EXHIBIT 10.1
SYNERGY BRANDS INC.
SECURITIES PURCHASE AGREEMENT
January 25, 2005
TABLE OF CONTENTS
Page
1. Agreement to Sell and Purchase.......................................4
2. Fees and Warrant......................................................4
3. Closing, Delivery and Payment.........................................5
3.1 Closing....................................................5
3.2 Delivery...................................................5
4. Representations and Warranties of the Company.........................5
4.1 Organization, Good Standing and Qualification..............6
4.2 Subsidiaries...............................................6
4.3 Capitalization; Voting Rights..............................7
4.4 Authorization; Binding Obligations.........................7
4.5 Liabilities................................................8
4.6 Agreements; Action.........................................8
4.7 Obligations to Related Parties.............................9
4.8 Changes....................................................9
4.9 Title to Properties and Assets; Liens, Etc................10
4.10 Intellectual Property.....................................11
4.11 Compliance with Other Instruments.........................11
4.12 Litigation................................................12
4.13 Tax Returns and Payments..................................12
4.14 Employees.................................................12
4.15 Registration Rights and Voting Rights.....................13
4.16 Compliance with Laws; Permits.............................13
4.17 Environmental and Safety Laws.............................14
4.18 Valid Offering............................................14
4.19 Full Disclosure...........................................14
4.20 Insurance.................................................14
4.21 SEC Reports...............................................15
4.22 Listing...................................................15
4.23 No Integrated Offering....................................15
4.24 Stop Transfer.............................................15
4.25 Dilution..................................................15
5. Representations and Warranties of the Purchaser......................16
5.1 No Shorting...............................................16
5.2 Requisite Power and Authority.............................16
5.3 Investment Representations................................17
5.4 Purchaser Bears Economic Risk.............................17
5.5 Acquisition for Own Account...............................17
5.6 Purchaser Can Protect Its Interest........................17
5.7 Accredited Investor.......................................17
5.8 Legends...................................................17
6. Covenants of the Company.............................................18
6.1 Stop-Orders...............................................19
6.2 Listing...................................................19
6.3 Market Regulations........................................19
6.4 Reporting Requirements....................................19
6.5 Use of Funds..............................................19
6.6 Access to Facilities......................................19
6.7 Taxes.....................................................20
6.8 Insurance.................................................20
6.9 Intellectual Property.....................................21
6.10 Properties................................................21
6.11 Confidentiality...........................................21
6.12 Required Approvals........................................21
6.13 Reissuance of Securities..................................23
6.14 Opinion...................................................23
7. Covenants of the Purchaser...........................................23
7.1 Confidentiality...........................................23
7.2 Non-Public Information....................................23
7.3...... Limitation on the Acquisition of Stock....................
8. Covenants of the Company and Purchaser Regarding Indemnification.....24
8.1 Company Indemnification...................................24
8.2 Purchaser's Indemnification...............................24
9. Conversion of Convertible Note.......................................25
9.1 Mechanics of Conversion...................................25
9.2 Maximum Conversion.......................................9.3
10. Registration Rights..................................................26
10.1 Registration Rights Granted...............................26
10.2 Offering Restrictions.....................................26
11. Miscellaneous........................................................26
11.1 Governing Law.............................................26
11.2 Survival..................................................27
11.3 Successors................................................27
11.4 Entire Agreement..........................................27
11.5 Severability..............................................27
11.6 Amendment and Waiver......................................27
11.7 Delays or Omissions.......................................28
11.8 Notices...................................................28
11.9 Attorneys' Fees...........................................29
11.10 Titles and Subtitles......................................29
11.11 Facsimile Signatures; Counterparts........................29
11.12 Broker's Fees.............................................29
11.13 Construction..............................................29
LIST OF EXHIBITS
Form of Convertible Term Note............................ Exhibit A
Form of Warrant.......................................... Exhibit B
Form of Opinion.......................................... Exhibit C
Form of Escrow Agreement................................. Exhibit D
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of January 25, 2005, by and between Synergy Brands Inc., a Delaware
corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of five hundred thousand
dollars ($500,000) (the "Note"), which Note is convertible into shares of the
Company's common stock, $.001 par value per share (the "Common Stock") at a
fixed conversion price of $4.00 per share of Common Stock ("Fixed Conversion
Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
up to 33,333 shares of the Company's Common Stock (subject to adjustment as
provided therein) in connection with Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as defined
in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1........Agreement to Sell and Purchase. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 3), the Company agrees to sell to the Purchaser, and the Purchaser
hereby agrees to purchase from the Company, a Note in the aggregate principal
amount of $500,000 convertible in accordance with the terms thereof into shares
of the Company's Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
"Offering." A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note and
the Warrant and the Common Stock issuable as payment in respect of the Note,
upon conversion of the Note and upon exercise of the Warrant are referred to as
the "Securities."
2........Fees and Warrant. On the Closing Date:
(a)......The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 33,333 shares of Common Stock (subject to adjustment as provided
therein) in connection with the Offering (the "Warrant") pursuant to Section 1
hereof. The Warrant must be delivered on the Closing Date. A form of Warrant is
annexed hereto as Exhibit B. All the representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to or for
the benefit of the Purchaser by the Company are hereby also made and granted in
respect of the Warrant and shares of the Company's Common Stock issuable upon
exercise of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay to
Laurus Capital Management, LLC, the manager of the Purchaser, a closing payment
in an amount equal to three and one-half percent (3.50%) of the aggregate
principal amount of the Note. The foregoing fee is referred to herein as the
"Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable legal fees
for services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements (as hereinafter defined), and expenses incurred in connection
with the Purchaser's due diligence review of the Company and its Subsidiaries
(as defined in Section 6.8) and all related matters. Amounts required to be paid
under this Section 2(c) will be paid on the Closing Date and shall be $15,000
for legal fees and for expenses incurred while performing due diligence
inquiries on the Company and its Subsidiaries.
(d) The Closing Payment, the legal fees and the due diligence expenses (net
of deposits previously paid by the Company) shall be paid at closing out of
funds held pursuant to a Funds Escrow Agreement of even date herewith among the
Company, Purchaser, and an Escrow Agent (the "Funds Escrow Agreement") and a
disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the "Closing"), shall take place on the date
hereof, at such time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form attached
hereto as Exhibit C, at the Closing on the Closing Date, the Company will
deliver to the Purchaser, among other things, a Note in the form attached as
Exhibit A representing the aggregate principal amount of $500,000 and a Warrant
in the form attached as Exhibit B in the Purchaser's name representing 33,333
Warrant Shares and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser):
4.1 Organization, Good Standing and Qualification. Each of the Company and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of the Company
and each of its Subsidiaries has the corporate power and authority to own and
operate its properties and assets, and to execute and deliver, to the extent a
party thereto, (i) this Agreement, (ii) the Note and the Warrant to be issued in
connection with this Agreement, (iii) the Registration Rights Agreement relating
to the Securities dated as of the date hereof between the Company and the
Purchaser, the Subsidiary Guaranty dated as of the date hereof made by certain
Subsidiaries of the Company (as amended, modified or supplemented from time to
time, the "Subsidiary Guaranty"),(iv) the Escrow Agreement dated as of the date
hereof among the Company, the Purchaser and the escrow agent referred to therein
and (v) all other agreements related to this Agreement and the Note and referred
to herein (the preceding clauses (ii) through (v), together with (w) that
certain Master Security Agreement dated as of April 2, 2004 by and among the
Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "2004 Master Security
Agreement"), (x) that certain Stock Pledge Agreement dated as of April 2, 2004
among the Company and the Purchaser (as amended, modified or supplemented from
time to time, the "2004 Stock Pledge Agreement"), (y) that certain Subsidiary
Guaranty dated as of April 2, 2004 made by certain Subsidiaries of the Company
(as amended, modified or supplemented from time to time, the "2004 Subsidiary
Guaranty"), and (z) the Intercompany Subordination Agreement dated as of April
2, 2004 among the Company, certain Subsidiaries of the Company and the Purchaser
(the "2004 Intercompany Subordination Agreement") collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time, provided that, notwithstanding
the foregoing, the entities (x) designated as immaterial subsidiaries on
Schedule 4.2 and (y) and such other entities designated by the Company in
writing to the Purchaser after the date hereof (collectively, the "Immaterial
Subsidiaries") shall be explicitly excluded from the definition of "Subsidiary"
for the purposes of this Agreement and the Related Agreements, solely to the
extent that such Immaterial Subsidiaries do not own any assets (other than
immaterial assets) or have any liabilities (other than immaterial liabilities).
4.3 Capitalization; Voting Rights.
(a) The authorized and issued capital stock of the Company and each
Subsidiary of the Company is as set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii) shares
which may be granted pursuant to this Agreement and the Related Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note or the Warrant, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation of
any transaction contemplated hereby will result in a change in the price or
number of any securities of the Company outstanding, under anti-dilution or
other similar provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock: (i)
have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares of
the Common Stock are as stated in the Company's Certificate of Incorporation
(the "Charter"). The Note Shares and Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note and Warrant has been taken or will be
taken prior to the Closing, so long as, after giving effect to the transactions
contemplated hereby, (x) the Purchaser does not own more than 19.99% of the
Common Stock and (y) the shares of Common Stock that are being issued to the
Purchaser hereunder and under the Related Agreements are not issued at a price
per share less than the market value of the share of the Common Stock. This
Agreement and the other Related Agreements, when executed and delivered and to
the extent it is a party thereto, will be valid and binding obligations of each
of the Company and each of its Subsidiaries, enforceable against each such
person in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrant and the subsequent exercise of the Warrant for Warrant Shares are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has any
contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed
in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
or any of its Subsidiaries is a party or by which it is bound which may involve:
(i) obligations (contingent or otherwise) of, or payments to, the Company in
excess of $50,000 (other than obligations of, or payments to, the Company
arising from purchase or sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other standard products); or
(iii) provisions restricting the development, manufacture or distribution of the
Company's products or services; or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) (ii) made any loans or advances to
any person not in excess, individually or in the aggregate, of $100,000, other
than ordinary course advances for business expenses; or (iv) sold, exchanged or
otherwise disposed of any of its material assets or rights, other than the sale
of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule 4.7,
there are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a) for payment of fees in the ordinary course of business and/or salary
for services rendered and for bonus payments;
(b) reimbursement for reasonable expenses incurred on behalf of the Company
and its Subsidiaries;
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or disclosed
in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the
officers, directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since December 31, 2003, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition (financial
or otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(b) any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by insurance,
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the Company or
any of its Subsidiaries, other than advances made in the ordinary course of
business;
(g) any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of its
Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed by
the Company or any of its Subsidiaries, except those for immaterial amounts and
for current liabilities incurred in the ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company or any
of its Subsidiaries;
(l) any change in any material agreement to which the Company is a party or
by which it is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(m) any other event or condition of any character that, either individually
or in the aggregate, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its Subsidiaries
to do any of the acts described in subsection (a) through (m) above as limited
therein.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which it is to the Company's belief do not
materially detract from the value of the property subject thereto or materially
impair the operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of business.
All facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 4.9, the
Company and its Subsidiaries are in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company's
knowledge,as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefore.
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. There is no action, suit, proceeding or investigation
by the Company or any of its Subsidiaries currently pending or which the Company
or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Subsidiaries have timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon
its properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the Company
nor any of its Subsidiaries has any collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective material employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the Company's
knowledge, no employee of the Company or any of its Subsidiaries, nor any
consultant with whom the Company or any of its Subsidiaries has contracted, is
in violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company or any of its Subsidiaries
because of the nature of the business to be conducted by the Company or any of
its Subsidiaries; and to the Company's knowledge the continued employment by the
Company or any of its Subsidiaries of its present employees, and the performance
of the Company's and its Subsidiaries' contracts with its independent
contractors, will not result in any such violation. Neither the Company nor any
of its Subsidiaries is aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any notice alleging that any such violation has occurred. Except for
employees who have a current effective employment agreement with the Company or
any of its Subsidiaries, no employee of the Company or any of its Subsidiaries
has been granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries. Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on Schedule
4.15 and except as disclosed in Exchange Act Filings, neither the Company nor
any of its Subsidiaries is presently under any obligation, and has not granted
any rights, to register any of the Company's or its Subsidiaries' presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company's knowledge, no stockholder of the Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, which violation
has had, or could reasonably be expected to have, either individually or in the
aggregate with all other such violations, a Material Adverse Effect and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Subsidiaries or, to
the Company's knowledge, by any other person or entity on any property owned,
leased or used by the Company or any of its Subsidiaries. For the purposes of
the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries has
provided the Purchaser with all information requested by the Purchaser in
connection with its decision to purchase the Note and Warrant, including all
information the Company and its Subsidiaries believes is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading. Any financial projections and other estimates provided to the
Purchaser by the Company or any of its Subsidiaries were based on the Company's
and its Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries, at the
date of the issuance of such projections or estimates, believed to be
reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company has
filed all proxy statements, reports and other documents required to be filed by
it under the Exchange Act. The Company has furnished the Purchaser with copies
of: (i) its Annual Reports on Form 10-KSB for its fiscal years ended December
31, 2003 and December 31, 2002; and (ii) its Quarterly Reports on Form 10-QSB
for its fiscal quarters ended March 31, 2004, June 30, 2004 and September 30,
2004 (collectively, the "SEC Reports"). Except as set forth on Schedule 4.21,
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted 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.
4.22 Listing. The Company's Common Stock is listed for trading on the
NASDAQ SmallCap Market ("NASDAQ SC") and satisfies all requirements for the
continuation of such listing. The Company has not received any currently
effective notice that its Common Stock will be delisted from NASDAQ SC or that
its Common Stock does not meet all requirements for listing.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or 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 cause the offering of
the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of the date
of this Agreement. Neither the Company nor any of its Subsidiaries will issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
4.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiarie' control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide in confidence to the Purchaser any additional information
regarding the Company or any of its Subsidiaries that the Purchaser deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. The Company understands and agrees that
if at any time it is discovered that any of the foregoing representations are
incorrect, or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser's investment in
the Company. The Company further understands that the Purchaser may release
confidential information about the Company and its Subsidiaries and, if
applicable, any underlying beneficial owners, to proper authorities if the
Purchaser, in its sole discretion, determines that it is in the best interests
of the Purchaser in light of relevant rules and regulations under the laws set
forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock or any
other hedging strategies as long as the Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser's representations contained
in the Agreement, including, without limitation, that the Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrant and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents that by
reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the other
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SYNERGY BRANDS INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC system
(as hereinafter defined), shall bear a legend which shall be in substantially
the following form until such shares are covered by an effective registration
statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NEWCO
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
SYNERGY BRANDS INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Note and upon the exercise of the
Warrant on the NASDAQ Small Cap (the "Principal Market") upon which shares of
Common Stock are listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds of the
sale of the Note and the Warrant for general working capital purposes only.
6.6 Access to Facilities. As long as any principal, interest and fees with
respect to the Note remain outstanding, each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable advance notice and during normal
business hours reasonably convenient to the Company, its Subsidiaries and/or
representatives of the Company and/or any of its Subsidiaries that are
responsible for the maintenance of such records at such person's expense and
accompanied by a representative of the Company and/or the applicable Subsidiary,
to:
(a) visit and inspect any of the properties of the Company or any of its
Subsidiaries;
(b) examine the corporate and financial records of the Company or any of
its Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its
Subsidiaries will provide any material, non-public information to the Purchaser
unless the Purchaser signs a confidentiality agreement and otherwise complies
with Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company and/or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto, and provided,
further, that the Company and its Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall to the extent
customary in their respective lines of business, (i) keep all its insurable
properties and properties in which it has an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
liability insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which the Company or the respective Subsidiary is engaged in business; and (x)
excepting the Company's workers' compensation policy, endorsements to such
policies naming Purchaser as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to
Purchaser, naming Purchaser as loss payee, and (y) evidence that as to Purchaser
the insurance coverage shall not be impaired or invalidated by any act or
neglect of the Company or any Subsidiary and the insurer will provide Purchaser
with at least thirty (30) days notice prior to cancellation. The Company and
each Subsidiary shall instruct the insurance carriers as to all insurance
covering and/or reasonably contemplated to affect any of the Collateral that in
the event of any loss thereunder, the carriers shall make payment for such loss
to the Company and/or the Subsidiary and Purchaser jointly (unless (x) such
payment is required to be paid to IIG Capital LLC pursuant to the terms of any
agreement governing indebtedness owed to IIG Capital LLC by the Company or its
Subsidiaries (as in effect on the date hereof) or (y) such alternative payment
is agreed to in writing by the Purchaser). In the event that as of the date of
receipt of each loss recovery upon any such insurance, the Purchaser has not
declared an event of default with respect to this Agreement or any of the
Related Agreements, then the Company and/or such Subsidiary shall be permitted
to direct the application of such loss recovery proceeds toward investment in
property, plant and equipment that would comprise "Collateral" secured by
Purchaser's security interest pursuant to its security agreement, with any
surplus funds to be applied toward payment of the obligations of the Company to
Purchaser. In the event that Purchaser has properly declared an event of default
with respect to this Agreement or any of the Related Agreements, then all loss
recoveries received by Purchaser upon any such insurance thereafter may be
applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of all Company obligations to Purchaser) shall be paid by Purchaser
to the Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to
Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its Subsidiaries
shall maintain in full force and effect its existence, rights and franchises and
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. Each of the Company and each of its Subsidiaries will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and each of the
Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
6.12 Required Approvals. For so long as twenty-five percent (25%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends, other than (i)
dividends paid to the Company or any of its wholly-owned Subsidiaries or (ii)
dividends paid in connection with preferred stock issued by the Company, so long
as any such dividends paid pursuant to this clause (ii) do not exceed, in the
aggregate $400,000 in any fiscal year of the Company;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict the Company's or any of its Subsidiaries
right to perform the provisions of this Agreement, any other Related Agreement
or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the Company;
(e) (i) create, incur, assume or suffer to exist any indebtedness, or issue
or suffer to exist any preferred equity interests (exclusive of trade debt and
debt incurred to finance the purchase of equipment and/or inventory (not in
excess of five percent (5%) per annum of the fair market value of the Company's
and its Subsidiaries assets) whether secured or unsecured other than (w) the
Company's and its indebtedness to the Purchaser, (x) indebtedness and preferred
equity interests set forth on Schedule 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less favorable
to the Purchaser than the indebtedness or preferred equity interests being
refinanced or replaced, (y) subject to Section 11.14, additional indebtedness
incurred, and/or preferred equity issuances issued (with the amount of such
preferred equity interests to equal the greater of the liquidation preference
with respect thereto and the maximum fixed repurchase price with respect
thereto), not to exceed three million dollars ($3,000,000) in the aggregate at
any time outstanding, so long as the obligation of the Company and/or any of its
Subsidiaries to repay such indebtedness and/or the redeem such preferred equity
interests incurred or issued, as the case may be, pursuant to this clause (y),
shall be unsecured and expressly subordinated to the payment in full of the
Company's and its Subsidiaries obligations to the Purchaser under this Agreement
and the Related Agreements, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e);
(f) create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary
becomes party to the Master Security Agreement and the Subsidiary Guaranty
(either by executing a counterpart thereof or an assumption or joinder agreement
in respect thereof) and, to the extent required by the Purchaser, satisfies each
condition of this Agreement and the Related Agreements as if such Subsidiary
were a Subsidiary on the Closing Date; and
(g) (i) make investments in, make any loans or advances to, or transfer
assets to, any of the Immaterial Subsidiaries or (ii) permit any Subsidiary to
make investments in, make any loans or advances to, or transfer assets to, any
of the Immaterial Subsidiaries, other than, in the case of each of the foregoing
clauses (i) and (ii), immaterial investments, loans, advances and/or asset
transfers made in the ordinary course of business.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as:
(a) the holder thereof is permitted to dispose of such Securities pursuant
to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
deemed reasonably necessary by the Purchaser (at the Company's cost) to allow
such resales provided the Company and its counsel receive reasonably requested
representations from the selling Purchaser and broker, if any, and the Company
and its counsel are reasonably satisfied with the validity of such
representations.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any sales in
the shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.
7.3 Limitation on Acquisition and Issuance of Stock. (a) Notwithstanding
anything to the contrary contained herein or in any document, instrument or
agreement entered into in connection with the transactions contemplated hereby,
Laurus may not acquire stock in Company (including, without limitation, pursuant
to a contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
Company, or otherwise, and such options, warrants, conversion or other rights
shall not be exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by Company to Laurus
not to qualify as "portfolio interest", within the meaning of Section 881(c)(2)
of the Internal Revenue Code of 1986, as amended (the "Code"), by reason of
Section 881(c)(3) of the Code, taking into account the constructive ownership
rules under Section 871(h)(3)(C) of the Code (the "Stock Acquisition
Limitation"). The Stock Acquisition Limitation shall automatically become null
and void without any notice to Company upon the earlier to occur of either (a)
Company's delivery to Laurus of a Notice of Redemption or (b) an Event of
Default under, and as defined in, the Note, so long as, at the time of the
occurrence of an Event of Default, the average closing price of Company's common
stock as reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price at such time.
(b) The Company and the Purchaser agree that, notwithstanding anything to
the contrary contained in this Agreement or any Related Agreement, the Company
shall not be required to issue stock to the Purchaser as a result of the
conversion of the obligations under the Note or the exercise of the Warrant,
each dated the date hereof, in an amount that exceeds 9.99% of the issued and
outstanding common stock of the Company on the date hereof (as such issued and
outstanding amount shall be proportionately adjusted for any stock split,
combination, dividend paid or similar event that occurs after the date hereof).
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto, in
each case, in any material respect; or (ii) any breach or default in performance
by Company or any of its Subsidiaries of any covenant or undertaking to be
performed by Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto, in each case, in
any material respect.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, in each case, in any material respect; or (ii) any breach or default
in performance by Purchaser of any covenant or undertaking to be performed by
Purchaser hereunder, or any other agreement entered into by the Company and
Purchaser relating hereto, in each case, in any material respect.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration when
sold: (i) upon the conversion of the Note or part thereof, the Company shall, at
its own cost and expense, take all necessary action (including the issuance of
an opinion of counsel reasonably acceptable to the Purchaser following a request
by the Purchaser) to assure that the Company's transfer agent shall issue shares
of the Company's Common Stock in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser in accordance with Section
9.1(b) hereof and in such denominations to be specified representing the number
of Note Shares issuable upon such conversion; and (ii) the Company warrants that
no instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right to
convert the Note or part thereof by telecopying or otherwise delivering an
executed and completed notice of the number of shares to be converted to the
Company (the "Notice of Conversion"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each
date on which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be deemed a "Conversion Date."
Pursuant to the terms of the Notice of Conversion, the Borrower will issue
instructions to the transfer agent accompanied by an opinion of counsel within
two(2) business days of the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Purchaser's prime broker with the Depository Trust Company ("DTC") through its
Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date").
(c) The Company understands that a delay in the delivery of the Note Shares
in the form required pursuant to Section 9 hereof beyond the Delivery Date could
result in economic loss to the Purchaser. In the event that the Company fails to
direct its transfer agent to deliver the Note Shares to the Purchaser via the
DWAC system within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the greater
of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser's total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or delivered
in connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights
10.1 Registration Rights Granted. The Company hereby grants registration
rights to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.
10.2 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company(these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER
PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY,
ENFORCEABILITY OR MEANING OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT.
11.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of obligations owed by the Company or any of its Subsidiaries from time to time
under this Agreement or any Related Agreement, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. The Purchaser may not assign its rights hereunder to a
competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the exhibits
and schedules hereto and thereto and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written consent
of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser under
this Agreement may be waived only with the written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the Company under
this Agreement may be waived only with the written consent of the Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder 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 facsimile if sent during normal business hours
of the recipient, if not, then on the next business day;
(c) three (3) business 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 as follows:
If to the Company, to: Synergy Brands Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:........Chief Financial Officer
Facsimile:........▇▇▇-▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:........▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
Facsimile:........▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile:........▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof, each
party hereto represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party hereto
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
11.14 Right of First Refusal. Prior to the incurrence of additional
indebtedness in excess of an aggregate principal amount of $500,000 or the
issuance of any additional preferred equity interests, in each case, after the
date hereof, the Company and/or any Subsidiary of the Company, as the case may
be, shall notify the Purchaser of its intention to incur any such additional
indebtedness or issue any such preferred equity interests, together with the
terms upon which such proposed indebtedness will be incurred or such preferred
equity interests will be issued. Following such notification, the Purchaser
shall have the right, but not the obligation, to provide any such financing
referred to in the immediately preceding sentence to the Company and/or the
applicable Subsidiary thereof on substantially similar terms, and subject to
definitive documentation, acceptable to the Company and/or such Subsidiary and
the Purchaser, in each case, prior to the acceptance by the Company and/or such
Subsidiary of any such financing from any other person or entity other than the
Purchaser.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of
the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
SYNERGY BRANDS INC. Laurus Master Fund, Ltd.
By: By:
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Name: Name:
------------------------------------ -----------------------------------
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Title: Title:
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EXHIBIT A
FORM OF CONVERTIBLE NOTE
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
FORM OF OPINION
1........Each of the Company and each of its Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted.
2........Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the other Related Agreements. All corporate action on
the part of the Company and each of its Subsidiaries and its officers, directors
and stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
other Related Agreements. The Note Shares and the Warrant Shares, when issued
pursuant to and in accordance with the terms of the Agreement and the Related
Agreements and upon delivery shall be validly issued and outstanding, fully paid
and non assessable.
3........The execution, delivery and performance by each of the Company and
each of its Subsidiaries of the Agreement and the Related Agreements to which it
is a party and the consummation of the transactions on its part contemplated by
any thereof, will not, with or without the giving of notice or the passage of
time or both:
(a) Violate the provisions of their respective Charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court binding upon
the Company or any of its Subsidiaries known to counsel; or
(c) Violate any New Jersey and/or New York or federal law applicable to the
transactions of the type contemplated by the Agreement and the Related
Agreements.
4........The Agreement and Related Agreements constitute, valid and legally
binding obligations of each of the Company and each of its Subsidiaries (to the
extent such person is a party thereto), and are enforceable against each of the
Company and each of its Subsidiaries in accordance with their respective terms,
except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5........To such counsel's knowledge, the sale of the Note and the
subsequent conversion of the Note into Note Shares are not subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. To such counsel's knowledge, the sale of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not subject to any
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6........Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement and the description of the Purchaser as
known by counsel, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities Act. To
such counsel's knowledge, 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 and security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions.
7........To the best of counsel's knowledge, there is no action, suit,
proceeding or investigation pending or, to such counsel's knowledge, currently
threatened against the Company or any of its Subsidiaries that prevents the
right of the Company or any of its Subsidiaries to enter into this Agreement or
any of the Related Agreements, or to consummate the transactions contemplated
thereby. To such counsel's knowledge, the Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality, which has had, or could reasonably be
expected to have, a Material Adverse Effect.
8........The terms and provisions of each of the 2004 Master Security
Agreement and the 2004 Stock Pledge Agreement create a valid security interest
in favor of the Purchaser, in the respective rights, title and interests of the
Company and its Subsidiaries in and to the Collateral (as defined in each of the
Master Security Agreement and the Stock Pledge Agreement). Each UCC-1 Financing
Statement naming the Company or any Subsidiary thereof as debtor and the
Purchaser as secured party are in proper form for filing and assuming that such
UCC-1 Financing Statements have been filed with the Secretary of State of
Delaware and other applicable jurisdictions, the security interest created under
the Master Security Agreement will constitute a perfected security interest
under the Uniform Commercial Code in favor of the Purchaser in respect of the
Collateral that can be perfected by filing a financing statement. After giving
effect to the delivery to the Purchaser of the stock certificates representing
the Pledged Stock (as defined in the Stock Pledge Agreement) (together with
effective endorsements) and assuming the continued possession by the Purchaser
of such stock certificates in the State of New York, the security interest
created in favor of the Purchaser under the Stock Pledge Agreement constitutes a
valid and enforceable first perfected security interest in such Pledged Stock in
favor of the Purchaser, subject to no other security interest. No filings,
registrations or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interest created under the Stock Pledge
Agreement in respect of such Pledged Stock. .
EXHIBIT D
FORM OF ESCROW AGREEMENT