
2.25. Disclosure. All information relating to or concerning the
Company and/or any of its Subsidiaries set forth in this Agreement or provided
to the Purchaser pursuant to Section 2 hereof or otherwise in connection with
the transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, and taken together as a whole, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities.
3. Representations and Warranties of the Purchasers. The Purchaser
hereby represents and warrants to the Company, severally and not jointly, that
3.1 Authorization. The Purchaser has full power and authority to
enter into the Transaction Agreements. The Transaction Agreements to which such
Purchaser is a party, when executed and delivered by the Purchaser, will
constitute valid and legally binding obligations of the Purchaser, enforceable
in accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in the Amended and Restated
Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
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3.2 Purchase Entirely for Own Account. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Note.
3.3 Disclosure of Information. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Note with the Company's
management and has had an opportunity to review the Company's facilities and SEC
Documents. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Purchasers to rely thereon.
3.4 Restricted Securities. The Purchaser understands that the
Note, and the Common Stock into which it may convert, have not been, and will
not be, registered under the Securities Act, by reason of a specific exemption
from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Purchaser's representations as expressed herein. The Purchaser understands
that the Note, and the Common Stock into which it may convert, are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Note, and the Common Stock
into which it may convert, indefinitely unless it is registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is available.
The Purchaser acknowledges that the Company has no obligation to register or
qualify the Note, or the Common Stock into which it may be converted, for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Note, and on
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 Legends. The Purchaser understands that the Note and any
securities issued in respect of or exchange for the Note, may bear one or all of
the following legends:
(a) "The securities represented by this certificate have
not been registered under the Securities Act of 1933, as amended, or the
securities laws of any state of the United States or in any other jurisdiction.
The securities represented hereby may not be offered, sold or transferred in the
absence of an effective registration statement for the securities under
applicable securities laws unless offered, sold or transferred pursuant to an
available exemption from the registration requirements of those laws."
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(b) Any legend set forth in, or required by, the other
Transaction Agreements.
(c) Any legend required by the securities laws of any
state to the extent such laws are applicable to the Note.
3.6 Accredited Investor. The Purchaser is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
3.7 No General Solicitation. Neither the Purchaser, nor any of
its officers, directors, employees, agents, stockholders or partners has either
directly or indirectly, including through a broker or finder (a) engaged in any
general solicitation, or (b) published any advertisement in connection with the
offer and sale of the Note.
3.8 Exculpation Among Purchasers. Purchaser acknowledges that
it has reviewed such materials it deems necessary to make an informed investment
decision and has been afforded (i) the opportunity to ask such questions as it
has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Note and the
merits and risks of investing in the Securities; (ii) access to information
about the Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Purchaser or its representatives
or counsel shall modify, amend or affect such Purchaser's right to rely on the
truth, accuracy and completeness of such materials it has reviewed and the
Company's representations and warranties contained in the Transaction Documents.
Each Purchaser agrees that no Purchaser nor the respective controlling persons,
officers, directors, partners, agents, or employees of any Purchaser shall be
liable to any other Purchaser for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the purchase of the Note.
3.9 Residence. The office or offices of the Purchaser in which
its principal place of business is located at the address or addresses of the
Purchaser set forth on the signature page hereto.
3.10 Organization. The Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder.
3.11 Consent to Additional Shares; Cancellation of Designation
of Series B Preferred Stock. The Purchaser holds 90,909 shares of Series A
Preferred Stock and consents (i) to the issuance of shares of Common Stock
pursuant to conversion of the Note and agrees that such shares shall not
constitute "Additional Shares of Common Stock" as defined in Section 4(d)(i)(D)
of the certificate of designation of the Series A Preferred Stock and (ii) to
the cancellation of the certificate of designation of the shares of Series B
Preferred Stock.
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4. Conditions to the Purchaser's Obligations at Closing. The
obligations of the Purchaser to purchase the Note at the Closing are subject to
the fulfillment, on or before such Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects as of such Closing, except that any such representations
and warranties shall be true and correct in all respects where such
representation and warranty is qualified with respect to materiality in Section
2 or Section 3, as the case may be.
4.2 Performance. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
such Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to the Purchasers at such Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Note pursuant to this Agreement shall be obtained and effective as of such
Closing.
4.5 Investors' Rights Agreement. The Company and the Purchaser shall
have executed and delivered the Amended and Restated Investors' Rights
Agreement.
4.6 Manufacturing Agreement. The Company and the parties thereto
shall have executed and delivered the Amendment No. 1 to the Manufacturing
Agreement.
4.7 Security Agreement. The Company and the Purchaser shall have
executed and delivered the Security Agreement.
4.9 Secretary's Certificate. The Secretary of the Company shall have
delivered to the Purchaser at the Closing a certificate certifying (i) the
Bylaws of the Company, (ii) resolutions of the Board of Directors of the Company
approving the Transaction Agreements, and the transactions contemplated under
the Transaction Agreements.
4.10 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser, and Purchaser (or its counsel) shall have received all
such counterpart original and certified or other copies of such documents as
reasonably requested. Such documents may include good standing certificates.
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5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to sell the Note to the Purchasers at the Closing are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
warranties of the Purchaser contained in Section 3 shall be true and correct in
all material respects as of the Closing.
5.2 Performance. The Purchaser shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by them on or
before such Closing.
5.3 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Note pursuant to this Agreement shall be obtained and effective as of the
Closing.
5.4 Investors' Rights Agreement. The Purchaser shall have executed
and delivered the Amended and Restated Investors' Rights Agreement.
5.5 Manufacturing Agreement. The Purchaser or its Affiliate, as
applicable, shall have executed and delivered the Amendment No. 1 to the
Manufacturing Agreement.
5.6 Security Agreement. The Purchaser shall have executed and
delivered the Security Agreement.
6. Covenant to Cancel Series B Preferred Stock. The Company shall
cancel the certificate of designation of the Series B Preferred Stock within
thirty (30) days of the date of this Agreement.
7. Miscellaneous.
7.1. Survival of Warranties. Unless otherwise set forth in this
Agreement, the representations and warrants of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of two years following
Closing, and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Purchasers or the Company.
7.2. Transfer; Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
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7.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the General Corporation Law of the state of
Delaware as to matters within the scope thereof, and as to all other matters
shall be governed by and construed in accordance with the internal laws of the
New Jersey, without regard to its principles of conflicts of laws.
7.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and delivered by facsimile signature and in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6. Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified, (b) when sent by
confirmed electronic mail or facsimile if sent during normal business hours of
the recipient, and if not so confirmed, then on the next business day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the respective
parties at their address as set forth on the signature page, or to such e-mail
address, facsimile number or address as subsequently modified by written notice
given in accordance with this Section 7.6. If notice is given to the Company, a
copy shall also be sent to ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLC,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and if notice
is given to the Purchaser, a copy shall also be given to ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
7.7. No Finder's Fees. Except as described in any separate written
agreement between the parties regarding finders fees, each party represents that
it neither is nor will be obligated for any finder's fee or commission in
connection with this transaction. Each Purchaser agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finder's fee arising out of this transaction (and the costs and
expenses of defending against such liability or asserted liability) for which
each Purchaser or any of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finder's or broker's fee arising out of this transaction (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
7.8. Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Transaction Agreements, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
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7.9. Amendments and Waivers. Any term of this Agreement may be
amended, terminated or waived only with the written consent of the Company and
(i) the holders of at least a majority of the then-outstanding principal balance
of the Note or a majority of the shares of Common Stock issuable upon conversion
of the Note or (ii) for an amendment, termination or waiver effected prior to
the Closing, the Purchaser. Any amendment or waiver effected in accordance with
this Section 7.9 shall be binding upon the Purchaser and each transferee of the
Note (or the Common Stock issuable upon conversion thereof), each future holder
of all such securities, and the Company.
7.10. Severability. The invalidity of unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7.11. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
7.12. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto, if any), any prior or contemporaneous separate written
agreement regarding finders fees and the other Transaction Agreements (as
defined in this Agreement) constitute the full and entire understanding and
agreement between the parties with respect to the subject matter hereof, and any
other written or oral agreement relating to the subject matter hereof existing
between the parties are expressly canceled.
7.13 Dispute Resolution. Any unresolved controversy or claim arising
out of or relating to this Agreement, except as (i) otherwise provided in this
Agreement, or (ii) any such controversies or claims arising out of either
party's intellectual property rights for which a provisional remedy or equitable
relief is sought, shall be submitted to arbitration by one arbitrator mutually
agreed upon by the parties, and if no agreement can be reached within 30 days
after names of potential arbitrators have been proposed by the American
Arbitration Association (the "AAA"), then by one arbitrator having reasonable
experience in corporate finance transactions of the type provided for in this
Agreement and who is chosen by the AAA. The arbitration shall take place in
Newark, New Jersey in accordance with the AAA rules then in effect, and judgment
upon any award rendered in such arbitration will be binding and may be entered
in any court having jurisdiction thereof. There shall be limited discovery prior
to the arbitration hearing as follows: (a) exchange of witness lists and copies
of documentary evidence and documents relating to or arising out of the issues
to be arbitrated, (b) depositions of all party witnesses and (c) such other
depositions as may be allowed by the arbitrators upon a showing of good cause.
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Depositions shall be conducted in accordance with the New Jersey Code of Civil
Procedure, the arbitrator shall be required to provide in writing to the parties
the basis for the award or order of such arbitrator, and a court reporter shall
record all hearings, with such record constituting the official transcript of
such proceedings. The prevailing party shall be entitled to reasonable
attorney's fees, costs, and necessary disbursements in addition to any other
relief to which such party may be entitled. Each of the parties to this
Agreement consents to personal jurisdiction for any equitable action sought in
the U.S. District Court for the District of New Jersey or any court of the state
of New Jersey having subject matter jurisdiction.
[Remainder of Page Intentionally Left Blank]
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The parties have executed this Securities Purchase Agreement as of the
date first written above.
COMPANY:
PacificHealth Laboratories, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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(print)
Title: CFO/COO
---------------------------------
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PURCHASER:
Hormel Health Labs, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
(print)
Title: Vice President
---------------------------------
Address: ▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
EXHIBITS & SCHEDULES
--------------------
Schedule 1 Disclosure Schedule
Exhibit A - Form of Secured Convertible Promissory Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Amended and Restated Investors' Rights Agreement
Exhibit D - Form of Manufacturing Agreement Amendment
