UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of report (Date of earliest event reported): September 28,
2005
NUTRACEA
(Exact
Name of Registrant as Specified in Charter)
California
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0-32565
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87-0673375
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification
No.)
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1261
Hawk’s Flight Court
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El
Dorado Hills, California
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95762
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (916) 933-7000
Same
(Former
name or Former Address, if Changed Since Last Report.)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR
240.13e-4(c))
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Item
1.01
Entry
into a Material Definitive Agreement.
Private
Placement
On
September 28, 2005, NutraCea (“NutraCea or the “Company”) entered into a
Securities Purchase Agreement (the “Purchase Agreement”) and a Registration
Rights Agreement (the “Registration Rights Agreement”) in connection with a
private placement of its securities to certain investors for aggregate gross
proceeds of approximately $7.85 million (approximately $7.3 million after
estimated offering expenses). Upon closing of the transaction on October
4,
2005, the investors purchased an aggregate of 7,850 shares of Series B
Convertible Preferred Stock of the Company (the “Preferred Shares”) at a price
of $1,000.00 per share pursuant to the Purchase Agreement. The Preferred
Shares
can be converted to shares of NutraCea common stock at a conversion rate
of
2,000 shares of common stock for each Preferred Share issued in the transaction.
The Preferred Shares are subject to the terms and conditions of the Certificate
of Determination, Preferences and Rights filed herewith as Exhibit 3.1.
Additionally, pursuant to the Purchase Agreement, the investors were issued
warrants (the “Warrants”) to purchase an aggregate of 7,850,000 shares of
NutraCea common stock at an exercise price of $0.70 per share. The Warrants
have
a term of five years and are immediately exercisable.
Pursuant
to the Registration Rights Agreement, the Company is obligated to file a
registration statement with the Securities and Exchange Commission within
45
days of the closing of the transaction covering the possible resale from
time to
time in the future of the shares of common stock underlying the Preferred
Shares
and the Warrants. The Registration Rights Agreement provides for certain
payments by the Company to the investors if the registration statement is
not
filed or does not become effective before dates specified in that agreement.
Each of the Company and the investors has agreed to indemnify the other party
and certain affiliates against certain liability related to the registration
statement.
Halpern
Capital, Inc. acted as advisor and placement agent for the financing and
received a customary fee based on aggregate gross proceeds received from
the
investors and a warrant to purchase 1,099,000 shares of the Company’s common
stock at an exercise price per share of $0.50.
The
foregoing summary of the terms and conditions of the Purchase Agreement,
the
Registration Rights Agreement and the Warrants does not purport to be complete
and is qualified in its entirety by reference to the full text of each of
the
aforementioned documents attached as Exhibits hereto, and which are hereby
incorporated herein by reference.
Employment
Agreements
In
connection with the merger involving The RiceX Company (“RiceX”), NutraCea and
RiceX entered into employment agreement amendments dated September 30, 2005
with
each of Todd C. Crow and Ike E. Lynch for executive officer positions. These
employment agreement amendments were contingent upon the closing of the merger
involving NutraCea and the RiceX and became effective upon such closing on
October 4, 2005. Pursuant to the terms of the employment agreement amendments,
NutraCea assumed the employment agreements that Messrs. Crow and Lynch had
entered into with RiceX.
Title
and Salary
.
Mr.
Crow has the title of Chief Financial Officer of NutraCea and will receive
an
annual base salary of $150,000. Mr. Lynch has the title of Chief Operating
Officer of NutraCea and will receive an annual base salary of $150,000.
Term
.
Each of
Mr. Crow’s and Mr. Lynch’s employment agreements, as amended have a term of
three years, beginning on October 4, 2005.
Severance
Benefits
.
If the
employment of Mr. Crow or Mr. Lynch is terminated by NutraCea without “cause”
(as defined in the employment agreements, as amended), then such executive
will
be entitled to receive an amount equal to the greater of (i) the monthly
base
salary multiplied by the number of months remaining on the term of the
employment agreement, and (ii) one year of base salary. If Mr. Crow is
terminated as a result of a “change of control” (as defined in his employment
agreement, as amended) and Mr. Crow is not employed in the same capacity
or
being paid the same base salary by the new entity, then Mr. Crow shall be
entitled to receive a severance payment equal to two (2) years of base salary,
or the balance remaining to be paid under the terms of the employment agreement,
whichever is greater. If Mr. Lynch is terminated as a result of a “change of
control” (as defined in his employment agreement amendment, as amended) and Mr.
Lynch is not employed in the same capacity or being paid the same base salary
by
the new entity, then Mr. Lynch shall be entitled to receive a severance payment
equal to one hundred eighty thousand dollars ($180,000).
Item
2.01
Completion
of Acquisition or Disposition of Assets
On
October 4, 2005, NutraCea, through its wholly-owned subsidiary, Red Acquisition
Corporation, a Delaware corporation (“Merger Sub”), consummated its acquisition
of RiceX by merger (the “Merger”) pursuant to the terms of an Agreement and Plan
of Merger and Reorganization, dated April 4, 2005, by and among NutraCea,
Merger
Sub and RiceX (the “Merger Agreement”). At the effective time of the Merger,
Merger Sub merged with and into RiceX, with RiceX surviving the Merger as
a
wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and
as a
result of the Merger, each share of RiceX common stock outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive 0.767995104 shares of NutraCea’s common stock.
In
connection with the Merger, NutraCea issued approximately 28,195,614 shares
of
NutraCea common stock to holders of RiceX common stock. In addition, NutraCea
assumed each outstanding option and warrant to purchase RiceX common stock
and
converted those options and warrants into options and warrants to purchase
an
aggregate of approximately 11,887,386 shares of NutraCea common
stock.
Pursuant
to the terms of the Merger, the number of directors serving on NutraCea’s Board
of directors increased from five to seven.
The
foregoing description of the Merger Agreement does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement, which
is
incorporated herein by reference.
Item
3.02
Recent Sales of Unregistered Securities
See
Item
1.01 above, which disclosures are incorporated herein by reference. The issuance
of Preferred Shares and Warrants was completed in accordance with the exemption
provided by Rule 506 of Regulation D of the Securities Act of 1933 and/or
Section 4(2) of the Securities Act of 1933, as amended. Each of the investors
represented that it is an accredited investor, as defined in Rule 501 of
Regulation D, and that it was acquiring the securities for its own account,
not
as nominee or agent, and not with a view to the resale or distribution of
any
part thereof in violation of the Securities Act.
See
Item
2.01 above, which disclosures are incorporated herein by reference. The issuance
of NutraCea common stock to holders of RiceX common stock and the assumption
by
NutraCea of options and warrants to purchase RiceX common stock in the Merger
was completed in accordance with the exemption provided by Section 3(a)(10)
of
the Securities Act of 1933, as amended.
Item
5.02
Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
(b)
Effective
as of the closing of the Merger on October 4, 2005, James W. Kluber resigned
as
Chief Financial Officer of NutraCea and Patricia McPeak resigned as Chief
Executive Officer of NutraCea. Effective as of September 28, 2005, Ernie
Bodai
resigned as a director of NutraCea.
(c)
(1)
Effective
as of the closing of the Merger on October 4, 2005, Bradley Edson was appointed
as Chief Executive Officer of NutraCea. Mr. Edson has served as President
and
been a member of the Board of Directors of NutraCea since December 2004.
Mr.
Edson was formerly the Chairman and CEO of Vital Living Inc., a company that
primarily developed and marketed nutraceuticals. Prior to Vital Living, Mr.
Edson spent a decade developing a nationwide insurance agency focused on
distribution channels for specialty products for the retail market. Prior
to
that, Mr. Edson was a former principal and officer of a NASD broker/dealer
firm.
(2)
Effective
as of the closing of the Merger on October 4, 2005, Todd C. Crow was appointed
as Chief Financial Officer of NutraCea. Mr. Crow has served as Vice President
of
Finance and Chief Financial Officer of RiceX since November 1998, and as
Secretary of RiceX since January 1999. From September 1997 to November 1998,
Mr.
Crow was RiceX’s Controller and from May 1996 to September 1997, he was RiceX’s
Chief Financial Officer. From 1989 until joining RiceX, Mr. Crow held senior
financial positions with the Morning Star Group, an agri-business holding
company, and Harter, Inc., a food-processing manufacturer. Mr. Crow has entered
into an amended employment agreement with NutraCea pursuant to which he was
appointed Chief Financial Officer. The material terms of such employment
agreement amendment are described in Item 1.01 above under the heading
“Employment Agreements.”
(3)
Effective
as of the closing of the Merger on October 4, 2005, Ike E. Lynch was appointed
as Chief Operating Officer of NutraCea. Prior to joining NutraCea, Mr. Lynch
currently served as RiceX’s CEO and Vice President of International Business
Development and since January 1997, President and Chief Operating Officer
of
RiceX Nutrients, Inc. From 1966 through 1982, Mr. Lynch was employed by the
H.
J. Heinz Company in various management roles, culminating with the President
and
CEO position of the Hubinger Company, a subsidiary of Heinz. In 1982, Mr.
Lynch
left Heinz to become President and CEO of Dawn Enterprises LLC, specializing
in
Ethanol production and marketing. Mr. Lynch left Dawn Enterprises in 1989
to
form Centennial Foods, Incorporated, where he served as President and Chief
Executive Officer until RiceX’s acquisition of Centennial Foods in 1997. Mr.
Lynch has entered into an amended employment agreement with NutraCea pursuant
to
which he was appointed Chief Operating Officer. The material terms of such
employment agreement amendment are described in Item 1.01 above under the
heading “Employment Agreements.”
(d)
Effective
as of the closing of the Merger on October 4, 2005, Steven W. Saunders, James
C.
Lintzenich and Edward L. McMillan, each of whom previously served as a director
of RiceX, were appointed to the board of directors of NutraCea. These
individuals were appointed pursuant to the terms of the Merger Agreement,
which
provides that following the closing of the Merger, the board of directors
of
NutraCea shall consist of three persons designated by NutraCea, three persons
designated by RiceX and one person mutually designated by NutraCea and RiceX.
Members
of NutraCea’s board of directors are eligible to receive 35,000 shares of
NutraCea common stock annually.
Item
9.01 Financial Statements and Exhibits.
(a)
Financial
Statements of Businesses Acquired
.
The
financial statements required by Item 9.01(a) of this Form 8-K will be filed
by
amendment within 71 calendar days after the date this Current Report on Form
8-K
must be filed.
(b)
Pro
Forma Financial Information
.
The
pro
forma financial information required by Item 9.01(b) of Form 8-K will be
filed
by amendment within 71 calendar days after the date this Current Report on
Form
8-K must be filed.
(c)
Exhibits
.
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2.1
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Agreement
and Plan of Merger and Reorganization dated April 4, 2005 among
NutraCea,
The RiceX Company and Red Acquisition Corporation. (incorporated
by
reference to Exhibit 2.1 to NutraCea’s Form 8-K filed on April 4,
2005).
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Certificate
of Determination, Preferences and Rights of Series B Convertible
Preferred
Stock.
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Securities
Purchase Agreement, dated September 28, 2005, by and among NutraCea
and
the investors named therein.
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Registration
Rights Agreement, dated September 28, 2005, by and among NutraCea
and the
investors named therein.
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Date:
October 4, 2005
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NUTRACEA
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By:
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/s/
Brad Edson
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Brad
Edson
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Chief
Executive Officer
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(Duly
Authorized Officer)
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Exhibit
3.1
_____________________
CERTIFICATE
OF DETERMINATION, PREFERENCES AND RIGHTS
OF
SERIES
B CONVERTIBLE PREFERRED STOCK
We,
Brad
Edson and Margie Adelman, hereby certify that we are the President and
Secretary, respectively, of NutraCea, a corporation organized and existing
under
the laws of the State of California (“
Corporation
”),
and
further, do hereby certify:
That
pursuant to the authority conferred upon the Board of Directors by the
Corporation’s Articles of Incorporation, the said Board of Directors on
September 28, 2005 adopted the following resolution creating a series of 25,000
shares of Preferred Stock designated as Series B Convertible Preferred Stock,
none of which shares have been issued:
RESOLVED,
that the Board of Directors of the Corporation designates the Series B
Convertible Preferred Stock and the number of shares constituting such series,
and fixes the rights, preferences, privileges and restrictions relating to
such
series in addition to any set forth in the Articles of Incorporation as
follows:
TERMS
OF SERIES B PREFERRED STOCK
Section
1
.
Definitions
.
For the
purposes hereof, the following terms shall have the following
meanings:
“
Alternate
Consideration
”
shall
have the meaning set forth in Section 9(e)(iii).
“
Authorization
Trigger Date
”
shall
have the meaning set forth in Section 7(e)(iv).
“
Automatic
Conversion Notice
”
shall
have the meaning set forth in Section 7(f).
“
Automatic
Conversion Notice Date
”
shall
have the meaning set forth in Section 7(f).
“
Buy-In
”
shall
have the meaning set forth in Section 7(g).
“
Change
of Control Transaction
”
means
the occurrence after the date hereof of any of (a) an acquisition by an
individual, legal entity or “group” (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Corporation, by contract or
otherwise) of in excess of 50% of the voting securities of the Corporation,
(b)
any merger or consolidation of the Corporation in which the shareholders
immediately prior to such merger or consolidation do not continue to hold or
have the right to direct the voting of more than 50% of the voting securities
of
the Corporation immediately after such merger or consolidation, (c) a sale
of
all or substantially all of the Corporation’s assets (the presentation of any
such transaction for shareholder approval being conclusive evidence that such
transaction involves the sale of all or substantially all of the assets of
the
Corporation) in one or a series of related transactions, (d) the Corporation’s
directors immediately following the consummation of the proposed business
combination of the Corporation and The RiceX Company (“
Merger
Transaction
”)
and
persons appointed by such persons do not continue to constitute a majority
of
the Corporation’s Board of Directors, or (f) the execution by the Corporation of
an agreement to which the Corporation is a party or by which it is bound,
providing for any of the events set forth above in (a), (b), (c) or
(d).
“
Closing
Date
”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Holders’ obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Series B Preferred Stock have been
satisfied or waived.
“
Common
Stock
”
means
the Corporation's common stock, par value $.001 per share, and stock of any
other class into which such shares may hereafter have been reclassified or
changed.
“
Common
Stock Equivalent
”
means
any security or obligation which is by its terms, directly or indirectly,
convertible into or exchangeable or exercisable for shares of Common Stock,
including, without limitation, any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock
Equivalent.
“
Conversion
Amount
”
means
the sum of the Stated Value at issue plus any accrued but unpaid
dividends.
“
Conversion
Date
”
shall
have the meaning set forth in Section 7(a).
“
Conversion
Price
”
shall
have the meaning set forth in Section 7(b).
“
Conversion
Shares
”
means,
collectively, the shares of Common Stock into which the shares of Series B
Preferred Stock are convertible in accordance with the terms
hereof.
“
Conversion
Shares Registration Statement
”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Conversion Shares by the Holder to
which the Holder is entitled pursuant to the Registration Rights Agreement,
all
as provided in the Registration Rights Agreement.
“
Equity
Conditions
”
shall
mean, during the period in question,
(a)
the
Corporation shall have duly and timely honored all conversions scheduled to
occur or occurring by virtue of one or more Notices of Conversion in accordance
with the terms of the Transaction Documents, if any, (b) all amounts owing
by
the Corporation in respect of the Series B Preferred Stock shall have been
paid,
(c)
there
is a current, effective Conversion Shares Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to resell
all
of the shares issuable pursuant to the Transaction Documents that the Holder
is
entitled to resell pursuant to a Conversion Shares Registration Statement (and
the Corporation believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (d) the Common Stock is trading
on
the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on the Trading Market (and the Corporation
believes, in good faith, that trading of the Common Stock on the Trading Market
will continue uninterrupted for the foreseeable future), (e) there is a
sufficient number of authorized but unissued and otherwise unreserved shares
of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, (f) all of the shares issued or issuable pursuant to
the
transaction proposed would not violate the limitations set forth in Section
6(d), and (g) no public announcement of a pending or proposed Fundamental
Transaction, Change of Control Transaction or acquisition or other material,
non-public transaction has occurred that has not been consummated.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
Exempt
Issuance
”
means
the issuance of (a) shares of Common Stock or options or warrants to
consultants, employees or proposed employees, officers or directors of the
Corporation pursuant to the Corporation’s 2005 Equity Incentive Plan or pursuant
to any stock or option plan or agreement duly adopted by a majority of the
non-employee members of the Board of Directors of the Corporation or a majority
of the members of a committee of non-employee directors established for such
purpose; provided that the issuance of shares of Common Stock or options or
warrants to consultants other than pursuant to the Corporation’s 2005 Equity
Incentive Plan shall not be Exempt Issuances under this part (a) to the extent
that the number of shares of Common Stock granted to consultants (or underlying
options and warrants to purchase Common Stock) exceeds, in any calendar year,
two percent (2%) of the number of outstanding shares of Common Stock, as
measured on the last day of the applicable year; provided further, that Common
Stock, options and warrants granted to consultants at a per share price (or
a
per share exercise price, in the case of options or warrants) that equals or
exceeds the Stated Value shall not be considered for purposes of calculating
the
two percent (2%) threshold, (b) securities upon the conversion of Series B
Preferred Stock (c) upon the exercise of or conversion of any convertible
securities, options, warrants or rights to issue securities issued and
outstanding on the Closing Date, including securities issuable pursuant to
the
Merger Transaction, provided that such securities have not been amended after
the Closing Date to increase the number of such securities, (d) shares of Common
Stock issued or issuable as a dividend or distribution on Series B Preferred
Stock or pursuant to any event for which adjustment is made pursuant to Sections
9(a) or (b) hereof; (e) shares of Common Stock issued by the Corporation as
a
penalty pursuant to the Registration Rights Agreement, (f) warrants to purchase
the Corporation’s securities to Halpern Capital in connection with the issuance
of the Series B Preferred Stock, (g) Warrants issued pursuant to the Purchase
Agreement, and (h) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Corporation and in which the Corporation
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Corporation is issuing securities primarily for
the
purpose of raising capital or to an entity whose primary business is investing
in securities.
“
Fundamental
Transaction
”
shall
have the meaning set forth in Section 9(e)(iii) hereof.
“
Holder
”
shall
mean a holder of Series B Preferred Stock.
“
Issue
Date
”
shall
have the meaning set forth in Section 9(c).
“
Junior
Securities
”
means
the Common Stock and all other equity or equity equivalent securities of the
Corporation other than the Series B Preferred Stock and any Parity Securities
or
Senior Securities (each as defined in Section 3) issued hereafter in accordance
with the provisions of Section 5(a)(iii).
“
Liquidation
”
shall
have the meaning set forth in Section 6(a).
“
Liquidation
Amount
”
shall
have the meaning set forth in Section 6(a).
“
Liquidation
Notice
”
shall
have the meaning set forth in Section 6(d).
“
Majority
Holders
”
shall
have the meaning set forth in Section 5(a).
“
Maximum
Aggregate Share Amount
”
shall
have the meaning set forth in Section 7(d).
“
New
Issuance
”
shall
have the meaning set forth in Section 9(c).
“
New
Issue Price
”
shall
have the meaning set forth in Section 9(c).
“
Notice
of Conversion
”
shall
have the meaning set forth in Section 7(a).
“
Optional
Redemption
”
shall
have the meaning set forth in Section 8(a).
“
Optional
Redemption Amount
”
shall
mean for the applicable share of Series B Preferred Stock, the sum of (i) 857%
of the Stated Value of the Series B Preferred Stock and (ii) the accrued but
unpaid dividends on such share of Series B Preferred Stock.
“
Optional
Redemption Date
”
shall
have the meaning set forth in Section 8(a).
“
Optional
Redemption Notice
”
shall
have the meaning set forth in Section 8(a).
“
Optional
Redemption Notice Date
”
shall
have the meaning set forth in Section 8(a).
“
Original
Issue Date
”
shall
mean the date of the first issuance of any shares of the Series B Preferred
Stock regardless of the number of transfers of any particular shares of Series
B
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series B Preferred Stock.
“
Parity
Securities
”
shall
have the meaning set forth in Section 3(b).
“
Person
”
means
a
corporation, an association, a partnership, a limited liability company, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
“
Purchase
Agreement
”
means
the Securities Purchase Agreement, dated as of the Original Issue Date, to
which
the Corporation and the original Holders are parties, as amended, modified
or
supplemented from time to time in accordance with its terms.
“
Registration
Rights Agreement
”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, to which the Corporation and the original Holder are parties, as
amended, modified or supplemented from time to time in accordance with its
terms.
“
Relevant
Date
”
shall
have the meaning set forth in Section 9(c).
“
Reserved
Amount
”
shall
have the meaning set forth in Section 7(e)(iii).
“
Sale
Transaction
”
means
(a) (i) the merger or consolidation of the Corporation into or with one or
more
Persons, (ii) the merger or consolidation of one or more Persons into or with
the Corporation or (iii) a tender offer or other business combination if, in
the
case of (i), (ii) or (iii), the shareholders of the Corporation prior to such
merger or consolidation do not retain at least a majority of the voting power
of
the surviving Person or (b) the voluntary sale, conveyance, exchange or transfer
to another Person of (i) the voting capital stock of the Corporation if, after
such sale, conveyance, exchange or transfer, the shareholders of the Corporation
prior to such sale, conveyance, exchange or transfer do not retain at least
a
majority of the voting power of the Corporation or (ii) all or substantially
all
of the assets of the Corporation.
“
Senior
Securities
”
shall
have the meaning set forth in Section 3(c).
“
Series
B
Preferred
Stock
”
shall
have the meaning set forth in Section 2.
“
Series
B
Preferred
Stock Certificates
”
shall
have the meaning set forth in Section 7(a).
“
Share
Delivery Period
”
shall
have the meaning set forth in Section 7(e)(i).
“
Shareholder
Approval
”
shall
have the meaning set forth in Section 7(d).
“
Sold
Shares
”
shall
have the meaning set forth in Section 7(g).
“
Stated
Value
”
shall
have the meaning set forth in Section 2.
“
Stock
Price
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the volume weighted average of the last reported sales price of the
Corporation’s common stock on the Trading Market for each of the five (5)
Trading Days up to and including the first Trading Day preceding such date;
(b)
if prices for the Common Stock are then reported in the “Pink Sheets” published
by the Pink Sheets, LLC (or a similar organization or agency succeeding to
its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a
share of Common Stock as determined in good faith by the Corporation’s Board of
Directors.
“
Subscription
Amount
”
shall
mean, as to each original Holder, the amount to be paid for the Series B
Preferred Stock purchased pursuant to the Purchase Agreement as specified below
such Holder’s name on the signature page of the Purchase Agreement and next to
the heading “Subscription Amount”, in United States Dollars and in immediately
available funds.
“
Subsidiary
”
shall
have the meaning given to such term in the Purchase Agreement.
“
Trading
Day
”
means
a
day on which the Common Stock is traded on a Trading Market.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the OTC Bulletin Board, the Nasdaq SmallCap
Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq
National Market.
“
Transaction
Documents
”
shall
have the meaning set forth in the Purchase Agreement.
Section
2
.
Designation,
Amount and Par Value
.
The
series of preferred stock of the Corporation shall be designated as its Series
B
Convertible Preferred Stock (the “
Series
B
Preferred
Stock
”)
and
the number of shares so designated shall be 25,000. Each share of Series B
Preferred Stock shall have a no par value per share and a stated value equal
to
$1,000 (the “
Stated
Value
”).
Section
3
.
Rank
.
The
Series B Preferred Stock shall, with respect to payment of dividends, redemption
payments, rights upon liquidation, dissolution or winding up of the affairs
of
the Corporation, or otherwise (a) rank senior and prior to the Common Stock
and
Junior Securities, (b) rank on a parity with each class or series of equity
securities of the Corporation hereafter issued that by its terms expressly
provide that it ranks pari passu to the Series B Preferred Stock (whether with
respect to payment of dividends, redemption payments, rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, or otherwise)
(all
of such equity securities are collectively referred to herein as the
“
Parity
Securities
”),
and
(c) rank junior to each other class or series of equity securities of the
Corporation hereafter issued that by its terms expressly ranks senior to the
Series B Preferred Stock (whether with respect to payment of dividends,
redemption payments, rights upon liquidation, dissolution or winding up of
the
affairs of the Corporation, or otherwise) (all of such equity securities are
collectively referred to herein as the “
Senior
Securities
”).
The
respective definitions of Junior Securities, Parity Securities and Senior
Securities shall also include any rights or options exercisable or exchangeable
for or convertible into any of the Junior Securities, Parity Securities or
Senior Securities, as the case may be. At the Original Issue Date there will
be
no Parity Securities and no Senior Securities authorized or outstanding, and
the
shares of Common Stock (including any rights or options exercisable or
exchangeable for or convertible into shares of Common Stock) are the only Junior
Securities issued and outstanding.
Section
4
.
Dividends
.
a)
In
any
calendar year, Holders of outstanding shares of Series B Preferred Stock shall
be entitled to receive dividends, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, at the
rate
per share (as a percentage of the Stated Value per share) of 5%, payable in
preference and priority to any declaration or payment of any dividend on Junior
Securities of the Corporation in such calendar year.
b)
No
dividends shall be made with respect to the Common Stock until all declared
dividends on the Series B Preferred Stock have been paid or set aside for
payment to the Series B Preferred Stock holders. Payment of any dividends to
the
holders of the Series B Preferred Stock shall be on a pro rata, pari passu
basis. The right to receive dividends on shares of Series B Preferred Stock
shall not be cumulative, and no right to such dividends shall accrue to holders
of Series B Preferred Stock by reason of the fact that dividends on said shares
are not declared or paid in any calendar year.
Section
5
.
Voting
Rights
.
a)
Except
as
otherwise provided herein and as otherwise required by law, the Series B
Preferred Stock shall have no voting rights. However, so long as any shares
of
Series B Preferred Stock are outstanding, the Corporation shall not, without
the
affirmative vote of the Holders of a majority of the shares of the Series B
Preferred Stock then outstanding (the “
Majority
Holders
”):
|
i.
|
alter
or change adversely the powers, preferences or rights given to the
Series
B Preferred Stock or alter or amend this Certificate of Determination
(whether by merger, consolidation or
otherwise);
|
|
ii.
|
alter
or change adversely the powers, preferences or rights of any capital
stock
of the Corporation so as to affect adversely the Series B Preferred
Stock;
|
|
iii.
|
authorize,
create or permit to be outstanding any Parity Securities or Senior
Securities (whether by merger, consolidation or
otherwise);
|
|
iv.
|
issue
any shares of Series B Preferred Stock other than pursuant to the
Purchase
Agreement;
|
|
v.
|
redeem,
repurchase or otherwise acquire, or declare or pay any cash dividend
or
distribution on, any Junior Securities, provided that, notwithstanding
the
foregoing, the Corporation shall, without the prior approval of the
Majority Holders, be entitled to (i) repurchase Junior Securities
from
employees of the Corporation in connection with employee compensation
plans or arrangement approved by the Corporation’s Board of Directors and
(ii) make payments to Persons who exercise dissenters’ rights in
connection with the Merger
Transaction;
|
|
vi.
|
increase
the authorized number of shares of Series B Preferred
Stock;
|
|
vii.
|
increase
the par value of the Common Stock;
|
|
viii.
|
(A)
issue any debt securities, (B) incur any indebtedness or (C) enter
into
any other agreement or arrangement that would entitle any third party
to
any preferences over the Series B Preferred Stock upon the occurrence
of a
Liquidation, a Change of Control Transaction or otherwise, or redeem,
repurchase, prepay or otherwise acquire any outstanding debt securities
or
indebtedness of the Corporation, except as expressly required by
the terms
of such securities or indebtedness; provided that, notwithstanding
the
foregoing, the Corporation shall, without the prior approval of the
Majority Holders, be entitled to incur indebtedness (i) up to an
aggregate
of $1,000,000 in addition to all indebtedness pursuant to (ii), (iii)
and
(iv) below, (ii) that is secured solely by the accounts receivable
of the
Corporation and that does not exceed the aggregate amount of all
outstanding accounts receivable of the Corporation, (iii) incurred
to
finance or refinance the construction or improvement of existing
or new
manufacturing and production plant, facilities or equipment for the
Corporation’s products provided that such indebtedness is secured solely
by the property and assets so financed, constructed or improved,
(iv)
incurred as a result of Persons exercising dissenters’ rights in the
Merger Transaction and (v) in connection with the renewal, extension,
or
replacement (on substantially similar terms) of any indebtedness
outstanding as of the Closing Date.
|
|
ix.
|
amend
its certificate of incorporation or other charter documents so as
to
affect adversely any rights of the Holders (whether by merger,
consolidation or otherwise);
|
|
x.
|
cause
or authorize any Subsidiary of the Corporation to engage in any of
the
foregoing actions; and
|
|
xi.
|
enter
into any commitment, agreement or understanding with respect to the
foregoing.
|
Notwithstanding
the foregoing, no change pursuant to this Section 5 shall be effective to the
extent that, by its terms, it applies to less than all of the Holders of shares
of Series B Preferred Stock then outstanding.
Section
6
.
Liquidation
.
a)
Upon
any
liquidation, dissolution or winding-up of the Corporation, whether voluntary
or
involuntary (a “
Liquidation
”),
and
subject to the rights of any Senior Securities with respect to distributions
upon a Liquidation, the Holders shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Junior Securities by reason of their ownership of such stock and
pari
passu with any distribution of the assets of the Corporation to the holders
of
Parity Securities by reason of their ownership of such stock, an amount per
share of Series B Preferred Stock then held by them equal to (i) $1,000 (as
appropriately adjusted for any recapitalizations, stock combinations, stock
dividends, stock splits and the like with respect to such shares) plus (ii)
all
accrued but unpaid dividends on such shares of Series B Preferred Stock to
the
actual date of such Liquidation (the sum of clauses (i) and (ii) with respect
to
such shares of Series B Preferred Stock, the “
Liquidation
Amount
”)
and
such holders will not be entitled to any further payment with respect to such
shares of Series B Preferred Stock. If upon a Liquidation the assets and funds
legally available for distribution among the holders of the Series B Preferred
Stock and any Parity Securities shall be insufficient to permit the payment
to
such holders of the full Liquidation Amount and pari passu amounts due with
respect to such Parity Securities, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock and such Parity Securities
in
proportion to the Liquidation Amount and pari passu amounts due with respect
to
such Parity Securities that each holder of Series B Preferred Stock and such
Parity Securities is otherwise entitled to receive. Upon the consummation of
a
Sale Transaction, the Holders shall have to right to cause, by written request,
such Sale Transaction be deemed a Liquidation.
b)
After
payment in full has been made to the Holders of the full Liquidation Amount
(and
with respect to Parity Securities, such pari passu amounts) due pursuant to
Section 6(a) above, the entire remaining assets and funds of the Corporation
legally available for distribution to shareholders shall be distributed among
the holders of Junior Securities in proportion to their respective rights to
same.
c)
If
any of
the assets of the Corporation are to be distributed under this Section 6, or
for
any purpose, in a form other than cash, the value of such assets will be its
fair market value, as determined in good faith by the Board of Directors. Any
securities to be delivered to the holders of Series B Preferred Stock, Parity
Securities or Junior Securities, as the case may be, shall be valued as
follows:
|
i.
|
If
traded on a Trading Market, the value shall be deemed to be the average
of
the Stock Prices of the securities on such exchange over the 10 Trading
Day period ending three (3) days prior to the Closing
Date;
|
|
ii.
|
If
actively traded over-the-counter, the value shall be deemed to be
the
average of the closing bid or sale prices (whichever is applicable)
over
the 10 Trading Day period ending three (3) days prior to the closing;
and
|
|
iii.
|
If
there is no active public market, the value shall be the fair market
value
thereof, as determined in good faith by the Board of
Directors.
|
The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely
by
virtue of a shareholder's status as an affiliate or former affiliate) shall
be
valued at an appropriate discount from the value determined as provided in
Section 6(c)(i) or (ii) above to reflect the approximate fair market value
thereof, as reasonably determined in good faith by the Board of
Directors.
d)
Prior
to
the occurrence of a Liquidation, the Corporation shall give each holder of
record of Series B Preferred Stock written notice (the “
Liquidation
Notice
”)
not
later than fifteen (15) days prior to the shareholders' meeting called to
approve such transaction or event, or fifteen (15) days prior to the closing
of
such transaction or event, whichever is earlier, and shall also notify such
Holders in writing of the final approval of such transaction or event. The
first
of such notices shall describe the material terms and conditions of the
impending transaction or event and the provisions of this Section 6. The
transaction or event shall not occur sooner than 15 days after the Corporation
has given the first notice provided for herein.
Section
7
.
Conversion
.
a)
Conversions
at Option of Holder
.
Each
share of Series B Preferred Stock shall be convertible into that number of
shares of Common Stock (subject to the limitations set forth in Sections 7(c)
and (d)) determined by dividing the Stated Value of such share of Series B
Preferred Stock by the Conversion Price, at the option of the Holder, at any
time and from time to time from and after the Original Issue Date. Holders
shall
effect conversions by providing the Corporation with the form of conversion
notice attached hereto as
Annex
A
(a
“
Notice
of Conversion
”).
Each
Notice of Conversion shall specify the number of shares of Series B Preferred
Stock to be converted, the number of shares of Series B Preferred Stock owned
prior to the conversion at issue, the number of shares of Series B Preferred
Stock owned subsequent to the conversion at issue and the date on which such
conversion is to be effected, which date may not be prior to, nor more than
20
days after, the date the Holder delivers such Notice of Conversion to the
Corporation by facsimile (the “
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical error.
To
effect conversions, as the case may be, of shares of Series B Preferred Stock,
a
Holder shall not be required to surrender the certificate(s) representing such
shares of Series B Preferred Stock (the “
Series
B Preferred Stock Certificates
”)
to the
Corporation unless all of the shares of Series B Preferred Stock represented
thereby are so converted, in which case the Holder shall deliver the Series
B
Preferred Stock Certificate(s) promptly following the Conversion Date at issue.
However, if the Holder does not surrender the Series B Preferred Stock
Certificate(s) when effecting a conversion, such Holder shall, if requested
by
the Corporation, promptly deliver to the Corporation an indemnification
undertaking with respect to the converted Shares of Series B Preferred Stock,
in
form reasonably satisfactory to the Corporation. Shares of Series
B
Preferred
Stock converted into Common Stock or redeemed in accordance with the terms
hereof shall be canceled and may not be reissued.
b)
Conversion
Price
.
The
conversion price for the Series B Preferred Stock shall equal $0.50
(the
“
Conversion
Price
”),
subject to adjustment herein.
c)
Beneficial
Ownership Limitation
.
The
Corporation shall not effect any conversion of the Series B Preferred Stock,
and
the Holder shall not have the right to convert any portion of the Series B
Preferred Stock to the extent that after giving effect to such conversion,
the
Holder (together with the Holder’s affiliates), as set forth on the applicable
Notice of Conversion, would beneficially own in excess of 9.99% of the number
of
shares of the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall include
the number of shares of Common Stock issuable upon conversion of the Series
B
Preferred Stock with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) conversion of the remaining, nonconverted Stated Value
of
Series B Preferred Stock beneficially owned by the Holder or any of its
affiliates and (ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Corporation subject to a limitation
on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 7(c), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act. To
the
extent that the limitation contained in this Section 7(c) applies, the
determination of whether the Series B Preferred Stock is convertible (in
relation to other securities owned by the Holder together with any affiliates)
and of which shares of Series B Preferred Stock is convertible shall be in
the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder’s determination of whether the shares of
Series B Preferred Stock may be converted (in relation to other securities
owned
by such Holder) and which shares of the Series B Preferred Stock is convertible,
in each case subject to such aggregate percentage limitations. To ensure
compliance with this restriction, the Holder will be deemed to represent to
the
Corporation each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and
the
Corporation shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 7(c), in determining the number
of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of the
following: (X) the Corporation’s most recent Form 10-Q or Form 10-K, as the case
may be, (Y) a more recent public announcement by the Corporation or (Z) any
other notice by the Corporation or the Corporation’s transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written or
oral
request of the Holder, the Corporation shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall
be determined after giving effect to the conversion or exercise of securities
of
the Corporation, including the Series B Preferred Stock, by the Holder or its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The provisions of this Section 7(c) may be waived
by
the Holder upon, at the election
of
the
Holder, not less than 61 days’ prior notice to the Corporation, and the
provisions of this Section 7(c) shall continue to apply until such
61
st
day (or
such later date, as determined by the Holder, as may be specified in such notice
of waiver).
d)
Limitation
on Number of Shares Issuable
.
If
required by any exchange on which the Corporation’s securities are then traded,
notwithstanding anything herein to the contrary, the Corporation shall not
issue
to any Holder any shares of Common Stock, including pursuant to any rights
herein, including, without limitation, any conversion rights or right to issue
shares of Common Stock in payment of dividends, to the extent such shares,
when
added to the number of shares of Common Stock issued (i) upon conversion of
any
shares of Series B Preferred Stock pursuant to Section 7(a) and (ii) upon
exercise of those certain warrants issued pursuant to that Purchase Agreement
would exceed a number of shares of Common Stock equal to 19.999% of the number
of shares of Common Stock outstanding immediately prior to the Original Issue
Date, or such greater number of shares of Common Stock permitted pursuant to
the
corporate governance rules of the Trading Market that is at the time the
principal trading exchange or market for the Common Stock, based upon share
volume, as confirmed in writing by counsel to the Corporation (the “
Maximum
Aggregate Share Amount
”),
unless the Corporation first obtains shareholder approval permitting such
issuances in accordance with the Trading Market rules (“
Shareholder
Approval
”).
Each
Holder shall be entitled to a portion of the Maximum Aggregate Share Amount
equal to the quotient obtained by dividing (X) such the number of shares of
Series B Preferred Stock initially purchased by such Holder by (Y) the aggregate
number of shares purchased by all Holders. Such portions shall be adjusted
upward ratably in the event all of the shares of Series B Preferred Stock of
any
Holder are no longer outstanding. If at any time the number of shares of Common
Stock which could, notwithstanding the limitation set forth herein, be issuable
and sold to all Holders during the following 12 months equals or exceeds the
Maximum Aggregate Share Amount (and the Corporation is required by the rules
of
the Trading Market in which the Corporation’s Common Stock in then traded to
obtain Shareholder Approval), then the Corporation shall, subject to any
requirements in the Purchase Agreement to act sooner, seek to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but
in
any event not later than the 90
th
day
after the date in which the Corporation determines (or is notified by any
Holder) that the Maximum Aggregate Share Amount could be exceeded.
e)
Mechanics
of Conversion
i.
Delivery
of Certificate Upon Conversion
.
Not
later than the later of (A) three Trading Days after each Conversion Date and
(B) two business days following the date of surrender of Series B Preferred
Stock Certificates accompanied by a Notice of Conversion, if applicable (or,
in
the case of lost, stolen or destroyed certificates, after provision of indemnity
pursuant to Section 10(b)) (the “
Share
Delivery Period
”),
the
Corporation (itself, or through its transfer agent) shall issue and deliver
(i.e., deposit with a nationally recognized overnight courier service postage
prepaid) to the Holder (X) that number of shares of Common Stock issuable upon
conversion of such shares of Series B Preferred Stock being converted and (Y)
a
certificate or certificates representing the number
of
shares
of Common Stock being acquired upon the conversion of shares of Series B
Preferred Stock. If in the case of any Notice of Conversion such certificate
or
certificates are not delivered to or as directed by the applicable Holder by
the
fifth Trading Day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Corporation at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion,
in
which event the Corporation shall promptly return the certificates representing
the shares of Series B Preferred Stock tendered for conversion.
ii.
Obligation
Absolute
.
The
Corporation’s obligations to issue and deliver the Conversion Shares upon
conversion of Series B Preferred Stock in accordance with the terms hereof
are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or
any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Corporation or any violation or alleged violation of law by the Holder
or
any other person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to the Holder in connection
with the issuance of such Conversion Shares.
iii.
Reservation
of Shares Issuable Upon Conversion
.
The
Corporation covenants that it will at all times reserve and keep available
out
of its authorized and unissued shares of Common Stock solely for the purpose
of
issuance pursuant hereto, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders, not less than
such
number of shares of the Common Stock as shall (subject to any additional
requirements of the Corporation as to reservation of such shares set forth
in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 8) in respect of all outstanding shares of Series B
Preferred Stock (the “
Reserved
Amount
”).
iv.
Increases
to Reserved Amount
.
If the
Reserved Amount for any five consecutive Trading Days (the last of such Trading
Day being the “
Authorization
Trigger Date
”)
shall
be less than one hundred percent (100%) of the number of shares of Common Stock
issuable upon full conversion of the then outstanding shares of Series B
Preferred Stock, the Corporation shall immediately notify the Holders of such
occurrence and shall take immediate action (including, if necessary, seeking
shareholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Reserved Amount to one hundred percent (100%) of the
number of shares of Common Stock then issuable upon full conversion of all
of
the outstanding Series B Preferred Stock at the then current Conversion Price.
v.
Fractional
Shares
.
Upon a
conversion hereunder, the Corporation shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may
if
otherwise permitted, make a cash payment in respect of any final fraction of
a
share based on the Stock Price at such time. If the Corporation elects not,
or
is unable, to make such a cash payment, the Holder shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common
Stock.
vi.
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock on conversion of the
Series B Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Corporation shall
not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion
in
a name other than that of the Holder of such shares of Series B Preferred Stock
so converted and the Corporation shall not be required to issue or deliver
such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall
have
established to the satisfaction of the Corporation that such tax has been
paid.
vii.
Payment
of Accrued Amounts
.
Upon a
conversion hereunder, all amounts then accrued or payable on such shares under
this Certificate of Determination (including, without limitation, all dividends)
through and including the Conversion Date shall be paid by the
Corporation.
f)
Automatic
Conversion
.
Provided the Equity Conditions are satisfied, (i) if the Stock Price of the
Common Stock equals $2.00 per share after the Original Issue Date, for 30 out
of
the 40 consecutive Trading Days immediately prior to the Automatic Conversion
Notice Date (as defined below), and at least 200,000 shares of Common Stock
(subject to stock dividends, stock splits, and other similar transactions)
per
day shall have been traded during such 40 Trading Days, unless the Holder is
prohibited from converting the Series B Preferred Stock pursuant to Section
7(d)
hereof, the Corporation shall have the right to deliver a notice to the Holder
(an “
Automatic
Conversion Notice
”
and
the
date such notice is received by the Holder, the “
Automatic
Conversion Notice Date
”),
to
convert up to 100% of the shares of Series B Preferred Stock then held by the
Holder into shares of Common Stock at the then-effective Conversion Price To
effect an Automatic Conversion hereunder, the Holder shall not be required
to
physically surrender the Series B Preferred Stock certificate to the
Corporation. Delivery of the certificates for the Common Stock by the
Corporation to the Holder shall be as set forth in Section 7(e) herein. The
Corporation shall only be permitted to deliver an Automatic Conversion Notice
once per month.
g)
Buy-In
Cure
.
Unless
the Corporation has notified the applicable Holder in writing prior to the
delivery by such Holder of a Notice of Conversion that the Corporation is unable
to honor conversions, if (i) the Corporation fails to promptly deliver during
the Share
Delivery
Period shares of Common Stock to a Holder upon a conversion of shares of Series
B Preferred Stock and (ii) thereafter, such Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such Holder of the unlegended shares of Common Stock
(the “
Sold
Shares
”)
which
such Holder anticipated receiving upon such conversion (a “
Buy-In
”),
the
Corporation shall pay such Holder, in addition to any other remedies available
to the Holder, the amount by which (X) such Holder’s total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (Y) the net proceeds received by such Holder from
the
sale of the Sold Shares. For example, if a Holder purchases unlegended shares
of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will
be
required to pay the Holder $1,000. A Holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such Holder pursuant to this Section 7(g).
Section
8
.
Redemption
.
a)
Optional
Redemption
.
Subject
to the provisions of this Section 8, the Corporation may at any time deliver
a
notice to the Holders (an “
Optional
Redemption Notice
”
and
the
date such notice is deemed delivered hereunder, the “
Optional
Redemption Notice Date
”)
of its
irrevocable election to redeem, all or in part, the then outstanding Series
B
Preferred Stock, for an amount per share, in cash, equal to the Optional
Redemption Amount on a date within 20 Trading Days following the Optional
Redemption Notice Date (such date, the “
Optional
Redemption Date
”
and
such redemption, the “
Optional
Redemption
”).
The
Optional Redemption Date shall be no earlier than 30 days following the Optional
Redemption Notice Date. The Optional Redemption Amount is due in full on the
Optional Redemption Date. The Corporation may only effect an Optional Redemption
if from the Optional Redemption Notice Date through to the Optional Redemption
Date, all of the Equity Conditions are fulfilled.
The
Holders may not convert their shares of Series B Preferred Stock on or after
the
date of the Optional Redemption Notice; provided, however, that if the
Corporation elects to redeem less than all outstanding shares of Series B
Preferred Stock, the Holder may elect to convert such number of shares which
do
not include shares for which and Optional Redemption Notice shall have been
delivered.
b)
Redemption
Procedure
.
The
payment of cash pursuant to an Optional Redemption shall be made on the Optional
Redemption Date. If any portion of the cash payment for an Optional Redemption
shall not be paid by the Corporation by the respective due date, interest shall
accrue thereon at the rate of 10% per annum (or the maximum rate permitted
by
applicable law, whichever is less) until the payment of the Optional Redemption
Amount, plus all amounts owing thereon is paid in full. In addition, if any
portion of the Optional Redemption Amount remains unpaid after such date, the
Holders subject to such redemption may elect, by written notice to the
Corporation given at any time thereafter, to invalidate
ab
initio
such
redemption, notwithstanding anything herein contained to the contrary.
Notwithstanding anything to the contrary in this Section 8, the Corporation’s
determination to redeem in cash shall be applied ratably among the Holders
based
upon the number of shares of Series B Preferred Stock then held by each Holder.
Section
9
.
Certain
Adjustments
.
a)
Stock
Dividends and Stock Splits
.
If the
Corporation, at any time while the Series B Preferred Stock is outstanding:
(i)
shall pay a stock dividend or otherwise make a distribution or distributions
on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Corporation pursuant to this
Preferred Sock), (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, (iii) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Corporation, then the Conversion Price shall be multiplied by
a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section 9 shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
b)
Pro
Rata Distributions
.
If the
Corporation, at any time while Series B Preferred Stock is outstanding, shall
divide or distribute to all holders of Common Stock (and not to Holders)
evidences of its indebtedness, assets or cash or rights or warrants to subscribe
for or purchase any security, then in each such case the Conversion Price shall
be determined by multiplying such Conversion Price in effect immediately prior
to the record date fixed for determination of shareholders entitled to receive
such distribution by a fraction of which the denominator shall be the Stock
Price determined as of the record date mentioned above, and of which the
numerator shall be such Stock Price on such record date less the then fair
market value at such record date of the portion of such assets or cash or
evidence of indebtedness so distributed applicable to one outstanding share
of
the Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to the
Holders of the portion of assets or evidences of indebtedness so distributed
or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
c)
New
Issuances
.
If the
Corporation shall at any time or from time to time, after the issuance of the
Series B Preferred Stock but prior to the exercise thereof, issue or sell (such
issuance or sale, a “
New
Issuance
”)
any
shares of Common Stock or Common Stock Equivalents at a price per share of
Common Stock (the “
New
Issue Price
”)
that
is less than the Conversion Price then in effect as of the record date or Issue
Date (as defined below), as the case may be (the “
Relevant
Date
”)
(treating the price per share of Common Stock, in the case of the issuance
of
any Common Stock Equivalent, as equal to (X) the sum of the price for such
Common Stock Equivalent plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such Common Stock
Equivalent
divided by (Y) the number of shares of Common Stock initially underlying such
Common Stock Equivalent), other than (i) issuances or sales for which an
adjustment is made pursuant to another subsection of this Section 9 and (ii)
issuances in connection with an Exempt Issuance,
then
,
and in
each such case, (A) the Conversion Price then in effect shall be adjusted by
multiplying
the
Conversion Price in effect on the day immediately prior to the Relevant Date
by
a fraction (I) the numerator of which shall be the sum of the number of shares
of Common Stock outstanding on the Relevant Date
plus
the
number of shares of Common Stock which the aggregate consideration received
by
the Corporation for the total number of such additional shares of Common Stock
so issued would purchase at the Conversion Price on the Relevant Date (or,
in
the case of Common Stock Equivalents, the number of shares of Common Stock
which
the aggregate consideration received by the Corporation upon the issuance of
such Common Stock Equivalents and receivable by the Corporation upon the
conversion, exchange or exercise of such Common Stock Equivalents would purchase
at the Conversion Price on the Relevant Date) and (II) the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on the
Relevant Date
plus
the
number of additional shares of Common Stock issued or to be issued (or, in
the
case of Common Stock Equivalents, the maximum number of shares of Common Stock
into which such Common Stock Equivalents initially may convert, exchange or
be
exercised). Notwithstanding the foregoing, the Conversion Price shall not be
reduced at such time if the amount of such reduction would be less than $0.01,
but any such amount shall be carried forward, and a reduction will be made
with
respect to such amount at the time of, and together with, any subsequent
reduction which, together with such amount and any other amounts so carried
forward, equal $0.01 or more in the aggregate.
Such
adjustment shall be made whenever such shares of Common Stock or Common Stock
Equivalents are issued, and shall become effective retroactively (X) in the
case
of an issuance to the shareholders of the Corporation, as such, to a date
immediately following the close of business on the record date for the
determination of shareholders entitled to receive such shares of Common Stock
or
Common Stock Equivalents and (Y) in all other cases, on the date (the
“
Issue
Date
”)
of
such issuance;
provided
,
however
,
that
the determination as to whether an adjustment is required to be made pursuant
to
this Section 9(c) shall be made only upon the issuance of such shares of Common
Stock or Common Stock Equivalents, and not upon the issuance of any security
into which the Common Stock Equivalents convert, exchange or may be
exercised.
d)
Calculations
.
All
calculations under this Section 9 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Corporation, and the description of any such shares
of
Common Stock shall be considered on issue or sale of Common Stock. For purposes
of this Section 10, the number of shares of Common Stock deemed to be issued
and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and
outstanding.
e)
Notice
to Holders
.
i.
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to any of this Section 9,
the
Corporation shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement
of
the facts requiring such adjustment.
ii.
Notice
to Allow Conversion by Holder
.
If (A)
the Corporation shall declare a dividend (or any other distribution) on the
Common Stock; (B) the Corporation shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Corporation shall
authorize the granting to all holders of the Common Stock rights or warrants
to
subscribe for or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any shareholders of the Corporation shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Corporation is a party, any sale or
transfer of all or substantially all of the assets of the Corporation, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E)
the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation; then, in each
case,
the Corporation shall cause to be
mailed
to
the Holders at their last addresses as they shall appear upon the
stock
books
of
the
Corporation, at least 10 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating
(X)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (Y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange;
provided
,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert the Conversion Amount of Series
B Preferred Stock during the 10-day period commencing the date of such notice
to
the effective date of the event triggering such notice.
iii.
Fundamental
Transaction
.
If, at
any time while this Series B Preferred Stock is outstanding, (A) the Corporation
effects any merger or consolidation of the Corporation with or into another
Person or any other Change of Control Transaction shall occur, (B) any tender
offer or exchange offer (whether by the Corporation or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender
or
exchange their shares for other securities, cash or property, or (C) the
Corporation effects any reclassification of the Common Stock or any compulsory
share exchange pursuant
to
which
the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “
Fundamental
Transaction
”),
then,
in addition to the rights set forth in Section 6(a), upon any subsequent
conversion of this Series B Preferred Stock, the Holder shall have the right
to
receive, for each Conversion Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon
the
occurrence of such Fundamental Transaction if it had been, immediately prior
to
such Fundamental Transaction, the holder of one share of Common Stock (the
“
Alternate
Consideration
”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Corporation shall apportion
the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Series B Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Corporation or surviving entity in such
Fundamental Transaction shall file a new Certificate of Determinations with
the
same terms and conditions and issue to the Holder new preferred stock consistent
with the foregoing provisions and evidencing the Holder’s right to convert such
preferred stock into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (e)(iii) and insuring that this Series B Preferred Stock
(or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
iv.
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment will be made under this Section
9
in respect of an Exempt Issuance.
Section
10
.
Miscellaneous
.
a)
Notices
.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service,
addressed
to the Corporation, at the address set forth in the Purchase Agreement,
facsimile number (916) 933-7001,
Attn:
Chief Executive Officer, or such other address or facsimile number as the
Corporation may specify for such purposes by notice to the Holders delivered
in
accordance with this Section 10. Any and all notices or other communications
or
deliveries to be provided by the Corporation hereunder shall be in writing
and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number
or
address of such Holder appearing on the books of the Corporation, or if no
such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date
of
transmission, if such notice or communication is delivered via facsimile at
the
facsimile telephone number specified in this Section 10 prior to 6:30 p.m.
(New
York City time), (ii) the date after the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section 10 later than 6:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
first Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
b)
Lost
or Mutilated Series B Preferred Stock Certificate
.
If a
Holder’s Series B Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series B Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership hereof, and indemnity,
if
requested, all reasonably satisfactory to the Corporation.
c)
Allocation
of Reserved Amount
.
The
initial Reserved Amount shall be allocated pro rata among the Holders based
on
the number of shares of Series B Preferred Stock issued to each such Holder.
Each increase to the Reserved Amount shall be allocated pro rata among the
Holders based on the number of shares of Series B Preferred Stock held by each
Holder at the time of the increase in the Reserved Amount. In the event a Holder
shall sell or otherwise transfer any of such Holder’s shares of Series B
Preferred Stock, each transferee shall be allocated a pro rata portion of such
transferor’s Reserved Amount. Any portion of the Reserved Amount which remains
allocated to any person or entity which does not hold any Series B Preferred
Stock shall be allocated to the remaining Holders, pro rata based on the number
of shares of Series B Preferred Stock held by such Holders.
d)
Payment
of Cash; Defaults
.
Whenever the Corporation is required to make any cash payment to a Holder under
this Certificate of Determination (as payment of any dividend, upon redemption
or otherwise), such cash payment shall be made to the Holder within five
business days after delivery by such Holder of a notice specifying that the
Holder elects to receive such payment in cash and the method (e.g., by check,
wire transfer) in which such payment should be made and any supporting
documentation reasonably requested by the Corporation to substantiate the
Holder’s claim to such cash payment or the amount thereof. If such payment is
not delivered within such five business day period, such Holder shall thereafter
be entitled to interest on the unpaid amount at a per annum rate equal to the
lower of eighteen percent (18%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the Holder.
e)
Remedies
Cumulative
.
The
remedies provided in this Certificate of Determination shall be cumulative
and
in addition to all other remedies available under this
Certificate
of Determination, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit
a
Holder’s right to pursue actual damages for any failure by the Corporation to
comply with the terms of this Certificate of Determination. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders and that the remedy at law for any such breach
may be inadequate. The Corporation therefore agrees, in the event of any such
breach or threatened breach, that the Holders shall be entitled, in addition
to
all other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.
f)
Waiver
.
Any
waiver by the Corporation or the Holder of a breach of any provision of this
Certificate of Determination shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision
of
this Certificate of Determination. The failure of the Corporation or the Holder
to insist upon strict adherence to any term of this Certificate of Determination
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Certificate of Determination. Any waiver must be in
writing.
g)
Severability
.
If any
provision of this Certificate of Determination is invalid, illegal or
unenforceable, the balance of this Certificate of Determination shall remain
in
effect, and if any provision is inapplicable to any person or circumstance,
it
shall nevertheless remain applicable to all other persons and circumstances.
If
it shall be found that any interest or other amount deemed interest due
hereunder violates applicable laws governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum
permitted rate of interest.
h)
Next
Business Day
.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
i)
Headings
.
The
headings contained herein are for convenience only, do not constitute a part
of
this Certificate of Determination and shall not be deemed to limit or affect
any
of the provisions hereof.
*********************
ANNEX
A
NOTICE
OF
CONVERSION
(To
be
Executed by the Registered Holder in order to Convert Shares of Series B
Preferred Stock)
The
undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below, into shares of common stock, no
par
value per share (the “
Common
Stock
”),
of
NutraCea a California corporation (the “
Corporation
”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the
Corporation in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion
calculations:
Date
to
Effect Conversion:
________________________________________________________________
Number
of
shares of Series B Preferred Stock owned prior to Conversion:
__________________________________
Number
of
shares of Series B Preferred Stock to be Converted:
___________________________________________
Stated
Value of shares of Series B Preferred Stock to be Converted:
______________________________________
Number
of
shares of Common Stock to be Issued:
_____________________________________________
Applicable
Conversion Price:
_______________________________________________________
Number
of
shares of Series B Preferred Stock subsequent to Conversion:
___________________________________
|
[HOLDER]
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
The
undersigned declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of their own knowledge.
The
undersigned have executed this certificate in El Dorado Hills, California on
_______, 2005.
|
|
|
|
Name:
|
Brad
Edson
|
|
Name:
Margie Adelman
|
|
Title:
|
President
|
|
Title:
Secretary
|
|
Exhibit
4.1
WARRANT
THE
SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM,
OR
NOT SUBJECT TO, SUCH REGISTRATION.
Warrant
to Purchase up to _______ shares of Common Stock of NutraCea, a California
corporation (the “
Company
”).
In
consideration for the party whose signature appears on the signature page hereof
(the “
Investor
”)
agreeing to enter into that certain Securities Purchase Agreement, dated as
of
the date hereof, by and among the Company, the Investor and the other parties
identified therein as “Purchasers” (the “
Agreement
”),
the
Company hereby agrees that the Investor or any other Warrant Holder (as defined
below) is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period (as defined below)
up to
_________ fully paid and nonassessable shares of common stock, no par value,
of
the Company (the “
Common
Stock
”)
at a
price per share equal to the Exercise Price (hereinafter defined), as the same
may be adjusted from time to time pursuant to Section 5.1 hereof. The resale
of
the shares of Common Stock or other securities issuable upon exercise or
exchange of this Warrant is subject to the provisions of this Warrant, the
Agreement and the Registration Rights Agreement (as defined in the Agreement,
“
Registration
Rights Agreement
”).
Section
1.
Definitions
.
“
Closing
Date
”
shall
have the meaning ascribed to such term in the Agreement.
“
Common
Stock Equivalent
”
means
any security or obligation which is by its terms, directly or indirectly,
convertible into or exchangeable or exercisable for shares of Common Stock,
including, without limitation, any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock
Equivalent.
“
Excluded
Transaction
”
shall
mean the issuance of (a) shares of Common Stock or options or warrants to
consultants, employees or proposed employees, officers or directors of the
Company pursuant to the Company’s 2005 Equity Incentive Plan or pursuant to any
stock or
pursuant
to any stock or option plan or agreement duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority
of
the members of a committee of non-employee directors established for such
purpose; provided that the issuance of shares of Common Stock or options or
warrants to consultants other than pursuant to the Company’s 2005 Equity
Incentive Plan shall not be Excluded Transactions under this part (a) to the
extent that the number of shares of Common Stock granted to consultants (or
underlying options and warrants to purchase Common Stock) exceeds, in any
calendar year, two percent (2%) of the number of outstanding shares of Common
Stock, as measured on the last day of the applicable year; provided further,
that Common Stock, options and warrants granted to consultants at a per share
price (or a per share exercise price, in the case of options or warrants) that
equals or exceeds the Exercise Price shall not be considered for purposes of
calculating the two percent (2%) threshold, (b) securities upon the conversion
of Preferred Stock (c) upon the exercise of or conversion of any convertible
securities, options, warrants or rights to issue securities issued and
outstanding on the Closing Date, including securities issuable pursuant to
the
Merger Transaction, provided that such securities have not been amended after
the Closing Date to increase the number of such securities, (d) shares of Common
Stock issued or issuable as a dividend or distribution on Preferred Stock or
pursuant to any event for which adjustment is made pursuant to Section 5.1;
(e)
shares of Common Stock issued by the Company as a penalty pursuant to the
Registration Rights Agreement, (f) warrants to purchase the Company’s securities
to Halpern Capital in connection with the issuance of Preferred Stock, (g)
any
issuance of Warrant Shares, and (h) securities issued pursuant to acquisitions
or strategic transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities.
“
Exercise
Period
”
shall
mean that period beginning on the date of this Warrant and continuing until
the
expiration of the Five-year period thereafter.
“
Exercise
Price
”
as
of
the date hereof shall mean $0.70, subject to adjustment for the events specified
in Section 5.1 below.
“
Investors
”
shall
mean the purchasers of Preferred Stock pursuant to the Agreement, including
the
Investor.
“
Merger
Transaction
”
shall
have the meaning ascribed to such term in the Agreement.
“
Person
”
shall
mean an individual, a corporation, a partnership, a limited liability company,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
“
Preferred
Stock
”
shall
mean the Company’s Series B Convertible Preferred Stock.
“
Principal
Market
”
shall
mean
the
Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange
the New York Stock Exchange, the OTC Bulletin Board,
or
other
exchange or market, whichever is at the time the principal trading exchange
or
market for the Common Stock.
“
SEC
”
shall
mean the United States Securities and Exchange Commission.
“
Trading
Day
”
shall
mean
any day
other than a Saturday or a Sunday on which the Principal Market is open for
trading in equity securities
.
“
Transaction
Warrants
”
shall
mean those warrants (including this Warrant) issued pursuant to the
Agreement.
“
Transaction
Warrant Shares
”
shall
mean those shares of Common Stock underlying the Transaction Warrants.
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if
the
Common Stock is not then listed or quoted on a Trading Market and if prices
for
the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all
other cases, the fair market value of a share of Common Stock as determined
by
an independent appraiser selected in good faith by the Purchasers and reasonably
acceptable to the Company.
“
Warrant
Holder
”
shall
mean the Investor or any permitted assignee or permitted transferee of all
or
any portion of this Warrant.
“
Warrant
Shares
”
shall
mean those shares of Common Stock received upon exercise of this
Warrant.
Section
2.
Exercise
.
(a)
Method
of Exercise
.
This
Warrant may be exercised in whole or in part (but not as to a fractional share
of Common Stock), at any time and from time to time during the Exercise Period,
by the Warrant Holder by (i) surrender of this Warrant, with the form of
exercise attached hereto as Exhibit A completed and duly executed by the Warrant
Holder (the “
Exercise
Notice
”),
to
the Company at the address set forth in Section 12 hereof, accompanied by
payment of the Exercise Price multiplied by the number of shares of Common
Stock
for which this Warrant is being exercised (the “
Aggregate
Exercise Price
”)
or
(ii) telecopying an executed and completed Exercise Notice to the Company and
delivering to the Company within five (5) business days thereafter the original
Exercise Notice, this Warrant and the Aggregate Exercise Price. Each date on
which an Exercise Notice is received by the Company in accordance with clause
(i) and each date on which the Exercise Notice is telecopied to the Company
in
accordance with clause (ii) above shall be deemed an “
Exercise
Date
.”
(b)
Payment
of Aggregate Exercise Price
.
Payment
of the Aggregate Exercise Price may be made:
(i)
by wire transfer of immediately available funds to an account designated by
the
Company. If the amount of the payment received by the Company is less than
the
Aggregate Exercise Price, the Warrant Holder will be notified of the deficiency
and shall make payment in that amount within three (3) Trading Days. In the
event the payment exceeds the Aggregate Exercise Price, the Company will refund
the excess to the Warrant Holder within five (5) Trading Days of receipt; or
(ii)
if
at any
time after one year from the date of issuance of this Warrant there is no
effective Registration Statement registering, or no current prospectus available
for, the resale of the Warrant Shares by the Holder, then this Warrant may
also
be exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A)
= the
VWAP on the Trading Day immediately preceding the date of such
election;
(B)
= the
Exercise Price of this Warrant, as adjusted; and
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(X)
=
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the
number of Warrant Shares issuable upon exercise of this Warrant
in
accordance with the terms of this Warrant by means of a cash exercise
rather than a cashless
exercise.
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(c)
Replacement
Warrant
.
In the
event that the Warrant is not exercised in full, the number of Warrant Shares
shall be reduced by the number of such Warrant Shares for which this Warrant
is
exercised, and the Company, at its expense, shall forthwith issue and deliver
to
or upon the order of the Warrant Holder a new Warrant of like tenor in the
name
of the Warrant Holder, reflecting such adjusted number of Warrant
Shares.
Section
3.
Delivery
of Stock Certificates
.
(a)
Subject
to the terms and conditions of this Warrant, as soon as practicable after the
exercise of this Warrant in full or in part, and in any event within ten (10)
Trading Days thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes) will cause to
be
issued in the name of and delivered to the Warrant Holder, or as the Warrant
Holder may lawfully direct, a certificate or certificates for the number of
validly issued, fully paid and non-assessable Warrant Shares to which the
Warrant Holder shall be entitled on such exercise, together with any other
stock
or other securities or property (including cash, where applicable) to which
the
Warrant Holder is entitled upon such exercise in accordance with the provisions
hereof.
(b)
This
Warrant may not be exercised as to fractional shares of Common Stock. In the
event that the exercise of this Warrant, in full or in part, would result in
the
issuance of any fractional share of Common Stock, then in such event the Warrant
Holder shall receive the number of shares rounded to the nearest whole
share.
Section
4.
Representations,
Warranties and Covenants of the Company
.
(a)
The
Warrant Shares, when issued in accordance with the terms hereof, will be duly
authorized and, when paid for or issued in accordance with the terms hereof,
shall be validly issued, fully paid and non-assessable.
(b)
The
Company shall take all reasonable actions and proceedings as may be required
and
permitted by applicable law, rule and regulation for the legal and valid
issuance of this Warrant and the Warrant Shares to the Warrant
Holder.
(c)
The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant. The Company shall at all times reserve and keep available, solely
for
issuance and delivery as Warrant Shares hereunder, such shares of Common Stock
as shall from time to time be issuable as Warrant Shares.
(d)
From
the
date hereof through the last date on which this Warrant is exercisable, the
Company shall take all reasonable actions to ensure that the Common Stock
remains listed or quoted on the Principal Market.
Section
5.1.
Adjustment
of the Exercise Price
.
The
Exercise Price and, accordingly, the number of Warrant Shares issuable upon
exercise of the Warrant, shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a)
Reclassification,
Consolidation, Merger, Mandatory Share Exchange, Sale or
Transfer
.
(i)
Upon
occurrence of any of the events specified in subsection (a)(ii) below (the
“
Adjustment
Events
”)
while
this Warrant is unexpired and not exercised in full, the Warrant Holder may
in
its sole discretion require the Company, or any successor or purchasing
corporation, as the case may be, without payment of any additional consideration
therefor, to execute and deliver to the Warrant Holder a new Warrant providing
that the Warrant Holder shall have the right to exercise such new Warrant (upon
terms not less favorable to the Warrant Holder than those then applicable to
this Warrant) and to receive upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount
of
shares of stock, other securities, money or property receivable upon such
Adjustment Event by the holder of one share of Common Stock
issuable
upon exercise of this Warrant had this Warrant been exercised immediately prior
to such Adjustment Event. Such new Warrant shall provide for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5.1.
(ii)
The
Adjustment Events shall be (1) any reclassification or change of Common Stock
(other than a change in par value, as a result of a subdivision or combination
of Common Stock or in connection with an Excluded Merger or Sale), (2) any
consolidation, merger or mandatory share exchange of the Company with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change other than a change in par
value or as a result of a subdivision or combination of Common Stock), other
than (each of the following referred to as an “
Excluded
Merger or Sale
”)
a
transaction involving (A) sale of all or substantially all of the assets of
the
Company, (B) any merger, consolidation or similar transaction where the
consideration payable to the shareholders of the Company by the acquiring Person
consists substantially of cash, or where the acquiring Person does not agree
to
assume the obligations of the Company under outstanding warrants (including
this
Warrant). In the event of an Excluded Merger or Sale Transaction, if the
surviving, successor or purchasing Person does not agree to assume the
obligations under this Warrant, then the Company shall
deliver
a
notice to the Warrant Holder at least ten (10) days before the consummation
of
such Excluded Merger or Sale, the Warrant Holder may exercise this Warrant
at
any time before the consummation of such Excluded Merger or Sale (and such
exercise may be made contingent upon the consummation of such Excluded Merger
or
Sale), and any portion of this Warrant that has not been exercised before
consummation of such Excluded Merger or Sale shall terminate and expire, and
shall no longer be outstanding.
(b)
Subdivision
or Combination of Shares
.
The
number and kind of securities purchasable upon the exercise of this Warrant,
and
the Exercise Price, shall be subject to adjustment from time to time upon the
happening of any of the following. In case the Company shall (i) subdivide
its
outstanding shares of Common Stock into a greater number of shares, or (ii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then the number of Warrant Shares purchasable upon exercise
of
this Warrant immediately prior thereto shall be adjusted so that the Warrant
Holder shall be entitled to receive the kind and number of Warrant Shares which
it would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares which are purchasable hereunder, the Warrant Holder shall
thereafter be entitled to purchase the number of Warrant Shares resulting from
such adjustment at an Exercise Price per Warrant Share obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares purchasable pursuant hereto immediately prior to such
adjustment and dividing by the number of Warrant Shares resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(c)
Stock
Dividends
.
If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall pay a dividend or other distribution in shares of Common Stock to all
holders of Common Stock, then the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior thereto shall be adjusted so that
the
Warrant Holder shall be entitled to receive the kind and number of Warrant
Shares which it would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the
kind
and number of Warrant Shares which are purchasable hereunder, the Warrant Holder
shall thereafter be entitled to purchase the number of Warrant Shares resulting
from such adjustment at an Exercise Price per Warrant Share obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by
the number of Warrant Shares purchasable pursuant hereto immediately prior
to
such adjustment and dividing by the number of Warrant Shares resulting from
such
adjustment. An adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. The provisions of this subsection (c) shall not
apply under any of the circumstances for which an adjustment is provided in
subsections (a) or (b).
(d)
Liquidating
Dividends, Etc.
If the
Company, at any time while this Warrant is unexpired and not exercised in full,
makes a distribution of its assets or evidences of indebtedness to the holders
of its Common Stock as a dividend in liquidation or by way of return of capital
or other than as a dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made
in
respect of the sale of
all
or
substantially all of the Company’s assets (other than under the circumstances
provided for in the foregoing subsections (a) through (c)), then the Warrant
Holder shall be entitled to receive upon exercise of this Warrant in addition
to
the Warrant Shares receivable in connection therewith, and without payment
of
any consideration other than the Exercise Price, the kind and amount of such
distribution per share of Common Stock multiplied by the number of Warrant
Shares that, on the record date for such distribution, are issuable upon such
exercise of the Warrant (with no further adjustment being made following any
event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.
Notwithstanding the foregoing, in the event of a proposed dividend in
liquidation or distribution to the shareholders made in respect of the sale
of
all or substantially all of the Company’s assets, the Company shall deliver a
notice to the Warrant Holder at least ten (10) days before the consummation
of
such event, the Warrant Holder may exercise this Warrant at any time before
the
consummation of such event (and such exercise may be made contingent upon the
consummation of such event), and any portion of this Warrant that has not been
exercised before consummation of such event shall terminate and expire, and
shall no longer be outstanding.
(e)
Dilutive
Issuances
.
If the
Company shall at any time or from time to time, after the issuance of this
Warrant but prior to the exercise hereof, issue or sell (such issuance or sale,
a “
New
Issuance
”)
any
shares of Common Stock or Common Stock Equivalents at a price per share of
Common Stock (the “
New
Issue Price
”)
that
is less than the Exercise Price then in effect as of the record date or Issue
Date (as defined below), as the case may be (the “
Relevant
Date
”)
(treating the price per share of Common Stock, in the case of the issuance
of
any Common Stock Equivalent, as equal to (x) the sum of the price for such
Common Stock Equivalent plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such Common Stock Equivalent divided by (y) the number of shares
of
Common Stock initially underlying such Common Stock Equivalent), other than
(i) issuances or sales for which an adjustment is made pursuant to another
subsection of this Section 5 and (ii) issuances in connection with an Excluded
Transaction,
then
,
and in
each such case, (A) the Exercise Price then in effect shall be adjusted by
multiplying
the
Exercise Price in effect on the day immediately prior to the Relevant Date
by a
fraction (I) the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the Relevant Date
plus
the
number of shares of Common Stock which the aggregate consideration received
by
the Company for the total number of such additional shares of Common Stock
so
issued would purchase at the Exercise Price on the Relevant Date (or, in the
case of Common Stock Equivalents, the number of shares of Common Stock which
the
aggregate consideration received by the Company upon the issuance of such Common
Stock Equivalents and receivable by the Company upon the conversion, exchange
or
exercise of such Common Stock Equivalents would purchase at the Exercise Price
on the Relevant Date) and (II) the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on the Relevant Date
plus
the
number of additional shares of Common Stock issued or to be issued (or, in
the
case of Common Stock Equivalents, the maximum number of shares of Common Stock
into which such Common Stock Equivalents initially may convert, exchange or
be
exercised) and (B) the Warrant Share Number shall be increased to equal the
product of (i) the aggregate number of Warrant Shares for which this
Warrant is exercisable immediately prior to the New Issuance multiplied by
(ii) a fraction, the numerator of which shall be the Exercise Price
in
effect
on the day immediately prior to the Relevant Date and the denominator of which
shall be the Exercise Price in effect immediately after such adjustment.
Notwithstanding the foregoing, the Exercise Price shall not be reduced at such
time if the amount of such reduction would be less than $0.01, but any such
amount shall be carried forward, and a reduction will be made with respect
to
such amount at the time of, and together with, any subsequent reduction which,
together with such amount and any other amounts so carried forward, equal $0.01
or more in the aggregate.
Such
adjustment shall be made whenever such shares of Common Stock or Common Stock
Equivalents are issued, and shall become effective retroactively (x) in the
case
of an issuance to the stockholders of the Company, as such, to a date
immediately following the close of business on the record date for the
determination of shareholders entitled to receive such shares of Common Stock
or
Common Stock Equivalents and (y) in all other cases, on the date (the
“
Issue
Date
”)
of
such issuance;
provided
,
however
,
that
the determination as to whether an adjustment is required to be made pursuant
to
this Section 5.1(e) shall be made only upon the issuance of such shares of
Common Stock or Common Stock Equivalents, and not upon the issuance of any
security into which the Common Stock Equivalents convert, exchange or may be
exercised.
Section
5.2
Notice
of Adjustments
.
Whenever the Exercise Price or number of Warrant Shares shall be adjusted
pursuant to Section 5.1 hereof, the Company shall promptly prepare a certificate
signed by its President or Chief Financial Officer setting forth in reasonable
detail the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of
the
basis on which the Company’s Board of Directors made any determination
hereunder), and the Exercise Price and number of Warrant Shares purchasable
at
that Exercise Price after giving effect to such adjustment, and shall promptly
cause copies of such certificate to be sent to the Warrant Holder. In the event
the Company shall, at a time while the Warrant is unexpired and not exercised
in
full, take any action that pursuant to subsections (a) through (c) of Section
5.1 may result in an adjustment of the Exercise Price, the Company shall give
to
the Warrant Holder at its last address known to the Company written notice
of
such action ten (10) days in advance of its effective date in order to afford
to
the Warrant Holder an opportunity to exercise the Warrant prior to such action
becoming effective.
Section
6.
No
Impairment
.
The
Company will not, by amendment of its Amended and Restated Articles of
Incorporation or By-Laws or through any reorganization, transfer of assets,
consolidation, merger, dissolution or issue or sale of securities, avoid or
seek
to avoid the observance or performance of any of the terms of this Warrant,
but
will at all times in good faith assist in the carrying out of all such terms
and
in the taking of all such action as may be necessary or appropriate in order
to
protect the rights of the Warrant Holder against impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par
value of any Warrant Shares above the amount payable therefor on such exercise,
and (b) will take all such action as may be reasonably necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares on the exercise of this Warrant.
Section
7.
Rights
As Stockholder
.
Except
as set forth in Section 5 above, prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a
stockholder
of the Company with respect to the Warrant Shares, including (without
limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of stockholder meetings.
Section
8.
Replacement
of Warrant
.
Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of the Warrant and, in the case of any such loss,
theft or destruction of the Warrant, upon delivery of an indemnity agreement
or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant,
the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
Section
9.
Choice
of Law
.
This
Warrant shall be construed under the laws of the State of
California.
Section
10.
Amendment;
Waiver
.
Any
term
of this Warrant may be amended and the observance of any term of this Warrant
waived (either generally or in a particular instance and either retroactively
or
prospectively), with the written consent of the Company and the holders of
Transaction Warrants representing at least a majority of the aggregate number
of
Transaction Warrant Shares then issuable upon exercise of the Transaction
Warrants (the
“Majority
Warrantholders”
).
Any
amendment or waiver effected in accordance with this section shall be binding
upon all “Holders” of Transaction Warrants and any future Holder of this
Warrant, regardless of whether or not such person consents thereto. Holder
acknowledges and agrees that the Majority Warrantholders may consent to such
waivers and/or amendments to the Transaction Warrants as they may elect, acting
in their sole discretion, and that such waivers and/or amendments may materially
adversely affect the rights of Holder hereunder.
Section
11.
Restricted
Securities
.
(a)
Registration
or Exemption Required
.
This
Warrant has been issued in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, in reliance upon the
provisions of Section 4(2) thereof. This Warrant and the Warrant Shares issuable
upon exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of
the
Securities Act of 1933 and applicable state laws. In connection with any
proposed sale or transfer of this Warrant or Warrant Shares, the Company may
require an opinion of counsel to the Warrant Holder, in form and substance
reasonably satisfactory to the Company, regarding compliance with applicable
federal and state securities laws.
(b)
Legend
.
Any
Warrant Shares or other Company securities issued upon exercise hereof, shall
bear the legends described in Section 4.1(b) of the Agreement.
(c)
Assignment
.
Assuming the conditions of Section 11(a) above regarding registration or
exemption have been satisfied, the Warrant Holder may sell, transfer, assign,
pledge or otherwise dispose of this Warrant (each of the foregoing, a
“
Transfer
”),
in
whole or in part, but only after such transferee agrees to be bound by the
provisions of the Agreement. The Warrant Holder shall deliver a written notice
to Company, substantially in the form of the Assignment attached hereto as
Exhibit B, indicating the person or persons to whom the Warrant shall be
Transferred and the respective number of Warrant Shares issuable to the
transferee
pursuant
to the Transfer. The Company shall effect the Transfer within fifteen (15)
days,
and shall deliver to the Transferee(s) designated by the Warrant Holder a
Warrant or Warrants of like tenor and terms for the appropriate number of
shares. In connection with and as a condition of any such proposed Transfer,
the
Company may request the Warrant Holder to provide an opinion of counsel to
the
Warrant Holder in form and substance reasonably satisfactory to the Company
to
the effect that the proposed Transfer complies with all applicable federal
and
state securities laws.
(d)
Investor’s
Compliance
.
Nothing
in this Section 11 shall affect in any way the
Investor
’s
obligations under any agreement to comply with all applicable securities laws
upon resale of the Common Stock.
Section
12.
Notices
.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery, telegram or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery, (b) one business day after transmission by
facsimile (with accurate confirmation generated by the transmitting facsimile
machine) at the address or number designated below, or (c) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall
be:
If
to the
Company:
NutraCea
1261
Hawks’ Flight Court
El
Dorado
Hills, CA 95762
Telephone:
(916) 933-7000
Facsimile:
(916) 933-7001
Attention:
Chief Executive Officer
with
a
copy (which shall not constitute notice) to:
Weintraub
Genshlea Chediak Law Corporation
400
Capitol Mall, Eleventh Floor
Sacramento,
CA 95814
Telephone:
(916) 558-6000
Facsimile:
(916) 446-1611
Attention:
Chris Chediak, Esq.
if
to the
Investor:
To
the
address and facsimile number provided in the Agreement.
Either
party hereto may from time to time change its address or facsimile number for
notices under this Section 12 by giving at least ten (10) days prior
written notice of such changed address or facsimile number to the other party
hereto.
Section
13.
Miscellaneous
.
The
headings in this Warrant are for purposes of reference only, and shall not
limit
or otherwise affect any of the terms hereof. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability
of
any other provision.
[Remainder
of page intentionally left blank]
IN
WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
NUTRACEA
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By:
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Name: Bradley
Edson
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Title: President
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Acknowledged
and Accepted by
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INVESTOR
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By:
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Name:
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Title:
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EXHIBIT
A TO THE WARRANT
EXERCISE
FORM
NUTRACEA
The
undersigned hereby irrevocably exercises the right to purchase
__________________ shares of Common Stock of NutraCea, evidenced by the attached
Warrant, and tenders herewith payment of the Aggregate Exercise Price with
respect to such shares in full, in the amount of $________, in cash, by
certified or official bank check or by wire transfer for the account of the
Company.
The
undersigned requests that stock certificates for such Warrant Shares be issued,
and a Warrant representing any unexercised portion hereof be issued, pursuant
to
this Warrant, in the name of the registered Warrant Holder and delivered to
the
undersigned at the address set forth below. In addition, the undersigned
represents that as of the date hereof, the undersigned is in compliance with
Section 3.2(c) of the Agreement (as defined in the Warrant).
Dated:
__________, 200_
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Signature
of Registered Holder
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Name
of Registered Holder (Print)
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Address:
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EXHIBIT
B TO THE WARRANT
ASSIGNMENT
(To
be
executed by the registered Warrant Holder desiring to transfer the
Warrant)
FOR
VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby
sells, assigns and transfers unto the persons below named the right to purchase
______________ shares of Common Stock of NutraCea evidenced by the attached
Warrant and does hereby irrevocably constitute and appoint the Secretary of
the
Company as attorney to transfer the said Warrant on the books of the Company,
with full power of substitution in the premises.
Dated:
________________, 200_
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Signature
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Fill
in for new Registration of Warrant:
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Name
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Address
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Please
print name and address of assignee
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(including
zip code number)
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Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”)
is
dated as of September 28, 2005, by and among NutraCea, a California corporation
(the “
Company
”),
and
the purchasers identified on the signature pages hereto (each, including its
successors and assigns, a “
Purchaser
”
and
collectively the “
Purchasers
”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant
to
Section 4(2) of the Securities Act of 1933, as amended (the “
Securities
Act
”)
and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agrees as
follows:
ARTICLE
I
DEFINITIONS
1.1
Definitions
.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Certificate of Determination (as defined herein), and (b) the following
terms have the meanings indicated in this Section 1.1:
“
Action
”
shall
have the meaning ascribed to such term in Section 3.1(l).
“
Actual
Minimum
”
means,
as of any date, the maximum aggregate number of shares of Common Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and shares of Preferred Stock, ignoring any conversion
or exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the fourth anniversary
of
the date of determination and all dividends are paid in shares of Common Stock
until such fourth anniversary.
“
Affiliate
”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities Act. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
“
Certificate
of Determination
”
means
the Certificate of Determination to be filed prior to the Closing by the Company
with the Secretary of State of California, in the form of
Exhibit
A
attached
hereto.
“
Closing
”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“
Closing
Date
”
means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the common stock of the Company, par value $.001 per share, and any securities
into which such common stock shall hereinafter have been reclassified
into.
“
Company
Counsel
”
means
Weintraub Genshlea Chediak Law Corporation.
“
Conversion
Price
”
shall
have the meaning ascribed to such term in the Certificate of
Determination.
“
Contingent
Obligation
”
means,
as applied to any Person, any direct or indirect liability of that Person with
respect to any Indebtedness, lease, dividend, guaranty, letter of credit or
other obligation, contractual or otherwise (the “
primary
obligation
”)
of
another Person other than an Affiliate of such Person (the “
primary
obligor
”),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire
such
primary obligations or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge
of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition
of
the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation,
or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss or failure or inability to perform in respect thereof.
The amount of any Contingent Obligation shall be deemed to be an amount equal
to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.
“
Disclosure
Schedules
”
shall
have the meaning ascribed to such term in Section 3.1 hereof.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
GAAP
”
shall
have the meaning ascribed to such term in Section 3.1(i).
“
Indebtedness
”
means,
as to any Person, (a) all obligations of such Person for borrowed money
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers’ acceptances, whether or
not matured), (b) all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of business
(provided that to the extent that such accounts payable and liabilities are
overdue, the interest and penalties incurred as a result of such overdue amounts
shall be considered Indebtedness), (c) all interest rate and currency swaps,
caps, collars and similar agreements or hedging devices under which payments
are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale
of
such property), (e) all obligations of such Person under leases which have
been
or should be, in accordance with GAAP, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (e)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of
that
Person, and (g) any Contingent Obligation of such Person.
“
Liens
”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“
Material
Adverse Effect
”
means
any of (i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of
operations, assets, business, or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document. Changes in the market price of
the
common stock of the Company or The RiceX Company shall not, in and of itself,
constitute a Material Adverse Effect.
“
Material
Permits
”
shall
have the meaning ascribed to such term in Section 3.1(o).
“
Merger
Transaction
”
means
the proposed business combination of the Company and The RiceX Company, as
described in the Company’s definitive proxy statement filed with the
SEC.
“
Person
”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“
Preferred
Stock
”
means
the up to 25,000 shares of the Company’s Series B Convertible Preferred Stock
issued hereunder having the rights, preferences and privileges set forth in
the
Certificate of Determination.
“
Proceeding
”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened in writing.
“
Registration
Rights Agreement
”
means
the Registration Rights Agreement, dated the date hereof, among the Company
and
the Purchasers, in the form of
Exhibit
B
attached
hereto.
“
Registration
Statement
”
means
a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale of the Underlying Shares by each
Purchaser as provided for in the Registration Rights Agreement.
“
Required
Approvals
”
shall
have the meaning ascribed to such term in Section 3.1(e).
“
Rule
144
”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“
SEC
Reports
”
shall
have the meaning ascribed to such term in Section 3.1(i).
“
Secured
Debt
”
shall
have the meaning ascribed to such term in Section 4.9.
“
Securities
”
means
the Preferred Stock, the Warrants and the Underlying Shares.
“
Securities
Act
”
means
the Securities Act of 1933, as amended.
“
Stated
Value
”
means
$1,000 per share of Preferred Stock.
“
Subscription
Amount
”
shall
mean, as to each Purchaser, the amount to be paid for the Preferred Stock
purchased hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading “Subscription Amount”, in United
States Dollars and in immediately available funds.
“
Subsidiary
”
means
any subsidiary of the Company as set forth on
Schedule
3.1(a)
.
“
Trading
Day
”
means
a
day on which the Common Stock is traded on a Trading Market.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Over-The-Counter Bulletin Board, the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange
or the Nasdaq National Market.
“
Transaction
Documents
”
means
this Agreement, the Certificate of Determination, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.
“
Underlying
Shares
”
means
the shares of Common Stock issuable upon conversion of the Preferred Stock,
upon
exercise of the Warrants and issued and issuable in lieu of the cash payment
of
dividends on the Preferred Stock.
“
Warrants
”
means
collectively the Common Stock purchase warrants, in the form of
Exhibit C
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to five years.
“
Warrant
Shares
”
means
the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE
II
PURCHASE
AND SALE
2.1
Closing
.
On the
Closing Date, upon the terms and subject to the conditions set forth herein,
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and each Purchaser agrees to purchase in
the
aggregate, severally and not jointly, up to $25,000,000 of shares of Preferred
Stock with an aggregated Stated Value equal to such Purchaser’s Subscription
Amount and Warrants as determined pursuant to Section 2.2(a)(viii). The
aggregate number of shares of Preferred Stock sold hereunder shall be up to
25,000.
Each
Purchaser shall deliver to the Company via wire transfer or a certified check
immediately available funds equal to their Subscription Amount and the Company
shall deliver to each Purchaser their respective shares of Preferred Stock
and
Warrants as determined pursuant to Section 2.2(a) and the other items set forth
in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions
set
forth in Section 2.2, the Closing shall occur at the offices of Company Counsel,
or such other location as the parties shall mutually agree.
|
a)
|
On
the Closing Date, the Company shall deliver or cause to be delivered
to
each Purchaser the following:
|
|
(i)
|
a
certificate evidencing a number of shares of Preferred Stock equal
to such
Purchaser’s Subscription Amount divided by the Stated Value, registered in
the name of such Purchaser;
|
|
(ii)
|
the
Registration Rights Agreement duly executed by the Company;
|
|
(iii)
|
a
legal opinion of Company Counsel, in the form of
Exhibit
D
attached hereto;
|
|
(vi)
|
a
certificate evidencing the incorporation and good standing of the
Company
and each Subsidiary in such entity’s state or other jurisdiction of
incorporation or organization issued by the Secretary of State (or
other
applicable authority) of such state or jurisdiction of incorporation
or
organization as of a date within ten (10) days of the Closing Date;
|
|
(vii)
|
a
secretary’s certificate, dated as of the Closing Date, certifying as to
(A) the Resolutions, (B) the Articles of the Corporation, certified
as of
a date within ten (10) days of the Closing Date, and (C) the Bylaws,
each
as in effect as of the Closing Date, (D) the organizational documents
of
each subsidiary, certified as of a date within ten (10) days of the
Closing Date by the applicable governmental authority of the applicable
jurisdiction, and (E) the by laws, limited partnership agreement
or
limited liability company agreement of each Subsidiary, as the case
may
be; such Purchaser such other documents relating to the transactions
contemplated by this Agreement as such Purchaser or its counsel may
reasonably request; and
|
|
(viii)
|
a
Warrant registered in the name of such Purchaser to purchase up to
a
number of shares of Common Stock equal to 50% of such Purchaser’s
Subscription Amount divided by $0.50, with a per share exercise price
equal to $0.70
,
subject to adjustment therein.
|
|
(ix)
|
such
other documents relating to the transactions contemplated by this
Agreement as such Purchaser or its counsel may reasonably
request.
|
|
b)
|
On
or prior to the Closing Date, each Purchaser shall deliver or cause
to be
delivered to the Company (or Company Counsel acting on behalf of
the
Company) the following:
|
|
(i)
|
such
Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company;
and
|
|
(ii)
|
the
Registration Rights Agreement duly executed by such
Purchaser.
|
|
a)
|
The
obligations of the Company hereunder in connection with the Closing
are
subject to the following conditions being
met:
|
|
(i)
|
the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Purchasers contained
herein;
|
|
(ii)
|
the
aggregate value of Preferred Shares to be sold hereunder shall be
no less
than $6,000,000;
|
|
(iii)
|
the
Purchasers shall have performed in all material respects with all
obligations, covenants and agreements of the Purchasers required
to be
performed by them at or prior to the Closing Date;
and
|
|
(iv)
|
the
delivery by the Purchasers of the items set forth in Section 2.2(b)
of
this Agreement.
|
|
b)
|
The
respective obligations of the Purchasers hereunder in connection
with the
Closing are subject to the following conditions being
met:
|
|
(i)
|
the
accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained
herein;
|
|
(ii)
|
the
Company shall have performed in all material respects with all
obligations, covenants and agreements of the Company required to
be
performed by it at or prior to the Closing Date;
|
|
(iii)
|
the
delivery by the Company of the items set forth in Section 2.2(a)
of this
Agreement;
|
|
(iv)
|
the
shareholders of the Company and the stockholders of The RiceX Company
shall have approved the Merger Transaction and the Merger Transaction
shall have been simultaneously
consummated;
|
|
(v)
|
from
the date hereof to the Closing Date, trading in the Common Stock
shall not
have been suspended by the Commission or the Trading Market (except
for
any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing);
and
|
|
(vi)
|
the
aggregate value of Preferred Shares to be sold hereunder shall be
no less
than $6,000,000.
|
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1
Representations
and Warranties of the Company
.
Except
as set forth in the disclosure schedules separately delivered to the Purchasers
concurrently herewith (the “
Disclosure
Schedules
”),
the
Company hereby makes the representations and warranties set forth below to
each
Purchaser.
(a)
Subsidiaries
.
All of
the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a)
.
Except
as set forth on
Schedule
3.1(a)
,
the
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the issued
and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b)
Organization
and Qualification
.
Each of
the Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and
to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in a Material Adverse Effect, and
no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(c)
Authorization;
Enforcement
.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been
(or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company 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.
(d)
No
Conflicts
.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
thereby do not and will not: (i) conflict with or violate any provision of
the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any material Lien
upon
any of the properties or assets of
the
Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding
to
which the Company or any Subsidiary is a party or by which any property or
asset
of the Company or any Subsidiary is bound or affected, or (iii) subject to
the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any
property or asset of the Company or a Subsidiary is bound or affected; except
in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals
.
The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii) filing
required by the Exchange Act, (iii) the filing with the Commission of the
Registration Statement, (iv) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Preferred Stock and Warrants
and
the listing of the Underlying Shares for trading thereon in the time and manner
required thereby, (v) the filing of Form D with the Commission and such filings
as are required to be made under applicable state securities laws and (vi)
the
approvals set forth on
Schedule
3.1(e)
(collectively, the “
Required
Approvals
”).
(f)
Issuance
of the Securities
.
The
Securities are duly authorized and, when issued and paid for in accordance
with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens imposed by the Company
other
than restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of
the
Underlying Shares at least equal to the Actual Minimum on the date hereof.
The
Company has not, and to the knowledge of the Company, no Affiliate of the
Company has sold, offered for sale or solicited offers to buy or otherwise
negotiated in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers, or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market.
(g)
Capitalization
.
The
capitalization of the Company is as described in the SEC Reports and the
company’s definitive proxy statement filed with the SEC on August 30, 2005
(“
Proxy
Statement
”).
Except as specified in the SEC Reports and the Proxy
Statement,
no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents which shall not have been waived
prior
to Closing. Except as disclosed in the Company’s reports filed with the
Commission, issued pursuant to the Company’s stock incentive plan or as a result
of the purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound
to
issue additional shares of Common Stock, or securities or rights convertible
or
exchangeable into shares of Common Stock. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities, except as set forth on
Schedule
3.1(g)
.
No
further approval or authorization of any stockholder, the Board of Directors
of
the Company or others is required for the issuance and sale of the shares of
Preferred Stock.
(h)
Indebtedness
.
Except
as set forth in the SEC Reports or on
Schedule
3.1(h)
,
the
Company has not incurred or guaranteed, suffered to exist or is otherwise liable
for any Indebtedness.
(i)
SEC
Reports; Financial Statements
.
The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the twelve months preceding the date hereof (or such shorter period as
the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“
SEC
Reports
”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As
of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
(“
GAAP
”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and
fairly
present in all material respects the financial position of the Company and
its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case
of
unaudited statements, to normal, immaterial, year-end audit adjustments.
(j)
No
Undisclosed Events, Liabilities or Developments
.
Except
for the issuance of the Preferred Shares and Underlying Shares contemplated
by
this Agreement or as set forth on
Schedule
3(j)
,
no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made that
has not been publicly disclosed one (1) Trading Day prior to the date that
this
representation is made.
(k)
Material
Changes
.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been no event, occurrence or development that has had or that could reasonably
be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared
or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock and (v) the Company has not issued any equity securities
to
any officer, director or Affiliate, except pursuant to existing Company stock
option plan or restricted stock plan or as otherwise described on
Schedule
3(k)
.
The
Company does not have pending before the Commission any request for confidential
treatment of information.
(l)
Litigation
.
Except
as set forth in SEC Reports, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened in writing against or affecting the Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “
Action
”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could, if there
were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor, to the Company’s
knowledge, any director or officer thereof (in his or her capacity as such),
is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending, any investigation by the Commission involving the Company or
any
current or former director or officer of the Company (in his or her capacity
as
such). The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(m)
Labor
Relations
.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relationships with their employees
are
good. No executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company or any of its Subsidiaries to any liability with respect
to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating
to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(n)
Compliance
.
Except
as set forth in the SEC Reports, neither the Company nor any Subsidiary (i)
is
in default under or in violation of (and no event has occurred that has not
been
waived that, with notice or lapse of time or both, would result in a default
by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any material indenture, loan or credit agreement or any other
material agreement or instrument to which it is a party or by which it or any
of
its material properties is bound (whether or not such default or violation
has
been waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws applicable to its business and all
such laws that affect the environment, except in each case as could not have
a
Material Adverse Effect.
(o)
Regulatory
Permits
.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
SEC Reports, except where the failure to possess such permits could not have
or
reasonably be expected to result in a Material Adverse Effect (“
Material
Permits
”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(p)
Title
to Assets
.
Except
as set forth on
Schedule
3.1(p)
,
the
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property owned
by
them that is material to the
business
of the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and
do
not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by
the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in
compliance.
(q)
Intellectual
Property Rights
.
Other
than as set forth in the SEC Reports, the Company and the Subsidiaries have,
or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventory, copyrights,
licenses and other similar intellectual property rights that are necessary
for
use in connection with their respective businesses and which the failure to
so
have could have a Material Adverse Effect (collectively, the “
Intellectual
Property Rights
”).
Except as set forth in the SEC Reports, neither the Company nor any Subsidiary
has received a written notice that the Intellectual Property Rights used by
the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports, to the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
material infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
(r)
Insurance
.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged. To the best of Company’s knowledge, such insurance contracts and
policies are accurate and complete. Neither the Company nor any Subsidiary
has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(s)
Transactions
With Affiliates and Employees
.
Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company and restricted stock agreements under any restricted
stock plan of the Company.
(t)
Sarbanes-Oxley;
Internal Accounting Controls
.
Except
as set forth in the SEC Reports, the Company is in material compliance with
all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as
of
the Closing Date.
The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient in the judgment of the Company’s management to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with
the existing assets at reasonable intervals and appropriate action is taken
with
respect to any differences.
(u)
Certain
Fees
.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement, except as set forth on
Schedule
3.1(s)
.
The
Purchasers shall have no personal obligation with respect to any fees or with
respect to any claims (other than such fees or commissions owed by a Purchaser
pursuant to agreements entered into by such Purchaser, which fees or commissions
shall be the sole responsibility of such Purchaser) made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due
in
connection with the transactions contemplated by this Agreement due to an
arrangement or agreement made by the Company.
(v)
Private
Placement
.
Assuming the accuracy of the Purchasers representations and warranties set
forth
in Section 3.2, no registration under the Securities Act is required for the
offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does
not
contravene the rules and regulations of the Trading Market.
(w)
Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the shares of Preferred Stock, will not be or be an Affiliate of,
an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.
(x)
Listing
and Maintenance Requirements
.
The
Company’s Common Stock is registered pursuant to Section 15(d) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The Company
has
not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been
listed
or
quoted to the effect that the Company is not in compliance with the listing
or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be,
in
compliance with all such listing and maintenance requirements.
(y)
Application
of Takeover Protections
.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company's Articles of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation
the
Company's issuance of the Securities and the Purchasers’ ownership of the
Securities.
(z)
Disclosure
.
The
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Purchasers or their agents or counsel with any information
that the Company believes constitutes material, nonpublic information except
insofar as the existence and terms of the proposed transactions hereunder may
constitute such information. The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All written materials provided to
the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished by
or on
behalf of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and warranties
and do not contain any untrue statement of a material fact or omit to state
any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2
hereof.
(aa)
Tax
Status
.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon,
and the Company has no knowledge of a tax deficiency which has been asserted
or
threatened in writing against the Company or any Subsidiary.
(bb)
Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or
to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made
by
any person acting on
its
behalf of which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended
(cc)
No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect to
any
fees owed to its accountants and lawyers.
(dd)
Acknowledgment
Regarding Purchasers’ Purchase of Securities
.
The
Company acknowledges and agrees that each of the Purchasers is acting solely
in
the capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary
of
the Company (or in any similar capacity) with respect to this Agreement and
the
transactions contemplated hereby and any advice given by any Purchaser or any
of
their respective representatives or agents in connection with this Agreement
and
the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
3.2
Representations
and Warranties of the Purchasers
.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a)
Organization;
Authority
.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with full right,
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations thereunder. The execution, delivery and performance by
such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(b)
Purchaser
Representation
.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of such Securities and
has
no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws). Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not have any agreement
or
understanding, directly or indirectly, with any Person to distribute any of
the
Securities.
(c)
Purchaser
Status
.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises any Warrants, it will be either:
(i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d)
Experience
of Such Purchaser
.
Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters
so as
to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(e)
General
Solicitation
.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in
any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(f)
Short
Sales
.
Each
Purchaser represents that from January 1, 2005 through 9:00 a.m. ET on the
Trading Day immediately following the date of execution of this Agreement,
neither it nor any Person over which the Purchaser has direct control, have
made
any purchases or sales of, or granted any option for the purchase of or entered
into any hedging or similar transaction with the same economic effect as a
net
short sale, of the Common Stock.
The
Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
|
4.1
|
Transfer
Restrictions
.
|
(a)
The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected
by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have
the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b)
The
Purchasers agree to the imprinting, so long as is required by this Section,
of a
legend on any of the Securities in the following form:
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
OR CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.
(c)
Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) following a sale or transfer
of
such Underlying Shares pursuant to, and in compliance with, an effective
registration statement, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144 (assuming the transferor is not an Affiliate of the
Company), or (iii) if such Underlying Shares are eligible for sale under Rule
144(k). If all or any shares of Preferred Stock or any portion of a Warrant
is
converted or exercised (as applicable) into the Underlying Shares and such
Underlying Shares may be sold under Rule 144(k), then such Underlying Shares
shall be issued free of all legends. The Company agrees that at such time as
such legend is no longer required under this Section 4.1(c), it will, no later
than five Trading Days following the receipt by the Company of, or the receipt
by the Company of notice that the Transfer Agent has received, a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend,
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all such restrictive and other legends. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.
4.2
Acknowledgment
of Dilution
.
The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation its
obligation to issue the Underlying Shares pursuant to the Transaction Documents,
are unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3
Furnishing
of Information
.
For a
period ending upon the earlier to occur of (i) the date in which no Purchaser
owns the Securities and (ii) two (2) years following the Closing Date, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the
Company after the date hereof pursuant to the Exchange Act. The Company further
covenants that it will take such further action as any holder of Securities
may
reasonably request, all to the extent required from time to time to enable
such
Person to sell such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.
4.4
Integration
.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market.
4.5
Conversion
and Exercise Procedures
.
The
form of Notice of Exercise included in the Warrants and the Notice of Conversion
included in the Certificate of Determination set forth the totality of the
procedures required of the Purchasers in order to exercise the Warrants or
convert the Preferred Stock. No additional legal opinion or other information
or
instructions shall be required of the Purchasers to convert their Preferred
Stock or exercise their Warrants. The Company shall honor exercises of the
Warrants and conversions of the Preferred Stock and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth
in
the Transaction Documents.
4.6
Securities
Laws Disclosure
;
Publicity
.
The
Company shall, by 9:00 a.m. Eastern time on the fourth Trading Day following
the
date hereof, file a Current Report on Form 8-K, reasonably acceptable to counsel
to the Purchasers disclosing the material terms of the transactions contemplated
hereby, and shall attach this Agreement, the Registration Rights Agreement
and
the Certificate of Determination thereto. The Company shall not publicly
disclose the name of any Purchaser other than the Placement Agent, if
applicable, when issuing any press releases, without the prior written consent
of such Purchaser, except to the extent such disclosure is required by law
or
Trading Market regulations. If the Company fails to file the Form 8-K as
required in this Section, in addition to any other remedy provided herein or
in
the Transaction Documents, a Purchaser shall have the right to make, public
disclosure in the form
of
a
press release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, its Subsidiaries, or
any
of its or their respective officers, directors, employees or agents, provided
that such Purchaser gives the Company at least two (2) Business Days’ notice of
its intention to make such public disclosure and provides such intended
disclosure to the Company. No Purchaser shall have any liability to the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees, shareholders or agents for any such disclosure so long as the
nonpublic information disclosed by such Purchaser is accurate and not
misleading.
4.7
Form
D; Blue Sky Filings
.
The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof to each Purchaser
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary in
order
to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing and issuance to the Purchasers on the Delivery Date
pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of any such action
to
counsel for AG on or prior to the Closing Dates. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the Closing Dates.
4.8
Non-Public
Information
.
The
Company covenants and agrees that it and its employees, officers and directors
will not, and it will not authorize any other Person acting on its behalf to
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
4.9
Use
of
Proceeds
.
Except
for payment of (i) principal and accrued but unpaid interest with respect to
the
Company’s December 22, 2004 secured debt financing (the “
Secured
Debt
”),
(ii)
attorney’s fees and (iii) fees incurred in connection with the Merger
Transaction and the transactions contemplated by this Agreement, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes.
4.10
Indemnification
of Purchasers
.
Subject
to the provisions of this Section 4.10, the Company will indemnify and hold
the
Purchasers and their directors, officers, shareholders, partners, employees
and
agents (each, a “
Purchaser
Party
”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result
of
or relating to any material breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents. If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of
its
own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and
participate
in the defense thereof, but the fees and expenses of such counsel shall be
at
the expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense
and
to employ counsel or (iii) the named parties to any such Proceeding (including
any impleaded parties) include both such Purchaser Party and the Company, and
such Purchaser Party shall reasonably believe that a material conflict of
interest is likely to exist if the same counsel were to represent such Purchaser
Party and the Company (in which case, if such Purchaser Party notifies the
Company in writing that it elects to employ separate counsel at the expense
of
the Company, the reasonable fees and expenses of one separate counsel shall
be
at the expense of the Company). The Company shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. The Company will not be liable
to
any Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is primarily attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by the Purchasers in this Agreement or in the other Transaction
Documents. The Company shall not, without the prior written consent of the
Purchaser Party (which consent shall not be unreasonably withheld or delayed),
effect any settlement of any pending proceeding in respect of which any
Purchaser Party is a party, unless such settlement includes an unconditional
release of such Purchaser Party from all liability on claims that are the
subject matter of such proceeding.
4.11
Reservation
and Listing of Securities
.
(a)
The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction Documents.
(b)
The
Company shall, if applicable: (i) in the time and manner required by the Trading
Market, prepare and file with such Trading Market an additional shares listing
application (if required by such Trading Market) covering a number of shares
of
Common Stock at least equal to the Actual Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of Common Stock
to be approved for listing on the Trading Market as soon as possible thereafter,
and (iii) maintain the listing of such Common Stock on any date at least equal
to the Actual Minimum on such date on such Trading Market or another Trading
Market.
4.12
Equal
Treatment of Purchasers
.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. For clarification purposes, this provision constitutes
a
separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended to treat for the Company the
Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or
voting of Securities or otherwise.
4.13
Limitation
on Additional Indebtedness
.
As long
as at least 5,000 shares of Preferred Stock remain outstanding, without the
prior written consent of the holders of a majority of the shares of Preferred
Stock then outstanding, the Company shall not, and shall not permit any of
its
Subsidiaries to, directly or indirectly, incur, assume or suffer to exist
(including through acquisitions) any new Indebtedness other than Indebtedness
(i) up to an aggregate of $1,000,000 in addition to all Indebtedness pursuant
to
(ii), (iii) and (iv) below, (ii) that is secured solely by the accounts
receivable of the Corporation and that does not exceed the aggregate amount
of
all outstanding accounts receivable of the Corporation, (iii) incurred to
finance or refinance the construction or improvement of existing or new
manufacturing and production plant, facilities or equipment for the
Corporation’s products provided that such Indebtedness is secured solely by the
property and assets so financed, constructed or improved, (iv) incurred as
a
result of Persons exercising dissenters’ rights in the Merger Transaction and
(v) in connection with the renewal, extension, or replacement (on substantially
similar terms) of any Indebtedness outstanding as of the Closing
Date.
4.14
Release
of Secured Debt
.
The
Company shall cause the security interests securing the Secured Debt to be
released within three (3) days after the Closing Date.
4.15
Most
Favored Nations
.
From
the date hereof until the first anniversary of the Closing Date, the Company
shall not offer to enter into or enter into any contract, agreement or
understanding for a equity or convertible debt financing of any type (including,
but not limited to, common stock issuances, preferred stock issuances,
convertible debt offerings, rights offerings or debt financing with warrant
coverage), or consummate any transaction contemplated by any such contract,
agreement or understanding with any Person that contains terms and provisions
(including fees, dividend or interest provisions or rates, ranking, redemption,
conversion price, warrant coverage, expense reimbursement or otherwise) that
are
more favorable individually or in the aggregate than the terms and provisions
contained in this Agreement or any of the other Transaction Documents, without
first entering into amendments to the Transaction Documents with the Purchasers
to provide for the same more favorable terms and provisions.
4.16
Repurchase
of Securities
.
In
the event that any Purchaser shall deliver written notice to the Company of
its
election to seek redemption pursuant to this Section 4.16 at any time, the
Company agrees that it will, within 20 days of receipt of such written notice,
repurchase all the securities of the Company then held by such Purchaser for
an
aggregate repurchase price of $1.00 in cash.
ARTICLE
V
MISCELLANEOUS
5.1
Termination
.
This
Agreement may be terminated by any Purchaser prior to the Closing, by written
notice to the other parties, if (a) the Closing has not been consummated on
or
before October 15, 2005 or (b) at the election of any Purchaser, with respect
to
such Purchaser, if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the Company contained in this
Agreement, which breach has not been cured within ten (10) business days notice
to the Company of such breach; provided that no such termination will affect
the
right of any party to sue for any breach by the other party (or
parties).
5.2
Fees
and Expenses
.
At the
Closing, the Company has agreed to reimburse Angelo Gordon (“
AG
”)
the
non-accountable sum of $25,000, for its actual, reasonable, out-of-pocket legal
fees and expenses. Accordingly, in lieu of the foregoing payments, the aggregate
amount that AG is to pay for the Securities at the Closing shall be reduced
by
$25,000 in lieu thereof. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with
the
issuance of any Securities other than income taxes of the Purchasers that may
be
incurred in connection with the transactions contemplated hereby.
5.3
Entire
Agreement
.
The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
5.4
Notices
.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, (d) upon actual receipt by the party to whom such
notice is required to be given or (e) four (4) days after being placed in the
mail, if mailed. The address for such notices and communications shall be as
set
forth on the signature pages attached hereto.
5.5
Amendments;
Waivers
.
No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed by the Company and the Purchasers holding
a majority of the shares of Preferred Stock issued hereby. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such
right.
5.6
Construction
.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
5.7
Successors
and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser; provided, however, that the Company may assign its
rights and delegate its duties hereunder to any surviving, acquiring or
successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition
of
all or substantially all of the Company’s assets to another corporation, or
other similar transaction, without the prior written consent of the Purchasers,
after notice duly given by the Company to the Purchasers. Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom
such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Purchasers”.
5.8
No
Third-Party Beneficiaries
.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set
forth
in Section 4.9.
5.9
Governing
Law
.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect
to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions
of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.10
Survival
.
The
representations, warranties, covenants and other agreements contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities; provided that the survival period for the representations and
warranties shall be eighteen (18) months following the Closing
Date.
5.11
Execution
.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
5.12
Severability
.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that is
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13
Replacement
of Securities
.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement
Securities.
5.14
Remedies
.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be
adequate.
5.15
Independent
Nature of Purchasers’ Obligations and Rights
.
The
obligations of each Purchaser under any Transaction Document are several and
not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its
own
separate legal counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same
terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
NUTRACEA
|
|
Address
for Notice:
|
|
|
|
|
By:
|
|
|
1261
Hawks’ Flight Court
|
|
Name:
Bradley Edson
|
|
El
Dorado Hills, CA 95762
|
|
Title:
President
|
|
Facsimile:
|
(916)
933-7001
|
|
|
|
Attention:
|
Chief
Executive Officer
|
With
a
copy to (which shall not constitute notice):
Weintraub
Genshlea Chediak law corporation
400
Capitol Mall
Sacramento,
CA 95814
Facsimile:
(916) 446-1611
Attn.:
Christopher Chediak, Esq.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASERS FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO NUTRACEA SECURITIES PURCHASE AGREEMENT]
[ENTITY
INVESTOR]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Investing Entity: __________________________
Signature
of Authorized Signatory of Investing Entity
:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
Email
Address of Authorized Signatory:________________________________
Tax
ID
number of Investing Entity:__________________________________
Physical
Address for Notice of Investing Entity:
Facsimile
Address for Notice of Investing Entity: _________________________
Address
for Delivery of Securities for Investing Entity (if not same as
above):
Subscription
Amount:
Shares
of
Preferred Stock:
[SIGNATURE
PAGES CONTINUE]
[PURCHASER
SIGNATURE PAGES TO NUTRACEA SECURITIES PURCHASE AGREEMENT]
[INDIVIDUAL
INVESTOR]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name
of
Investing Individual: __________________________
Signature
of Investing Individual
:
__________________________
Email
Address of Investing Individual:________________________________
Tax
ID
number of Investing Individual:__________________________________
Physical
Address for Notice to Investing Individual:
Facsimile
Address for Notice to Investing Individual:
_________________________
Address
for Delivery of Securities for Investing Individual (if not same as
above):
Subscription
Amount:
Shares
of
Preferred Stock:
Warrant
Shares:
[SIGNATURE
PAGES CONTINUE]
29
Exhibit
10.2
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this “
Agreement
”)
is
made and entered into as of October 3, 2005, among NutraCea, a California
corporation (the “
Company
”),
and
the purchasers signatory hereto (each such purchaser is a “
Purchaser
”
and
all
such purchasers are, collectively, the “
Purchasers
”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the
date hereof among the Company and the Purchasers (the “
Purchase
Agreement
”).
The
Company and the Purchasers hereby agree as follows:
Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.
As used
in this Agreement, the following terms shall have the following
meanings:
“
Advice
”
shall
have the meaning set forth in Section 7(c).
“
Effectiveness
Date
”
means,
with respect to the initial Registration Statement required to be filed
hereunder, the date which is the 135
th
calendar
day following the Closing Date and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 135th calendar
day following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required hereunder;
provided
,
however
,
in the
event the Company is notified by the Commission that one of the above
Registration Statements will not be reviewed or is no longer subject to further
review and comments, the Effectiveness Date as to such Registration Statement
shall be the fifth Trading Day following the date on which the Company is so
notified if such date precedes the dates required above.
“
Effectiveness
Period
”
shall
have the meaning set forth in Section 2(a).
“
Event
”
shall
have the meaning set forth in Section 2(b).
“
Event
Date
”
shall
have the meaning set forth in Section 2(b).
“
Filing
Date
”
means,
with respect to the initial Registration Statement required hereunder, the
45
th
calendar
day following the Closing Date, and, with respect to any additional Registration
Statements which may be required pursuant to Section 3(c), the 30
th
day
following the date on which the Company first knows, or reasonably should have
known that such additional Registration Statement is required
hereunder.
“
Holder
”
or
“
Holders
”
means
the holder or holders, as the case may be, from time to time of Registrable
Securities.
“
Indemnified
Party
”
shall
have the meaning set forth in Section 6(c) hereof.
“
Indemnifying
Party
”
shall
have the meaning set forth in Section 6(c) hereof.
“
Legal
Counsel
”
shall
have the meaning set forth in Section 4.
“
Losses
”
shall
have the meaning set forth in Section 6(a).
“
Proceeding
”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened in writing.
“
Prospectus
”
means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“
Registrable
Securities
”
means,
as of the date in question, (i) all of the shares of Common Stock issuable
upon
conversion in full of the shares of Preferred Stock, (ii) all Warrant Shares
and
(iii) any securities issued or issuable upon any stock split, dividend or other
distribution recapitalization or similar event with respect to the foregoing.
The foregoing Company securities, or any of them, shall cease to be Registrable
Securities upon the earlier to occur of (i) the date on which such securities
have been effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement, (ii) the date on which such
securities have been sold pursuant to Rule 144, or (iii) the date on which
such
securities (together with all other such securities held by the Investor) may
be
sold or transferred by a Person who is not an Affiliate of the Company pursuant
to Rule 144(k) under the Securities Act (or any other similar provision then
in
force).
“
Registration
Statement
”
means
the registration statements required to be filed hereunder and any additional
registration statements contemplated by Section 3(c), including (in each case)
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
“
Rule
415
”
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.
“
Rule
424
”
means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.
(a)
On
or prior to each
Filing Date, the Company shall prepare and file with the Commission a “Shelf”
Registration Statement covering the resale of the Registrable Securities on
such
Filing Date for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form SB-2 (or on such other form
appropriate for such purpose) and shall contain (except if otherwise required
pursuant to comments received from the Commission upon a review of such
Registration Statement) substantially the “
Plan
of Distribution
”
attached hereto as
Annex
A
.
Subject
to the terms of this Agreement, the Company shall use its best efforts to cause
the Registration Statement to be declared effective under the Securities Act
as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until
the
date which is the earlier of (i) three years after the Closing Date, (ii) such
time as all of the Registrable Securities covered by such Registration Statement
have been publicly sold, or (iii) such time as all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the counsel to
the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected Holders (the
“
Effectiveness
Period
”).
The
Company shall immediately notify the Holders via facsimile or e-mail of the
effectiveness of the Registration Statement within two trading days of the
day
that the Company receives notification of the effectiveness from the Commission.
(b)
If:
(i) a
Registration Statement is not filed on or prior to its Filing Date, or (ii)
the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will
not
be “reviewed,” or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect
of
such Registration Statement within 10 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, unless such delay
is caused by the unavailability of required financial statements, or (iv) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission by its Effectiveness Date, or (v) after the
Effectiveness Date, a Registration Statement ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is required
to be effective, or the Holders are not permitted to utilize the Prospectus
therein to resell
such
Registrable Securities for 15 consecutive Trading Days but no more than an
aggregate of 30 Trading Days during any 12-month period (which need not be
consecutive Trading Days) or (vi) the Company is in material breach of the
provisions of Section 4.13 of the Purchase Agreement (any such failure or breach
being referred to as an “
Event
”,
and
for purposes of clause (i) or (iv) the date on which such Event occurs, or
for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 10 calendar day
period is exceeded, or for purposes of clause (v) the date on which such 15
or
30 Trading Day period or for the purposes of clause (vi), the date on which
such
material breach occurred, as applicable, is exceeded being referred to as
“
Event
Date
”),
then
in addition to any other rights the Holders may have hereunder or under the
Purchase Agreement in the case of clause (vi), or under applicable law, on
each
such Event Date and on each monthly anniversary of each such Event Date until
the applicable Event is cured, the Company shall pay to each Holder an amount,
as partial liquidated damages and not as a penalty, equal to 2% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement for any
Registrable Securities then held by such Holder. The foregoing liquidated
damages may be paid, at the option of the Holders, in cash or in shares of
the
Company’s common stock. For purposes of this Section 2, the per share value of
the Company’s common stock shall equal the average of the last reported sales
price of the Company’s common stock on the Trading Market for each of the ten
(10) trading days up to and including the first trading day preceding the date
that the payment is due. The partial liquidated damages pursuant to the terms
hereof shall apply on a daily pro-rata basis for any portion of a month prior
to
the cure of an Event. If the Company fails to pay any partial liquidated damages
pursuant to this Section in full within seven calendar days after the date
payable, the Company will pay interest thereon at the rate per annum equal
to
the Prime Rate plus ten percent (10%) (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from
the
date such partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. The partial liquidated damages pursuant
to
the terms hereof shall apply on a daily pro-rata basis for any portion of a
month prior to the cure of an Event.
|
3.
|
Registration
Procedures
|
In
connection with the Company's registration obligations hereunder, the Company
shall:
(a)
Not
less
than five Trading Days prior to the filing of each Registration Statement or
any
related Prospectus or any amendment or supplement thereto, the Company shall
furnish to each Holder copies of the “Selling Stockholders” and “Plan of
Distribution” sections of such document, as proposed to be filed, which
documents will be subject to the review of such Holders. The Company shall
not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company
is
notified of such objection, including the substance of such objection, in
writing no later than two Trading Days after the Holders have been so furnished
copies of such documents. However, the Company shall not be required to pay
any
liquidated damages under Section 2(b) for any period of time in which the filing
of Registration Statement, or any Prospectus or any amendments or supplements
thereto is delayed because of such objection. Each Holder agrees to furnish
to
the Company a
completed
Questionnaire in the form attached to this Agreement as Annex B (a
“
Selling
Holder Questionnaire
”
)
not
less than two Trading Days prior to the Filing Date or by the end of the third
Trading Day following the date on which such Holder receives draft materials
in
accordance with this Section. The Company shall not be required to include
the
Registrable Securities of a Holder in the Registration Statement and shall
not
be required to pay any liquidated or other damages under Section 2(b) to any
Holder who fails to furnish to the Company a true and fully completed Selling
Holder Questionnaire in accordance with this Section.
(b)
(i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and to the extent any Registrable Securities are not included in such
Registration Statement for reasons other than the failure of the Holder to
comply with Sections 3(a) and 7(o) hereof, and prepare and file with the
Commission such additional Registration Statements or post-effective amendments
in order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented
by
any required Prospectus supplement (subject to the terms of this Agreement),
and
as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond
as
promptly as reasonably possible to any comments received from the Commission
with respect to a Registration Statement or any amendment thereto; and (iv)
comply in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement during the applicable period in accordance
(subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement
as
so amended or in such Prospectus as so supplemented.
(c)
If
during
the Effectiveness Period, the number of Registrable Securities at any time
exceeds the number of shares of Common Stock then registered in a Registration
Statement other than for failure by the Holders to comply with Sections 3(a)
and
7(o), then the Company shall file as soon as reasonably practicable but in
any
case prior to the applicable Filing Date, an additional Registration Statement
covering the resale by the Holders of such additional Registrable
Securities.
(d)
Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend
the use of the Prospectus until the requisite changes have been made) as
promptly as reasonably possible (and, in the case of (i)(A) below, not less
than
five Trading Days prior to such filing) and (if requested by any such Person
in
writing) confirm such notice in writing no later than one Trading Day following
the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to the each Holder that pertain to
such Holder as a Selling Stockholder or to the Plan of Distribution, but not
information which the Company believes would constitute material and non public
information); and (C) with respect to a Registration Statement or any
post-effective
amendment,
when the same has become effective; (ii) of any request by the Commission or
any
other Federal or state governmental authority for amendments or supplements
to a
Registration Statement or Prospectus or for additional information; (iii) of
the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein
by
reference untrue in any material respect or that requires any revisions to
a
Registration Statement, Prospectus or other documents so that, in the case
of a
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(vi) the occurrence or existence of any pending corporate development with
respect to the Company that the Company believes may be material and that,
in
the determination of the Company, makes it not in the best interest of the
Company to allow continued availability of the Registration Statement or
Prospectus; provided that any and all of such information shall remain
confidential to each Holder until such information otherwise becomes public,
unless disclosure by a Holder is required by law;
provided
,
further
,
notwithstanding each Holder’s agreement to keep such information confidential,
the Holders make no acknowledgement that any such information is material,
non-public information.
(e)
Use
its
best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of
(i) any order suspending the effectiveness of a Registration Statement, or
(ii)
any suspension of the qualification (or exemption from qualification) of any
of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(f)
Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto and all exhibits to the extent
requested by such Person (including those previously furnished) promptly after
the filing of such documents with the Commission.
(g)
Promptly
deliver to each Holder, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request in connection with
resales by the Holder of Registrable Securities. Subject to the terms of this
Agreement, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto, except after the giving
on
any notice pursuant to Section 3(d).
(h)
Prior
to
any public offering of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in
connection
with the registration or qualification (or exemption from the Registration
or
qualification) of such Registrable Securities for offer and sale by the Holder
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things reasonably necessary to enable
the disposition in such jurisdictions of the Registrable Securities covered
by
each Registration Statement; provided, that the Company shall not be required
to
qualify generally to do business in any jurisdiction where it is not then so
qualified, subject the Company to any material tax in any such jurisdiction
where it is not then so subject or file a general consent to service of process
in any such jurisdiction.
(i)
If
requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be
in
such denominations and registered in such names as any such Holders may
request.
(j)
Upon
the
occurrence of any event contemplated by Section 3(d)(v), as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement
or
amendment, including a post-effective amendment, to a Registration Statement
or
a supplement to the related Prospectus or any document incorporated or deemed
to
be incorporated therein by reference, and file any other required document
so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
If
the
Company notifies the Holders in accordance with clauses (ii) through (v) of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to suc
h
Prospectus have been made, then the Holders shall suspend use of such
Prospectus. The Company will use its best efforts to ensure that the use of
the
Prospectus may be resumed as promptly as is practicable. The Company shall
be
entitled to exercise its right under this Section 3(j) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 days (which need not be consecutive days) in any 12 month
period
.
(k)
Comply
with all applicable rules and regulations of the Commission.
(l)
The
Company may require each selling Holder to furnish to the Company a separate
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and the person thereof that has voting and dispositive
control over the Shares, and the status of Holder as, or the affiliation of
Holder with, a broker-dealer. In addition, the Company will require that each
of
the Holders provide complete and accurate information as requested in the
Selling Holder Questionnaire. During any periods that the Company is unable
to
meet its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within two Trading Days of the Company’s
request,
any liquidated damages that are accruing at such time as to such Holder only
shall be tolled and any Event that may otherwise occur solely because of such
delay shall be suspended as to such Holder only, until such information is
delivered to the Company.
4.
Legal
Counsel
.
The
Buyers holding securities representing at least two-thirds (2/3) of the
Registrable Securities shall have the right to select one legal counsel to
review, on behalf of the Buyers, any registration pursuant to Section 2
(“
Legal
Counsel
”),
which
shall be Paul, Weiss, Rifkind, Wharton & Garrison LLP, or such other counsel
as thereafter designated in writing to the Company by the holders of at least
two-thirds (2/3) of the Registrable Securities. The Company shall reasonably
cooperate with Legal Counsel in performing the Company’s obligations under this
Agreement.
5.
Registration
Expenses
.
All
fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The
fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
Trading Market on which the Common Stock is then listed for trading, and (B)
in
compliance with applicable state securities or Blue Sky laws reasonably agreed
to by the Company in writing (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination
of
the eligibility of the Registrable Securities for investment under the laws
of
such jurisdictions as requested by the Holders), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the holders of a majority of the
Registrable Securities included in a Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for
the
Company, (v) Securities Act liability insurance, if the Company so desires
such
insurance, (vi) fees and expenses of all other Persons retained by the Company
in connection with the consummation of the transactions contemplated by this
Agreement and (vii) fees and disbursements of Legal Counsel to Buyers, not
to
exceed $25,000 in the aggregate. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of
the
Holders.
(a)
Indemnification
by the Company
.
The
Company shall, notwithstanding any termination of this Agreement, indemnify
and
hold harmless each Holder, the officers, directors, agents, investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the
fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorneys' fees) and expenses (collectively, “
Losses
”),
as
incurred, arising out of or relating to: (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, (2) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, or any other law, including any state,
provincial or foreign securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement or (3) any material violation of this Agreement by the
Company, except to the extent, but only to the extent, that (i) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
or
to the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed
and
expressly approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto (it being understood that the Holder has approved Annex
A
hereto for this purpose) or (ii) in the case of an occurrence of an event of
the
type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated
or defective Prospectus after the Company has notified such Holder in writing
that the Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 7(c); provided, however, that
in
connection with any Proceeding in the same jurisdiction, the Company will not
be
liable for the reasonable legal fees and expenses of more than one separate
firm
of attorneys at any time for all Holder Indemnified Parties. The Company shall
notify the Holders promptly of the institution or written threat or assertion
of
any Proceeding of which the Company is aware pursuant to which indemnification
could be required under this Section 6(a).
(b)
Indemnification
by Holders
.
Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, agents or employees of
such controlling Persons, to the fullest extent permitted by applicable law,
from and against all Losses, as incurred, to the extent arising out of or based
solely upon: (x) such Holder’s failure to comply with the prospectus delivery
requirements of the Securities Act or (y) any untrue or alleged untrue statement
of a material fact contained in any Registration Statement, any Prospectus,
or
any form of prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading (i) to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion
in
such Registration Statement or such Prospectus or (ii) to the extent that (1)
such untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for
use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities
and
was
reviewed and expressly approved in writing by such Holder expressly for use
in
the Registration Statement (it being understood that the Holder has approved
Annex A hereto for this purpose), such Prospectus or such form of Prospectus
or
in any amendment or supplement thereto or (2) in the case of an occurrence
of an
event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder
of
an outdated or defective Prospectus after the Company has notified such Holder
in writing that the Prospectus is outdated or defective and prior to the receipt
by such Holder of the Advice contemplated in Section 7(c). In no event shall
the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification
obligation.
(c)
Conduct
of Indemnification Proceedings
.
If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “
Indemnified
Party
”),
such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “
Indemnifying
Party
”)
in
writing, and the Indemnifying Party shall be entitled to participate in such
Proceeding and have the right to assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and
the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have prejudiced
the
Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party
and the Indemnifying Party, and such Indemnified Party shall reasonably believe
that a material conflict of interest is likely to exist if the same counsel
were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party,
the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable fees and expenses of one separate counsel shall be at the expense
of the Indemnifying Party). The Indemnifying Party shall not be liable for
any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party (which consent shall not
be
unreasonably withheld or delayed), effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding.
Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection
with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party, which notice shall be delivered no more frequently than on a monthly
basis; provided, that the Indemnified Party shall promptly reimburse the
Indemnifying Party for that portion of such fees and expenses applicable to
such
actions for which such Indemnified Party is not entitled to indemnification
hereunder, determined based upon the relative faults of the
parties.
(d)
Contribution
.
If a
claim for indemnification under Section 6(a) or 6(b) is unavailable to an
Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in this Agreement, any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation or by
any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which
the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that
such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud
by
such Holder.
The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
(a)
Remedies
.
In the
event of a breach by the Company or by a Holder, of any of their obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under
this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not provide
adequate
compensation for any losses incurred by reason of a breach by it of any of
the
provisions of this Agreement and hereby further agrees that, in the event of
any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b)
Compliance
.
Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.
(c)
Discontinued
Disposition
.
Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the
kind
described in Section 3(d), such Holder will forthwith discontinue disposition
of
such Registrable Securities under a Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement, or until it is advised in writing (the “
Advice
”)
by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. The Company will use its commercially
reasonable efforts to ensure that the use of the Prospectus may be resumed
as
promptly as it practicable. The Company agrees and acknowledges that any periods
during which the Holder is required to discontinue the disposition of the
Registrable Securities hereunder shall be subject to the provisions of Section
2(b).
(d)
No
Piggyback on Registrations
.
Except
as set forth on
Schedule
7(d)
attached
hereto, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in the initial Registration Statement other than the Registrable Securities.
The
Company shall not file any other registration statements other than on Form
S-8
until the initial Registration Statement required hereunder is declared
effective by the Commission, provided that this Section 7(d) shall not prohibit
the Company from filing amendments to registration statements already
filed.
(e)
Piggy-Back
Registrations
.
If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such determination and,
if
within five days after the date of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all or
any
part of such Registrable Securities such holder requests to be registered,
subject to customary underwriter cutbacks applicable to all holders of
registration rights if such registration statement relates to an underwritten
offering; provided, that, the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are eligible for
resale pursuant to Rule 144(k) promulgated under the Securities Act or that
are
the subject of a then effective Registration Statement.
(f)
Amendments
and Waivers
.
The
provisions of this Agreement, including the provisions of this sentence, may
not
be amended, modified or supplemented, and waivers or consents to departures
from
the provisions hereof may not be given, unless the same shall be in writing
and
signed by the Company and the holders of a majority of the Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to
the
rights of Holders and that does not directly or indirectly affect the rights
of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates;
provided
,
however
,
that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(g)
Notices
.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be delivered as set forth in the Purchase Agreement.
(h)
Successors
and Assigns
.
This
Agreement shall inure to the benefit of and be binding upon the successors
and
permitted assigns of each of the parties and shall inure to the benefit of
each
Holder. The Company may not assign its rights or obligations hereunder without
the prior written consent of at least a majority of the Registrable Securities;
provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving, acquiring or successor corporation in
connection with a merger or consolidation of the Company with another
corporation, or a sale, transfer or other disposition of all or substantially
all of the Company’s assets to another corporation, or similar transaction,
without the prior written consent of the Holders, after notice duly given by
the
Company to the Holders.. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(i)
Execution
and Counterparts
.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
(j)
Governing
Law
.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined with the provisions of the Purchase
Agreement.
(k)
Cumulative
Remedies
.
The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
(l)
Severability
.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full
force
and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void
or
unenforceable.
(m)
Headings
.
The
headings in this Agreement are for convenience of reference only and shall
not
limit or otherwise affect the meaning hereof.
(n)
Independent
Nature of Holders’ Obligations and Rights
.
The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible
in
any way for the performance of the obligations of any other Holder hereunder.
Nothing contained herein or in any other agreement or document delivered at
any
closing, and no action taken by any Holder pursuant hereto or thereto, shall
be
deemed to constitute the Holders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Holders
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled
to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Holder to
be
joined as an additional party in any proceeding for such purpose.
(o)
Holder
Cooperation
. The Holders shall cooperate with the Company, as reasonably
requested by the Company, in connection with the preparation and filing of
any
Registration Statement hereunder. The Company may require a Holder to promptly
furnish in writing to the Company such information as may be required in
connection with such registration including, without limitation, all such
information as may be requested by the Commission or the NASD or any state
securities commission and all such information regarding the Holder, the
Registrable Securities held by the Holder and the intended method of disposition
of the Registrable Securities. Each Holder agrees to provide such information
requested in connection with such registration within a reasonable time after
receiving such written request. The Company may exclude from such
registration the Registrable Securities of any such Holder who fails to furnish
such information within a reasonable time prior to the filing of each
Registration Statement, supplemented Prospectus and/or amended Registration
Statement.
Each
Holder shall be responsible for the delivery of the Prospectus to the Persons
to
whom the Holder sells the Registrable Securities to the extent required by
applicable law, and each Holder agrees to dispose of Registrable Securities
in
compliance with the plan of distribution described in the Registration Statement
and otherwise in compliance with applicable federal and state securities
laws.
********************
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as
of the date first written above.
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NUTRACEA
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By:
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Name:
Bradley Edson
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Title:
President
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[SIGNATURE
PAGE OF HOLDERS FOLLOWS]
[PURCHASER’S
SIGNATURE PAGE TO NUTRACEA REGISTRATION RIGHTS AGREEMENT]
Entity
Investors
Name
of
Investing Entity: __________________________
Signature
of Authorized Signatory of Investing Entity
:
__________________________
Name
of
Authorized Signatory: _________________________
Title
of
Authorized Signatory: __________________________
Individual
Investors
Name
of
Investing Individual: __________________________
Signature
of Investing Individual
:
__________________________
[SIGNATURE
PAGES CONTINUE]
ANNEX
A
Plan
of Distribution
Each
Selling Stockholder (the “
Selling
Stockholders
”)
of the
common stock (“
Common
Stock
”)
of
NutraCea, a California corporation (the “
Company
”)
and
any of their pledgees, assignees and successors-in-interest may, from time
to
time, sell any or all of their shares of Common Stock on the Trading Market
or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A Selling Stockholder may use any one or more of the following methods
when selling shares:
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·
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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·
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block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
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·
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purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
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·
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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·
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privately
negotiated transactions;
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·
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settlement
of short sales entered into after the date of this
prospectus;
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·
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broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
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·
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a
combination of any such methods of
sale;
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·
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
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·
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any
other method permitted pursuant to applicable
law.
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The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “
Securities
Act
”),
if
available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. Each
Selling Stockholder does not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
In
connection with the sale of our common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the Selling Stockholders and/or the purchasers.
Each
Selling Stockholder has informed the Company that it does not have any agreement
or understanding, directly or indirectly, with any person to distribute the
Common Stock.
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. Each Selling Stockholder
has
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriter or broker-dealer regarding the sale of the
resale shares. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) three years after
the
initial sale of the resale shares, (ii) the date on which the shares may be
resold by the Selling Stockholders without registration and without regard
to
any volume limitations by reason of Rule 144(e) under the Securities Act or
any
other rule of similar effect or (iii) all of the shares have been sold pursuant
to the prospectus or Rule 144 under the Securities Act or any other rule of
similar effect. The resale shares will be sold only through registered or
licensed brokers or dealers if required under applicable state securities laws.
In addition, in certain states, the resale shares may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and
is
complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to our common stock for a period of two business
days prior to the commencement of the distribution. In addition, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of shares of our common stock by the Selling
Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time
of
the sale.
Annex
B
NUTRACEA
Selling
Securityholder Notice and Questionnaire
The
undersigned beneficial owner of common stock, par value $0.001 per share (the
“
Common
Stock
”),
of
NutraCea, a California corporation (the “
Company
”),
(the
“
Registrable
Securities
”)
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “
Commission
”)
a
registration statement on Form SB-2 (the “
Registration
Statement
”)
for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “
Securities
Act
”),
of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement, dated as of September 28, 2005 (the “
Registration
Rights Agreement
”),
among
the Company and the Purchasers named therein. A copy of the Registration Rights
Agreement is available from the Company upon request at the address set forth
below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement. BENEFICIAL
OWNERS THAT DO NOT COMPLETE THIS NOTICE AND QUESTIONNAIRE AND TIMELY DELIVER
IT
TO NUTRACEA SHALL NOT BE NAMED AS SELLING SECURITYHOLDERS IN THE PROSPECTUS
INCLUDED IN THE REGISTRATION STATEMENT AND THEREFORE SHALL NOT BE PERMITTED
TO
SELL ANY REGISTRABLE SHARES PURSUANT TO THE RESALE REGISTRATION
STATEMENT.
Certain
legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.
NOTICE
The
undersigned beneficial owner (the “
Selling
Securityholder
”)
of
Registrable Securities hereby elects to include the Registrable Securities
owned
by it and listed below in Item 3 (unless otherwise specified under such Item
3)
in the Registration Statement. The undersigned, by signing and returning this
Notice and Questionnaire, understands that it will be bound by the terms and
conditions of this Notice and Questionnaire and the Registration Rights
Agreement. Upon any sale of Registrable Securities pursuant to the Registration
Statement, the undersigned will be required to deliver to the Company the Notice
of Transfer (completed and signed) set forth in
Exhibit
1
attached
hereto and hereby undertakes to do so.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
(a)
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Full
Legal Name of Selling Securityholder
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(b)
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Full
Legal Name of Registered Holder (if not the same as (a) above)
through
which Registrable Securities Listed in Item 3 below are
held:
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(c)
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Full
Legal Name of Natural Control Person (which means a natural person
who
directly you indirectly alone or with others has power to vote
or dispose
of the securities covered by the questionnaire):
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2.
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Address
for Notices to Selling
Securityholder:
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Telephone:
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Fax:
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Contact
Person:
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3.
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Beneficial
Ownership of Registrable
Securities:
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(a)
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Type
and Number of Registrable Securities beneficially
owned:
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(a)
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Are
you a broker-dealer?
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Note:
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If
yes, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
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(b)
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Are
you an affiliate of a
broker-dealer?
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(c)
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If
you are an affiliate of a broker-dealer, do you certify that you
bought
the Registrable Securities in the ordinary course of business, and
at the
time of the purchase of the Registrable Securities to be resold,
you had
no agreements or understandings, directly or indirectly, with any
person
to distribute the Registrable
Securities?
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Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
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5.
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Beneficial
Ownership of Other Securities of the Company Owned by the Selling
Securityholder.
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Except
as set forth below in this Item 5, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
(a)
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Type
and Amount of Other Securities beneficially owned by the Selling
Securityholder:
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6.
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Relationships
with the Company:
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Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State
any exceptions here:
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By
signing below, the undersigned acknowledges that it understands its obligation
to comply with the provisions of the Securities Exchange Act of 1934, as
amended, and the Rules thereunder relating to stock manipulation, particularly
Regulation M thereunder (or any successor Rules or regulations), in connection
with any offering of Registrable Securities pursuant to a Registration
Statement. The undersigned agrees that neither it nor any person acting on
its
behalf will engage in any transaction in violation of such provisions. The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective. All notices
hereunder shall be made in writing at the address set forth below.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
NutraCea,
Inc.
1261
Hawk’s Flight Court
El
Dorado
Hills, CA 95762
Attention:
CFO
Fax
No.
(916) 933-7001
EXHIBIT
1
NOTICE
OF
TRANSFER PURSUANT TO REGISTRATION STATEMENT
Weintraub
Genshlea Chediak law corporation
400
Capitol Mall, Suite 1100
Sacramento,
CA 95814
Telephone
No.: (916) 558-6110
Facsimile
No.: (916) 446-1611
Attention:
Christopher Chediak, Esq.
RE:
NUTRACEA (THE "COMPANY") COMMON STOCK TRANSFER
Dear
Sirs:
Please
be
advised that __________ has transferred ___________ shares of the Company's
Common Stock pursuant to the Registration Statement on Form SB-2 (File
No.___-______) filed by the Company. We hereby certify that the prospectus
delivery requirements, if any, of the Securities Act of 1933, as amended, have
been satisfied with respect to the transfer described above and that the
above-named beneficial owner of the Common Stock is named as a selling
securityholder in the Prospectus dated __________, 200_ or in amendments or
supplements thereto, and that the number of shares of Common Stock transferred
are all/a portion (please circle as appropriate) of the Common Stock listed
for
resale in such Prospectus as amended or supplemented opposite such owner's
name.
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By:
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(Authorized
Signature)
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25