EXHIBIT 10.67
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of July
19, 2002 by and among Advanced Nutraceuticals, Inc., a Texas Corporation
("ANII") and Glenwood Capital Partners I, LP, a Delaware limited partnership
("Glenwood"). Each of ANII and Glenwood is sometimes referred to as a "Party"
and may be collectively referred to as the "Parties."
Recitals
A. Glenwood desires to provide funding to ANII and ANII desires to receive such
funding, subject to the terms and conditions of this Agreement.
Agreement
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and intending to be legally bound, the Parties resolve and
agree as follows:
1. Loan by Glenwood.
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1.1 Loan to ANII.
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Subject to the terms and conditions of this Agreement, Glenwood shall loan
$175,000 to ANII at the Closing.
1.2 Closing.
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The Closing shall take place at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on or before July 19, 2002, or at such other time and place as
ANII and Glenwood agree (which time and place are designated as the "Closing").
At the Closing, upon receipt of the funds specified in Section 1.1 by ANII from
Glenwood, the following documents shall be exchanged: (a) a Subordinated
Promissory Note in the principal amount of $175,000 in the form attached as
Exhibit A to this Agreement (the "Note"), (b) a warrant to purchase up to 35,000
shares of ANII common stock in the form attached as Exhibit B to this Agreement
(the "Warrant") and (c) the Intercreditor and Subordination Agreement in the
form attached as Exhibit C to this Agreement. The Note and Warrant are
collectively referred to as the "Securities." The Note shall be convertible into
shares of the common stock of ANII and the Warrant shall be exercisable into
shares of the common stock of ANII. The conversion price for the Note and the
exercise price for the Warrant shall be the greater of $1.00 per share or 105%
of the price per share of the common stock of ANII as traded on The Nasdaq Stock
Market on the date of the Closing.
2. Representations And Warranties of ANII.
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ANII represents and warrants to Glenwood that:ANII represents and warrants
to Glenwood that:
2.1 Organization, Good Standing and Qualification. ANII is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite corporate power and authority to carry on
its business as now conducted. ANII is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
2.2 Due Authorization. All action on ANII's part necessary for the
authorization, execution and delivery of this Agreement and the performance of
the obligations of ANII hereunder, and the authorization, issuance, sale and
delivery of the Securities has been taken, and this Agreement constitutes a
valid and legally binding obligation of Securities, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
2.3 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of ANII is required
in connection with the consummation of the transactions contemplated by this
Agreement, except for filings which may be required pursuant to applicable state
and federal securities laws.
3. Representations And Warranties Of Glenwood.
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Glenwood represents and warrants to ANII that:
3.1 Purchase Entirely for Its Own Account. This Agreement is made with
Glenwood in reliance upon Glenwood's representation to ANII that the Securities
will be acquired for investment for Glenwood's own account, not as a nominee or
agent, and not with the view to the resale or distribution of any part thereof,
and Glenwood has no present intention of selling, granting any participation in,
or otherwise distributing the Securities. Glenwood has no contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person with respect to any of the Securities.
3.2 Disclosure of Information. Glenwood has had the opportunity to ask
questions of, and receive answers from, ANII as well as officers and directors
of ANII to obtain additional information regarding ANII and this Offering. ANII
has been given access to full and complete information regarding ANII and has
utilized such access to Glenwood's satisfaction for the purpose of obtaining
such information regarding ANII as Glenwood has reasonably requested. Such
information includes the terms and conditions of the offering of the Securities
to Glenwood, use of proceeds of this offering, ANII's business and the financial
condition of ANII. Glenwood acknowledges receipt and review of the 10-K, 8-K,
10-Q and other reports filed by ANII with the Securities and Exchange Commission
(the "SEC") during the twelve months preceding the date of this Agreement.
3.3 Investment Experience. Glenwood is an investor in securities of
speculative companies and acknowledges that it is able to fend for itself, can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
3.4 Glenwood Qualification. Glenwood is an "accredited investor" as that
term is defined in Rule 501(d) of Regulation D of the Securities Act of 1933, as
amended (the "Act") and Glenwood comes within at least one category set forth in
Appendix A to this Agreement. Glenwood agrees to furnish any additional
information which ANII deems necessary in order to verify the representations
made in this Agreement.
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3.5 Restricted Securities. Glenwood understands that the Securities it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from ANII in a transaction
not involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
Securities Act, only in certain limited circumstances.
3.6 Legends. The documents evidencing the Securities will bear a legend
substantially to the following effect:
These securities have not been registered under the Securities Act of
1933, as amended (the "Act'), and may be deemed a "restricted
security," as that term is defined in Rule 144 under the Act. These
securities, and the securities issued upon conversion hereof, may not
be offered for sale, sold, or otherwise transferred except pursuant to
an effective Registration Statement under the Act, or pursuant to an
exemption from registration under the Act, the availability of which
is to be established to the satisfaction of ANII.
3.7 Notations on Records. Glenwood understands that ANII will place a
notation on its stock transfer records indicating the restricted nature of the
Securities.
3.8 Disposition.
(a) Glenwood is aware that, in the view of the SEC, purchase of the
Securities with an intent to resell by reason of any foreseeable specific
contingency or anticipated change in the condition of ANII or in connection
with a pledge of the securities, would represent an intent inconsistent
with the representations set forth above. Glenwood agrees that if, contrary
to the foregoing intentions, Glenwood should later desire to dispose of or
transfer any of the Securities in any manner, Glenwood shall not do so
unless and until (i) the Securities shall have first been registered under
the Act and all applicable securities laws; or (ii) Glenwood shall have
first delivered to ANII a written notice declaring Glenwood's intention to
effect such transfer and describe in sufficient detail the manner and
circumstances of the proposed transfer, and ANII has been satisfied that
the proposed sale or transfer is exempt from the registration provisions of
the Act and all applicable state securities laws, which may require
Glenwood to furnish, at his expense, an opinion of counsel reasonably
satisfactory to ANII that such sale or transfer will not violate any
applicable laws.
(b) Glenwood understands that ANII has no obligation to register the
Securities, except that if ANII proposes to file a registration statement
registering either or both the Common Stock underlying the $250,000 note
made to Cambridge Holdings, Ltd. ("Cambridge") in January 2002 or the
Warrant issued then to Cambridge, ANII shall so notify Glenwood and
Glenwood shall have the opportunity to include the Common Stock underlying
the Note and/or the Warrant in such registration statement, if Glenwood so
chooses.
3.9 Reliance on Representations. Glenwood understands the meaning and legal
consequences of the representations, warranties and agreements set out above and
agrees that the agreements made hereby may be accepted in reliance thereon.
Glenwood will indemnify and hold harmless ANII and its agents and any person who
controls them within the meaning of Section 20 of the Securities Exchange Act of
1934, as amended, from and against any and all loss, damage, liability or
expense, including reasonable costs and attorneys' fees and disbursements, which
ANII or such other persons may incur by reason of, or in connection with any
representation, warranty or agreement made herein not having been true when
made, any misrepresentation made by Glenwood or any failure by Glenwood to
fulfill any of the covenants or agreements set forth herein.
3.10 Advice of Counsel. Glenwood acknowledges that it has obtained advice
from independent counsel and its own investment advisors with respect to this
Agreement and its investment in the Securities to the extent that it desires to
do so. Glenwood is not relying on any representations, except those set forth in
this Agreement, or any advice from ANII, or any of ANII's officers, directors,
attorneys, including, without limitation, ▇▇▇▇▇▇ ▇▇▇▇▇ LLP, or other
representatives regarding this Agreement, its content or effect.
4. Earnout Payment.
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4.1 Earnout Payment Qualification. Subsequent to Closing, in the event that
ANII's subsidiary, ANI Pharmaceuticals, Inc. ("ANIP") has Pre-Tax Income (as
defined below) for: (a) the year beginning October 1, 2002 and ending September
30, 2003 in excess of $850,000 ("Year One"), or (b) the year beginning October
1, 2003 and ending September 30, 2004 in excess of $1,520,000 ("Year Two"), ANII
shall issue to Glenwood 0.75 shares of ANII's common stock for each $1.00 in
Pre-Tax Income in excess of: (a) $850,000 in Year One, and (b) $1,520,000 in
Year Two. Provided, however, in no event shall Glenwood receive in excess of
178,114 shares of ANII's common stock.
4.2 Manner of Computation. For purposes of this Agreement, "Pre-Tax Income"
of ANIP shall mean, ANIP's aggregate earnings net of losses of operations
calculated as if ANIP were operated as a separate, unaffiliated corporation,
after deduction of all appropriate expenses, charges and reserves, but before
adjustment for federal, state, and local income or franchise taxes. Pre-Tax
Income shall be determined in accordance with generally accepted accounting
principles ("GAAP") consistently applied by ANII after consultation with the
firm of independent certified public accountants engaged by ANII for purposes of
its own audit ("ANII's Accountants"); provided, however, that in determining
such Pre-Tax Income:
(a) Pre-Tax Income shall be computed without regard to "extraordinary
items" of gain or loss as that term shall be defined in GAAP;
(b) Pre-Tax Income shall not include any gains, losses or profits
realized from the sale of any assets other than in the ordinary course of
business;
(c) No deduction shall be made for any management fees or general
overhead expenses of ANII or other intercompany charges, of whatever kind
or nature, charged by ANII to ANIP, except that (i) ANII may deduct any
expenses that are directly attributable to the operations of ANIP,
including, without limitation, insurance policy premiums, and (ii) ANII may
charge interest on any loans or advances made by ANII to ANIP in connection
with ANIP's business operations at a rate of nine percent (9%);
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(d) No deduction shall be made for legal or accounting fees and
expenses arising out of this Agreement to the extent that such fees and
expenses are included as an expense for the applicable fiscal year;
(e) No deduction shall be made for salaries or special benefits
(including club dues, special car allowances and other similar benefits)
paid to ▇▇ ▇▇▇▇▇▇ ;
(f) Pre-Tax Income shall include all items of interest expense or
other expense, but shall not include any interest expense (i) related to
any indebtedness not incurred in connection with the acquisition of ASH
Corp., or any other businesses acquired for the benefit of ANIP's
operations, or (ii) that would have been eliminated from operating cash
income generated by the business operations of ANIP, but for the allocation
of such operating cash income by ANII for other purposes;
(g) Pre-Tax Income shall include 15% of any revenues actually received
by ANII's subsidiary, Bactolac Pharmaceutical Inc., at its operations
facility located in Hauppauge, New York resulting from orders received from
customers referred by York Pharmaceuticals Incorporated, or York
Pharmaceuticals Incorporated's former employees to Bactolac; provided that
Bactolac shall have the right, in its sole and absolute discretion, to
determine whether to sell its products to such parties referred by them;
4.3 Time of Determination.
(a) The Pre-Tax Income of ANIP shall be determined in accordance with
GAAP promptly after filing of ANII's Annual Reports on Form 10-K for the
fiscal years ending September 30, 2003 and 2004. Copies of the reports
setting forth the computation of the Pre-Tax Income of ANIP shall be
submitted in writing to Glenwood and, unless Glenwood notifies ANII within
10 business days after receipt of the report that it objects to the
computation of Pre-Tax Income set forth therein, the reports shall be
binding and conclusive for the purposes of this Agreement. Glenwood shall
have reasonable access to the books and records of ANIP and to ANII's
Accountant's workpapers (to the extent that ANII can facilitate such
access) during regular business hours to verify the computation of Pre-Tax
Income made by ANII.
(b) If Glenwood notifies ANII in writing within 10 business days after
receipt of ANII's report that it objects to the computation of Pre-Tax
Income set forth therein, the amount of Pre-Tax Income shall be determined
by negotiation between Glenwood and ANII. If Glenwood and ANII are unable
to reach agreement within 30 business days after such notification, the
determination of the amount of Pre-Tax Income for the period in question
shall be submitted to a mutually agreeable third party firm of independent
certified public accountants ("Special Accountants") for determination,
whose determination shall be binding and conclusive on the parties. If the
Special Accountants determine that the Pre-Tax Income has been understated
by 10% or more, then ANII shall pay the Special Accountants' fees, costs
and expenses. If Pre-Tax Income has not been understated or has been
understated by less than 10%, then Glenwood shall pay the Special
Accountants' fees, costs and expenses.
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4.4 No Earnout. Notwithstanding anything herein to the contrary, ANII and
ANIP may terminate the operations of ANIP at ANIP's Gulfport, Mississippi
facility, sell the assets of ANIP, or sell a majority of ANIP stock (an "Earnout
Payment Termination Event"). The decision regarding such Earnout Payment
Termination Event may be made at any time by ANII and/or ANIP, at the sole
discretion of such entities, and without any consultation to or with Glenwood or
any of Glenwood's representatives. Glenwood agrees that in the event of an
Earnout Payment Termination Event, Glenwood's entitlement to any potential
earnout will be terminated, and that Glenwood shall not be entitled to receive
any additional consideration or compensation of any kind if such termination
occurs. Provided, however, that if such event occurs during Year One or Year
Two, Glenwood shall be entitled to earnout payments calculated by adjusting
Pre-Tax Income by the percentage obtained by dividing the number of complete
months subsequent to the beginning of Year One or Year Two, as the case may be,
prior to the Earnout Payment Termination Event which have been completed by 12
and then multiplying that number by (a) $850,000 if the Earnout Payment
Termination Event occurs during Year One; and (b) $1,520,000 if the Earnout
Payment Termination Event occurs during Year Two. If Pre-Tax Income for the
completed months exceeds the applicable threshold number, then ANII shall issue
0.75 shares of ANII common stock for each one dollar of such excess amount. For
example, if the Earnout Payment Termination Event were to occur on January 4,
2004, then there would have been three completed months of operations during
Year Two. If there were Pre-Tax Income of $450,000 during those three months,
Glenwood would receive 52,500 shares of ANII Common Stock, calculated as
follows: 3 / 12 = .25; .25 x $1,520,000 = $380,000; $450,000 - $380,000 =
$70,000; 70,000 x 0.75 = 52,500 shares.
4.5 Withholding Taxes. ANII or its affiliates may take such steps as they
deem necessary or appropriate for the withholding of any taxes which they may be
required by law or regulation or any governmental authority, whether federal,
state or local, domestic or foreign, to withhold in connection with any earnout
payments, including, but not limited to, the withholding of all or any portion
of any payment owed by them to Glenwood, or the withholding of the issuance of
ANII stock to be issued in connection with an earnout payment.
5. Miscellaneous.
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5.1 Survival. The warranties, representations and covenants of ANII and
Glenwood contained in this Agreement shall survive the execution and delivery of
this Agreement and the Closing.
5.2 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any of the Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the Parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
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5.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Colorado.
5.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the Party to be notified or four days after
deposit with the United States Post Office by registered or certified mail,
postage prepaid and, in the case of ANII at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and in the case of Glenwood, at Glenwood's address on the
signature page hereof, or at such other address as either Party may designate to
the other by like notice.
5.6 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
first above written.
GLENWOOD CAPITAL PARTNERS I, LP ADVANCED NUTRACEUTICALS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
General Partner Senior Vice President of Finance
and Secretary
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇, ▇▇▇▇▇ and Zip Code
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Taxpayer Identification Number
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EXHIBIT A
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Subordinated Promissory Note
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EXHIBIT B
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Warrant
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EXHIBIT C
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Intercreditor and Subordination Agreement
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APPENDIX A
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Glenwood must come within at least one category below to qualify as an
"accredited investor" and to be accepted as a holder of the Securities.
Category I Glenwood is an executive officer of ANII.
Category II Glenwood is a bank; savings and loan; insurance company;
registered broker or dealer; registered investment company;
registered business development company; licensed small
business investment company ("SBIC"); or employee benefit
plan within the meaning of Title I of ERISA whose plan
fiduciary is either a bank, savings and loan, insurance
company or registered investment advisor or whose total
assets exceed $5,000,000; or a self-directed employee
benefit plan with investment decisions made solely by
persons that are accredited Glenwoods.
Category III Glenwood is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act
of 1940.
Category IV Glenwood is an entity with total assets in excess of
$5,000,000 which was not formed for the purpose of investing
in the Securities and which is one of the following:
a corporation; or
a partnership; or
a business trust; or
tax-exempt organization described in Section
501(c)(3) of the Internal Revenue Code of
1986, as amended.
Category V Glenwood is an entity of which all the equity owners are
"accredited investors" within one or more of the above
categories, other than Category IV or Category V.
Category VI Glenwood is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Securities, whose purchase is directed by a person who
has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and
risks of the prospective investment.
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