SUBSCRIPTION AGREEMENT
ALL AMERICAN FOOD GROUP, INC.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE AND
WILL BE OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF THE ALL AMERICAN
FOOD GROUP, INC.'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND
4(6) OF THE ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND
SIMILAR EXEMPTIONS UNDER STATE LAW. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
("SEC"), ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The undersigned purchasers (hereafter "the undersigned" or "the
purchaser") hereby offers to purchase certain shares (defined herein) of All
American Food Group, Inc. (the "Company"), a publicly held corporation formed
under the laws of the State of New Jersey. This offer to purchase may, for any
reason whatsoever, be revoked by the undersigned or rejected by the Company
prior to acceptance of this offer by the Company.
Section 1.1 Purchase and Sale of Shares. Upon the following
terms and conditions, the Company shall issue and sell to the Purchasers, and
the Purchasers shall purchase from the Company, the number of shares of Class H
Preferred Stock of the Company (the "Shares") set forth opposite their name
below, having the rights, designations and preferences set forth in Schedule I
hereto.
Section 1.2 Purchase Price. The purchase price for the Shares
(the "Purchase Price") shall be $10 per Share.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing"),
shall take place at the offices of Lehman & Eilen, 50 Charles Lindbergh
Boulevard -- Suite 505, Uniondale, New York 11553, at 5 p.m., local time on the
later of the following: (i) the date on which the last to be fulfilled or waived
of the conditions set forth in Section 4.1 and 4.2 hereof and applicable to the
Closing shall be fulfilled or waived in accordance herewith, or (ii) such other
time and place and/or on such other date as the Purchaser and the Company may
agree. The date on which the Closing occurs is referred to herein as the
"Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser
certificates representing the Shares to Grushko & Mittman, as Escrow Agent,
under that certain Funds Escrow Agreement, dated as of April 30, 1998, by and
between the Company and Purchaser, and Grushko & Mittman (the "Escrow Agent")
shall deliver to the Company the Purchase Price for all the Shares by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the Company. The Company shall also deliver to the
Escrow Agent, prior to the Closing Date 28,000 shares of Common Stock of the
Company for each $10,000 of Shares subscribed for, (the "Escrowed Shares") to be
held in escrow. While held in escrow, the Escrowed Shares and any additional
shares of Common Stock which may be later delivered by the Company to be held in
escrow as set forth below shall not be deemed issued and outstanding for any
purpose nor shall any holder of the Shares have any voting or dispositive rights
thereto. The certificate representing the Escrowed Shares shall be as described
in Section 5.1 of this Agreement. The terms and conditions of escrow shall be
set forth in an escrow agreement in the form annexed as an exhibit hereto (the
"Escrow Agreement"). The Company shall deliver to the Escrow Agent, from time to
time, at the request of the subscriber, within seven (7) business days after
notice of the Company of such request, such additional Common Shares in the form
described in Section 5.1 of this Agreement, as would be necessary to allow
conversion of all the Shares at the then applicable Conversion Price, as defined
in the Resolution annexed hereto. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
(c) Upon conversion of the Shares into common stock, without par value,
of the Company (the "Common
Stock"), the Company agrees to issue to Purchaser three-year warrants, in the
form attached hereto as Exhibit 2, to purchase such number of shares of the
Company's Common Stock as shall equal of the Common Stock issued upon such
conversion, having an exercise price equal to 200% of the price at which the
Shares were converted into Common Stock (the "Warrants").
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement or similar
document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the shares of
common stock of the Company issuable upon conversion of the Shares or exercise
of the Warrants, or upon conversion of any stock issued in payment of dividends
on the Shares, and any securities of the Company or securities of any successor
corporation issued as or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
Shares.
(iii) The term "holder" or "holder of Registrable Securities"
means the Purchaser and any permitted assignee of registration rights pursuant
to Section 1.4(g).
(b) (i) The Company shall use its best efforts to prepare and file
a registration statement on Form S-3 as soon as practicable and cause such
registration statement to become effective as soon as possible, but no later
than ninety (90) days from the date of this Agreement.
(ii) The Company may suspend the effectiveness of any
registration effected pursuant to this Subsection (b) in the event and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC"). The Company will use its best
efforts to cause such suspension to terminate at the earliest possible date.
(iii) (A) If a registration statement covering all Registrable
Securities is not effective by ninety (90) days after the date of this Agreement
(the "Target Date"), the Company shall pay the holder as liquidated damages an
amount equal to three percent (3%) of the total Purchase Price of the Shares
held by such holder for each thirty (30) day period following the Target Date
until such time as the registration statement is declared effective. The payment
set forth above shall be pro-rated daily as to any period of less than thirty
(30) days. Such payment shall be made to the holder by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the holder and shall be paid irrespective of the amount of
Registrable Securities held by holder.
(B) If, following effectiveness of a registration,
either the effectiveness of the registration statement is suspended or a current
prospectus meeting the requirements of Section 10 of the Act is not available
for delivery by the holder (either referred to herein as a "suspension"), the
Company shall thereupon pay to such holder as liquidated damages an amount equal
to three percent (3%) of the Purchase Price of the Shares held by such holder
for each thirty (30) day period of the suspension. The payment set forth above
shall be pro-rated daily as to periods of less than thirty (30) days. Such
payment shall be made to the holder by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the holder, and shall be paid irrespective of the amount of Registrable
Securities held by holder on or after the date following the suspension.
(C) Whenever required under this Section 1.4 to
effect the registration of any Registrable
2
Securities, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a
registration statement or amendment thereto with respect to such Registrable
Securities and use its best efforts to cause such registration to become
effective as provided in Section 1.4(b)(i) hereof, and keep such registration
statement effective for so long as any holder of Registrable Securities desires
to dispose of the securities covered by such registration statement; provided,
however, that in no event shall the Company be required to keep the Registration
statement effective for a period greater than three (3) years from the Closing
Date;
(ii) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of the
filing and effectiveness of such Registration statement and any amendments or
supplements;
(iii) Furnish to each holder of Registrable
Securities such numbers of copies of a current prospectus, including a
preliminary prospectus, conforming with the requirements of the Act, copies of
the registration statement any amendment or supplement to any thereof and any
documents incorporated by reference therein, and such other documents as such
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities;
(iv) Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or "Blue Sky" laws of the State of New York and such jurisdictions as
shall be reasonably requested by the holder of Registrable Securities;
(v) Notify each holder of Registrable
Securities immediately of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and use its best efforts to
promptly update and/or correct such prospectus;
(vi) Furnish, at the request of any holder
of Registrable Securities, (A) an opinion of counsel of the Company, dated the
effective date of the registration statement, in form and substance reasonably
satisfactory to the holder and its counsel and covering, without limitation,
such matters as the due authorization and issuance of the securities being
registered and (B) a "comfort" letter or letters of the Company's independent
public accountants provided at the Company's expense in form and substance
reasonably satisfactory to the holder and its counsel;
(vii) Use its best efforts to list the
Registrable Securities covered by such registration statement with any national
market or securities exchange on which such securities are then listed;
(viii) Make available for inspection by the
holder of Registrable Securities, upon request, all SEC Documents (as defined
below) filed subsequent to the Closing and require the Company's officers,
directors and employees to supply all information reasonably requested by any
holder of Registrable Securities in connection with such registration statement;
and
(viiii) Furnish to each holder of Registrable
Securities prompt notice of the commencement of any stop-order proceedings under
the Act, together with copies of all relevant documents in connection therewith,
and use its best efforts to obtain withdrawal of any such stop order as soon as
possible.
(d) Upon request of the Company, each holder of
Registrable Securities will furnish to the Company in connection with any
registration under this Section such information regarding itself, the
Registrable Securities and other securities of the Company held by it, and the
intended method of disposition of such securities as shall
3
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities.
(e) (i) To the fullest extent permitted by
law, the Company shall indemnify, defend and hold harmless each holder of
Registrable Securities which are included in a registration statement and each
of its officers, directors, employees, agents, partners or controlling persons
(within the meaning of the Act) (each, an "indemnified party") from and against,
and shall reimburse such indemnified party with respect to, any and all claims,
suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such indemnified party may become subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; provided,
however, that the Company shall not be liable in any such case to the extent
that any such Liability arises out of or is based upon an untrue statement or
omission so made in strict conformity with information furnished by such
indemnified party in writing specifically for use in the registration statement.
(ii) In the event of any registration
under the Act of Registrable Securities, each holder of such Registrable
Securities hereby severally agrees to indemnity, defend and hold harmless the
Company, and its officers, directors, employees, agents, partners, or
controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the extent and
only to the extent, that any such Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof, and such Liability
may in no event exceed the value of the Registrable Securities so registered on
behalf of such holder.
(iii) Promptly after receipt by any
indemnified party of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against another party
(the "indemnifying party") hereunder, notify such party in writing thereof, but
the omission so to notify such party shall not relieve such party from any
Liability which it may have to the indemnified party other than under this
Section and shall only relieve it from any Liability which it may have to the
indemnified party under this Section if and to the extent an indemnifying party
is materially prejudiced by such omission. In case any such action shall be
brought against any indemnified party and such indemnified party shall notify an
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to the indemnified party
under this Section for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that if the defendants in any such action include both parties and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to them which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of one such separate counsel
and other reasonable expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
4
(f) (i) With respect to the inclusion of
Registrable Securities in a registration statement, all fees, costs and expenses
of and incidental to such registration, inclusion and public offering shall be
borne by the Company; provided, however, that any security holders participating
in such registration shall bear their pro-rata share of the underwriting
discounts and commissions, if any, incurred by them in connection with such
registration.
(ii) The fees, costs and expenses of
registration to be borne by the Company as provided in this Subsection (f) shall
include, without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company, and
all legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Subject to
appropriate agreements as to confidentiality, the Company shall make available
to the holders of Registrable Securities and their counsel its documents and
personnel for due diligence purposes, and will pay the reasonable fees and
expenses of counsel designated by a majority in interest of the holders of
Registrable Securities included in the registration statement, if such counsel
is so designated. Except as otherwise provided herein, fees and disbursements of
counsel and accountants for the selling security holders shall be borne by the
respective selling security holders.
(g) The rights to cause the Company to register
all or any portion of Registrable Securities pursuant to this Section l.4 may be
assigned by Purchaser to a proper transferee or assignee as described herein.
The Purchaser shall notify the Company of the name and address of such
transferee or assignee, and the securities with respect to which such
registration rights are being assigned. Such assignment shall be effective only
if, (i) the Purchaser agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
after such transfer or assignment (subject to the purchase price of the shares
being kept confidential by the Purchaser and such transferee or assignee, (ii)
the Company is after such transfer or assignment, furnished with written notice
of (A) the name and address of such transferee or assignee, (B) the Registrable
Securities with respect to which such registration rights are being assigned,
(iii) following such transfer or assignment, the further disposition of the
Registrable Securities by the transferee or assignee is restricted under the Act
and applicable state securities laws, (iv) the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein,
(v) such transfer shall have been made in accordance with the applicable
requirements of the purchase agreement covering the transaction and (vi) such
transferee shall be an "accredited investor", as that term is defined in Rule
501 of Regulation D, promulgated under the Act.
Section 2.1 Representations and Warranties of the Purchaser. The
Purchaser makes the following representations and warranties to the Company.
(a) Accredited Investor. The Purchaser is an
"accredited investor", as such term is defined in Rule 501(a) of Regulation D,
promulgated under the Act.
(b) Speculative Investment. The Purchaser is
aware that an investment in the Shares is highly speculative and subject to
substantial risks. The Purchaser is capable of bearing the high degree of
economic risk and the burden of this venture, including, but not limited to, the
possibility of complete loss of the Purchaser's investment in the Shares and
underlying securities which make liquidation of this investment impossible for
the indefinite future.
(c) Disposition. The Purchaser understands that (i)
except as provided for in Section 1.4, the Shares, the Warrants and the
underlying common stock of the Company (the "Securities"), have not been and are
not being registered under the Securities Act or any applicable state securities
laws, and may not be transferred unless (A) subsequently registered thereunder,
or (B) sold or transferred pursuant to an exemption from securities registration
under the Securities Act and any applicable state securities laws and (ii) any
resale of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the Securities Act) may require compliance with another exemption
under the Securities Act or the rules of the SEC thereunder.
(d) Privately Offered. The offer to acquire the
Shares was directly communicated to the Purchaser in such manner that the
Purchaser and its advisors were able to ask questions of and receive what
Purchaser
5
considers satisfactory answers concerning the terms and conditions of this
transaction. At no time was the Purchaser presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement, or
any other form of general advertising.
(e) Purchase for Investment. The Securities are
being acquired solely for the Purchaser's own account, for investment, and are
not being purchased with view to the resale, distribution, subdivision or
fractionalization thereof without a valid registration with applicable
governmental authorities.
(f) Reliance on Exemptions. The Purchaser understands
that the Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties and
agreements of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.
Section 2.2 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of New Jersey and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company and
each such subsidiary, if any, is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any adverse effect on
the business, operations, properties or financial condition of the entity with
respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.
(b) Authorization; Enforcement. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement and to issue the Shares and the Warrants, in accordance with the terms
hereof, (ii) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, (iv) this Agreement constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application) and (v) prior to the Closing
Date, any necessary Certificate of Amendment to the Company's Charter
authorizing Company to issue all of the Shares, in accordance with Schedule I,
will have been filed with the New Jersey Secretary of State and will be in full
force and effect, enforceable against the Company in accordance with its terms.
(c) Capitalization. The authorized capital stock of
the Company consists of 20,000,000 shares of Common Stock and 4,000,000 shares
of Preferred Stock; there are 2,312,000 shares of Common Stock and 571,245
shares of Preferred Stock issued and outstanding; and, upon issuance of the
Shares in accordance with the terms hereof, there will be 2,312,000 shares of
Common Stock and a maximum of 606,245 shares of Preferred Stock issued and
outstanding.
All of the outstanding shares of the Company's Common
Stock have been validly issued and are fully paid and nonassessable. Except as
set forth in the Company's recent registration statement on Form SB-2, no shares
of Common Stock are entitled to registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the
6
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, or commitments
to purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of the Company. The Company has furnished to the
Purchaser true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Charter"), and the Company's By-Laws, as
in effect on the date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares
and the Warrants have been duly authorized and, when paid for and issued in
accordance with the terms hereof, the Shares shall be validly issued, fully paid
and non-assessable and entitled to the rights and preferences set forth in
Schedule I hereto, and the Warrants, when issued, will be validly issued. The
Common Stock issuable upon conversion of the Shares and exercise of the Warrants
will be duly authorized and reserved for issuance and, upon conversion, will be
validly issued, fully paid and non-assessable and the holders shall be entitled
to all rights and preferences accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or assets of the Company or any of its subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Purchaser and not to the Company. The business of the Company is
not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation in the United
States to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Shares in accordance with the terms hereof (other than any SEC, NASD or
state securities filings which may be required to be made by the Company
subsequent to the Closing, and any registration statement which may be filed
pursuant hereto); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein; and, provided, further,
that under the Nasdaq's new corporate governance rules, the Company will seek
shareholder approval of the issuance of the Shares, or an exemption therefrom.
(f) SEC Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Company has filed
on a timely basis all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, including material filed pursuant to Section 13(a) or
15(d), in addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC under the Act (all of the foregoing
including filings incorporated by reference therein being referred to herein as
the "SEC Documents"). The Company, through its agent, has delivered to the
Purchaser true and complete copies of the SEC Documents (except for exhibits and
incorporated documents). The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Act or the
Exchange Act as the case may be and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
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
7
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of 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 year-end audit
adjustments).
(g) No Material Adverse Change. Since the date
through which the most recently filed SEC Documents, no Material Adverse Effect
has occurred or exists with respect to the Company or any of its subsidiaries.
(h) No Undisclosed Liabilities. The Company and its
subsidiaries have no material liabilities or obligations not disclosed in the
SEC Documents, including, without limitation, any litigation, other than those
incurred in the ordinary course of the Company's or any of its subsidiaries'
respective businesses since the date of the most recently filed SEC Documents
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or any of its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event
or circumstance has occurred or exists with respect to the Company or any of its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(j) No General Solicitation. Neither the Company,
nor any of its affiliates, or, to its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in connection
with the offer or sale of the Shares or Warrants.
(k) No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require registration
of any of the Securities under the 1933 Act or cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
NASDAQ SmallCap, as applicable, nor will the Company or any of its subsidiaries
take any action or steps that would require registration of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with other
offerings. The Company has not conducted and will not conduct any offering that
will be integrated with the issuance of the Securities solely for purposes of
Rule 4460(i) of the NASDAQ Stock Market, Inc.'s Marketplace Rules.
(l) S-3 Eligibility. The Company currently meets, and
will take all necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
(m) Common Stock Listing. The Company's common stock
is quoted on, and is listed for trading n the NASDAQ SmallCap Market. The
Company has received no notice, either oral or written, other than those
heretofore provided to Purchaser or its counsel, with respect to the continued
eligibility of the common stock for such listing, and the Company has maintained
all requirements for the continuation of such listing.
Section 3.1 Securities Compliance. The Company shall notify the
SEC and NASD, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares and Warrants, and the
common stock of the Company issuable upon conversion thereof, to the Purchaser,
and promptly provide Purchaser with copies thereof.
8
Section 3.2 Registration and Listing. Until at least two (2)
years after all Shares have been converted into Common Stock, the Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts, except as permitted herein. Until at least two (2) years after
all Shares have been converted into Common Stock, the Company will take all
action within its power to continue the listing or trading of its Common Stock
on the NASDAQ Small Cap Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and NASDAQ. The covenants set forth in this Section 3.2 shall not be
deemed to prohibit a merger, sale of all assets or other corporate
reorganization if the entity surviving or succeeding to the Company is bound by
this Agreement with respect to its securities issued in exchange for or in
replacement of the Shares or Common Stock. The Company and Purchaser agree that
until the Company either obtains shareholder approval of the issuance and
conversion of the Shares, or an exemption from Nasdaq's new corporate governance
rules as they may apply to the Shares, the Purchaser may not and will not
convert the Shares into more than 19.9% of the shares of Company's Common Stock
outstanding on the date hereof.
The Company undertakes to obtain the approval of its
shareholders required pursuant to the NASDAQ's corporate governance rules to
allow conversion of all the Shares and exercise of all the Warrants (as
described in Section 1.3(c)). The Company represents and warrants that the
Company is in possession of irrevocable proxies representing sufficient common
shares to obtain the aforedescribed shareholder approval. The Company covenants
to obtain the shareholder approval no later than 45 days from the Closing Date.
Failure to obtain shareholder approval on or before 45 days from the Closing
Date shall be deemed an Event of Default pursuant to Section 10 of the
Resolution Establishing Rights and Preferences for Class H Convertible Preferred
Stock.
Section 3.3 Listing. The Company shall promptly secure the
listing of the common stock issuable upon conversion of the Shares and exercise
of the Warrants upon each national securities exchange or automated quotation
system, if any, upon which shares of common stock are then listed (subject to
official notice of issuance) and shall maintain so long as any other shares of
common stock shall be so listed, such listing o all common stock from time to
time issuable upon conversion of the Shares or exercise of the Warrants. The
Company will obtain and maintain the listing and trading of its common stock on
NASDAQ SmallCap, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each Purchaser copies of any notices it
receives regarding the continued eligibility of the common stock for listing on
such exchanges or quotation systems, or any other exchange or quotation system
on which the common stock is then listed.
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares. The obligation hereunder of the Company to issue
and/or sell the Shares to the Purchaser is subject to the satisfaction, at or
before the Closing, of each of the conditions set forth below. These conditions
may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Purchaser. The Purchaser shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) Legal action. No legal action, suit or proceeding
shall be pending or threatened which
9
seeks to restrain or prohibit the transactions contemplated by this Agreement.
(e) Execution. The Purchaser shall have executed this
Agreement and the related Funds Escrow Agreement and Shares Escrow Agreements,
and delivered such agreements to the Company.
Section 4.2 Conditions Precedent to the Obligation of the
Purchaser to Purchase the Shares. The obligation hereunder of the Purchaser to
acquire and pay for the Shares is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions may be
waived by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Performance by the Company. The Company shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Company at or prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the SEC
or the NASDAQ Small Cap Market (except for any suspension of trading of limited
duration agreed to between the Company and the NASDAQ Small Cap Market solely to
permit dissemination of material information regarding the Company), and trading
in securities generally as reported by NASDAQ shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by NASDAQ.
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) Execution. The Company shall have executed this
Agreement and the related Funds Escrow Agreement and Shares Escrow Agreements,
and delivered such agreements to the Purchaser.
(f) Opinion of Counsel, Etc. The Purchaser shall have
received before or at the Closing an opinion of counsel to the Company , in form
and substance reasonably satisfactory to the Purchaser and its counsel, and such
other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing.
Section 5.1 Legend on Stock. Each certificate representing the
Shares and, if necessary, Common Stock issued upon conversion thereof, shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS
The Company agrees to reissue certificates
representing the Shares or, if applicable, the Common Stock issued upon
conversion thereof without the legend set forth above at such time as (a) the
holder thereof is permitted to dispose of such Shares (or securities issued upon
conversion thereof) pursuant to Rule 144(k) under the Act, (b) the securities
are sold to a purchaser or purchasers who (in the opinion of counsel to such
purchasers, in form and substance reasonably satisfactory to the Company and its
counsel) are able to dispose of such securities publicly without registration
under the Act, or (c) such securities are registered under the Act.
Section 6.1 Termination by Mutual Consent. This Agreement may
be terminated at any time prior to
10
the Closing by the mutual written consent of the Company and the Purchaser.
Section 6.2 Other Termination. This Agreement may be terminated
by action of the Board of Directors or other governing body of the Purchaser or
the Company at any time if the Closing shall not have been consummated by the
fifth (5th) business day following the date of this Agreement, provided that the
party seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 Automatic Termination. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the seventh (7th) business day following the
date of this Agreement, provided, however, that any such termination shall not
terminate the liability of any party which is then in breach of the Agreement.
Section 7.1 Fees and Expenses. Except as otherwise set forth in
Section 1.4 hereof with respect to the registration of Registrable Securities,
the Company shall pay the fees, commissions and expenses of its advisers,
brokers, finders, counsel, accountants and other experts, if any, and all other
expenses associated therewith.
Section 7.2 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of New York. The parties hereto hereby
waive trial by jury and consent to exclusive jurisdiction and venue in the State
of New York.
Section 7.3 Entire Agreement: Amendment. This Agreement contains
the entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) 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:
to the Company: All American Food Group, Inc.
104 New Era
South Plainfield, New Jersey 07080
Attn: Andrew Thorburn, President and CEO
FAX (908)757-8857
to the Purchaser: At the address set forth at the foot of
this Agreement or as specified in writing
by Purchaser.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 Waivers. No waiver by either party 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 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 accruing to it thereafter.
11
Section 7.6 Headings. 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.
Section 7.7 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York without regard to such state's principles of conflict of laws.
Section 7.8 Survival. The representations and warranties of the
Company and the Purchaser contained in herein and the agreements and covenants
set forth in Sections 1.1 through 1.4 3.1 and 3.2, and 7.1 through 7.15 shall
survive the Closing.
Section 7.9 NASDAQ. The term "NASDAQ" or "NASDAQ Small Cap
Market" herein refers to the principal market on which the Common Stock of the
Company is traded. If the Common Stock is listed on a securities exchange, or if
another market becomes the principal market on which the Common Stock is traded
or through which price quotations for the Common Stock are reported, the term
"NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.10 Acceptance Execution and delivery of this Agreement
shall constitute an offer to purchase the Shares, which offer, unless previously
revoked by the Undersigned, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Undersigned. The Company shall indicate acceptance of this Agreement by signing
as indicated on the signature page hereof.
Section 7.11 Binding Agreement Upon acceptance of this Agreement
by the Company, the Undersigned agrees that he may not cancel, terminate or
revoke any agreement of the Undersigned made hereunder, and that this Agreement
shall survive the death or disability of the Undersigned and shall be binding
upon heirs, successors, assigns, executors, administrators, guardians,
conservators or personal representatives of the Undersigned.
Section 7.12 Incorporation by Reference All information set forth
on the signature page is incorporated as integral terms of this Agreement.
Section 7.13 Counterparts. This Agreement may be signed in
multiple counterparts, which counterparts shall constitute one and the same
original instrument.
Section 7.14 Severability. If any portion of this Agreement shall
be held illegal, unenforceable, void or voidable by any court, each of the
remaining terms hereof shall nevertheless remain in full force and effect as a
separate contract. Nothing contained herein shall be deemed to establish or
require payment of a rate of interest or other charges in excess of the maximum
permitted applicable law. In the event that the rate of interest required to be
paid or other charges hereunder exceed the maximum permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Borrower to the Holder and thus refunded to the Borrower.
Section 7.15 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.
THE SIGNATURE PAGE FOLLOWS.
12
IN WITNESS WHEREOF, the Undersigned Purchaser has executed this Agreement on the
date set forth below.
For the purchase price of $100 per Share, the Purchasers respectively tender
herewith the amounts indicated below:
- --------------------------------------------------------------------------------
$____________________ for ____________ Shares
Name: AUSTOST ANSTALT SCHAAN
Address:_____________________________________________________
Signature of Purchaser: __________________________
By:_______________________________________________ Dated as of : April 30, 1998
Print Name: ________________________________________________
and Title (if applicable): _________________________________
- --------------------------------------------------------------------------------
$____________________ for ____________ Shares
Name: BALMORE FUNDS, S.A.
Address:_____________________________________________________
Signature of Purchaser: __________________________
By:_______________________________________________ Dated as of : April 30, 1998
Print Name: ________________________________________________
and Title (if applicable): _________________________________
Accepted by:
ALL AMERICAN FOOD GROUP, INC., a New Jersey corporation
By: ________________________________________________________
Name: ______________________________________________________
Title: _____________________________________________________
13
SCHEDULE I
ALL AMERICAN FOOD GROUP, INC.
RESOLUTION ESTABLISHING RIGHTS AND
PREFERENCES FOR CLASS H CONVERTIBLE PREFERRED STOCK
RESOLVED, that there shall be a series of shares of the Corporation
designated "Class H Convertible Preferred Stock"; that the number of shares of
such series shall be 35,000 and that the rights and preferences of such series
(the "Class H Preferred") and the limitations or restrictions thereon, shall be
as set forth herein;
The following shall be adopted and incorporated by reference into the
foregoing resolutions as if fully set forth therein:
1. Dividends.
(a) The holders of the Class H Preferred shall be entitled to
receive out of any assets legally available therefor cumulative dividends at the
rate of $12 per share per annum, accrued daily and payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year in preference
and priority to any payment of any dividend on the Common Stock or any other
series of the Corporation's Preferred Stock. Such dividends shall accrue on any
given share from the day of original issuance of such share and shall accrue
from day to day whether or not earned or declared. If at any time dividends on
the outstanding Class H Preferred at the rate set forth above shall not have
been paid or declared and set apart for payment with respect to all preceding
periods, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon or set apart for the
Common Stock or any other series of the Preferred Stock of the Corporation.
(b) Any dividend payable on a dividend payment date may be
paid, at the option of the Corporation, either (i) in cash or (ii) in shares of
Common Stock, if the Common Stock issuable upon conversion of such shares has
been registered for resale under the Securities Act of 1933, as amended (the
"Act"), and the registration statement including a current prospectus with
respect thereto remains in effect at the date of delivery of such shares or an
exemption from such registration is available under the Act.
(c) Nothing contained herein shall be deemed to establish or
require any payment or other charges in excess of the maximum permitted by
applicable law. In the event that any payment required to be paid or other
charges hereunder exceed the maximum permitted by such law, any payments in
excess of such maximum shall be credited against amounts owed by the Company the
holder and thus refunded to the Company.
2. Liquidation Preference; Redemption.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of the Class H
Preferred shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of the Common
Stock, the amount of $10 per share plus any and all accrued but unpaid dividends
(the "Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation (other than a sale or transfer to a wholly owned
subsidiary of the Corporation), shall, at the option of the holders of the Class
H Preferred, be deemed a liquidation, dissolution or winding up within the
meaning of this Section 2 if the shares of stock of the Corporation outstanding
immediately prior to such transaction represent immediately after such
transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Corporation's assets in the case of a
sale of assets). Such option may be exercised by the vote or written consent of
holders of a majority of the Class H Preferred at any time within thirty (30)
days after written notice (which shall be given promptly) of the essential terms
of such transaction shall have been given to the holders of the Class H
Preferred in the manner provided by law for the giving of notice of meetings of
shareholders.
1
(c) The Corporation, at its option, may cause all outstanding
shares of the Class H Preferred to be redeemed at any time beginning two (2)
years after the Closing Date, provided the Corporation has given notice of its
intention to redeem to the holders of the Class H Preferred at least twenty (20)
days prior to the redemption date. On the redemption date, the Corporation shall
pay such holders by cashier's check or wire transfer in immediately available
funds the amount of $13.50 per share, plus all accrued but unpaid dividends and
any amounts due under Section 1 hereof. Promptly thereafter, the holders shall
surrender the certificate or certificates representing the Class H Preferred,
duly endorsed, at the office of the Corporation or of any transfer agent for
such shares, or at such other place designated by the Corporation. The holder's
right to convert the Class H Preferred Stock shall continue until actual receipt
of the entire payment described herein.
3. Class H Preferred - Optional Conversion. The holders of the
Class H Preferred shall have optional conversion rights as follows:
(a) Right to Convert. Shares of Class H Preferred shall be
convertible, at the option of the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (x) the
Liquidation Preference of the Class H Preferred determined pursuant to Section 2
hereof on the date the notice of conversion is given, by (y) the Conversion
Price determined as hereinafter provided in effect on the applicable conversion
date.
(b) Mechanics of Conversion. To convert shares of Class H
Preferred into shares of Common Stock under Section 3(a), the holder shall give
written notice to the Corporation (which notice may be given by facsimile
transmission) that such holder elects (with the right to revoke) to convert the
shares and shall state therein date of the conversion, the number of shares to
be converted and the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. Promptly thereafter,
the holder shall surrender the certificate or certificates representing the
shares to be converted, duly endorsed, at the office of the Corporation or of
any transfer agent for such shares, or at such other place designated by the
Corporation; provided, that the holder shall not be required to deliver the
certificates representing such shares if the holder is waiting to receive all or
part of such certificates from the Corporation. The Corporation shall
immediately issue and deliver to or upon the order of such holder, against
delivery of the certificates representing the shares which have been converted,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled. The Corporation shall cause such issuance to be
effected within five (5) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within five (5) business days after the receipt of such notice. The
notice of conversion may be given by a holder at any time during the day up to
5:00 p.m. South Plainfield, New Jersey time and such conversion shall be deemed
to have been made immediately prior to the close of business on the date such
notice of conversion is given. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock at the
close of business on such date.
(c) Conversion Required. The Corporation acknowledges and
understands that a delay in the issuance of the Common Stock pursuant to the
provisions hereof could result in economic loss to the holders of the Class H
Preferred. As compensation to the holder for such loss, the Company agrees to
pay as liquidated damages to the holder for late issuance of Shares upon
conversion in accordance with the following schedule (where "No. Business Days
Late" is defined as the number of business days beyond ten (10) business days
from the date of receipt by the Company and the transfer agent of a Notice of
Conversion of all necessary documentation duly executed and in proper form
required for conversion, including the original Class H Preferred to be
converted, all in accordance with the Class H Preferred, Subscription Agreement
and the requirements of the transfer agent):
2
Liquidated Damages per
No. Business Days Late $100,000 of Class H Preferred
---------------------- -----------------------------
1 $ 500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10 days
The Company shall pay the holder any liquidated
damages incurred under this Section by check upon the earlier to occur of (i)
issuance of the Shares to the holder or (ii) each monthly anniversary of the
receipt of the Company of such holder's Notice of Conversion.
The Company shall at all times reserve and have
available all Common Stock necessary to meet conversion of the Class H Preferred
by all holder of the entire amount of Class H Preferred then outstanding. If, at
any time holder submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock available to effect,
in full, a conversion of the Class H Preferred (a "Conversion Default", the date
of such default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the holder all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Class H Preferred requested to
be converted but not converted (the "Unconverted Class H Preferred"), upon
holder's sole option, may be deemed null and void. The Company shall provide
notice of such Conversion Default ("Notice of Conversion Default") to all
existing holders of outstanding Class H Preferred, by facsimile, within one (1)
business day of such default (with the original delivered by overnight or two
day courier), and the holder shall give notice to the Company by facsimile
within five business days of receipt of the original Notice of Conversion
Default (with the original delivered by overnight or two day courier) of its
election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all holder of
outstanding Class H Preferred, as liquidated damages, payments for a Conversion
Default ("Conversion Default Payments") in the amount of (N/365) x (.24) x the
initial issuance price of the outstanding and/or tendered but not converted
Class H Preferred held by each holder where N = the number of days from the
Conversion Default Date to the date (the "Authorization Date") that the Company
authorizes a sufficient number of shares of Common Stock to effect conversion of
all remaining Class H Preferred. The Company shall send notice ("Authorization
Notice") to each holder of outstanding Class H Preferred that additional shares
of Common Stock have been authorized, the Authorization Date and the amount of
holder's accrued Conversion Default Payments. The accrued Conversion Default
shall be paid in cash or shall be convertible into Common Stock at the
Conversion Rate, at the holder's option, payable as follows: (i) in the event
holder elects to take such payment in cash, cash payments shall be made to such
holder of outstanding Class H Preferred by the fifth day of the following
calendar month, or (ii) in the event holder elects to take such payment in
stock, the holder may convert such payment amount into Common Stock at the
conversion rate set forth in Section 4(a) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the maturity date. Nothing herein shall limit the holder's right
to pursue actual damages for the Company's failure to issue and deliver shares
of Common Stock to the holder in accordance to the terms of the Class H
Preferred.
(d) Determination of Conversion Price.
(i) The "Conversion Price" shall be equal to the
lower of: (a) eighty percent (80%) of the average of the closing bid prices of
the Common Stock as reported by NASDAQ during the five (5) consecutive
3
trading days preceding the conversion date (but not including such date) or (b)
eighty percent (80%) of the average of the closing bid prices of the Common
Stock for the five (5) consecutive trading days prior to the Closing Date.
(ii) The "closing bid price" of the Common Stock on a
trading day shall be the closing bid price of the Common Stock on NASDAQ or any
other principal securities price quotation system or market on which prices of
the Common Stock are reported. The term "trading day" means a day on which
trading is reported on the principal quotation system or market on which prices
of the Common Stock are reported.
(iii) If, during the period of consecutive trading
days provided for above, the Corporation shall declare or pay any dividend on
the Common Stock payable in Common Stock or in rights to acquire Common Stock,
or shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, the Conversion Price
shall be proportionately decreased or increased, as appropriate, to give effect
to such event.
(e) Distributions. If the Corporation shall at any time or
from time to time make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation or any of its subsidiaries other than
additional shares of Common Stock, then in each such event provision shall be
made so that the holders of Class H Preferred shall receive, upon the conversion
thereof, the securities of the Corporation which they would have received had
they been the owners on the date of such event of the number of shares of Common
Stock issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause the independent
public accountants regularly employed to audit the financial statements of the
Corporation to verify such computation and prepare and furnish to each holder of
Class H Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the reasonable written request at any time of
any holder of Class H Preferred, furnish or cause to be furnished to such holder
a like certificate prepared by the Corporation setting forth (i) such
adjustments and readjustments, and (ii) the number of other securities and the
amount, if any, of other property which at the time would be received upon the
conversion of Class H Preferred with respect to each share of Common Stock
received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of Class H
Preferred at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue
and other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Class H Preferred pursuant hereto; provided, however,
that the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class H Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Class H Preferred, and if at any time the
number of
4
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Class H Preferred, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain any requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued
upon the conversion of any share or shares of Class H Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Class H Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation or an authorized Committee thereof).
(k) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) 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:
to the Company: All American Food Group, Inc.
104 New Era
South Plainfield, New Jersey 07080
Attn: Andrew Thorburn, President and CEO
FAX (908)757-8857
to the Holder: At the address set forth on the books and
recoirds of the Company or as specified in
writing by Holder.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
(l) Reorganization or Merger. In case of any reorganization or
any reclassification of the capital stock of the Corporation or any
consolidation or merger of the Corporation with or into any other corporation or
corporations or a sale of all or substantially all of the assets of the
Corporation to any other person (other than a sale or transfer to a wholly-owned
subsidiary of the Corporation), and the holders of Class H Preferred do not
elect to treat such transaction as a liquidation, dissolution or winding up as
provided in Section 2 hereof, then, as part of such reorganization,
consolidation, merger or sale, provision shall be made so that each share of
Class H Preferred shall thereafter be convertible into the number of shares of
stock or other securities or property (including cash) to which a holder of the
number of shares of Common Stock deliverable upon conversion of such share of
Class H Preferred would have been entitled upon the record date of (or date of,
if no record date is fixed) such event and, in any case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Class H Preferred, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
equivalent as is practicable, in relation to any shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of Class H Preferred.
4. Re-issuance of Certificates. In the event of a conversion (or, if
applicable, redemption) of Class H Preferred in which less than all of the
shares of Class H Preferred of a particular certificate are converted or
redeemed, as the case may be, the Corporation shall promptly cause to be issued
and delivered to the holder of such certificate, a certificate representing the
remaining shares of Class H Preferred which have not been so converted or
redeemed.
5
5. Other Provisions. For all purposes of this Resolution, the term
"date of issuance" and the terms "Closing" or "Closing Date" shall mean the day
on which Shares are first issued by the Corporation. Any provision herein which
conflicts with or violates any applicable usury law shall be deemed modified to
the extent necessary to avoid such conflict or violation. The term "NASDAQ"
herein refers to the principal market on which the Common Stock of the
Corporation is traded. If the Common Stock is listed on a securities exchange,
or if another market becomes the principal market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported, the
term "NASDAQ" shall be deemed to refer to such exchange or other principal
market. The term "conversion date" shall mean the date on which the notice of
conversion is received by the Corporation.
6. Voting Rights. The Class H Preferred shall have the right to vote on
all matters with the holders of the Common Stock (and not as a separate class)
on an "as converted" basis, based on the number of shares of Common Stock into
which the Class H Preferred are convertible on the record date of any such
action.
7. Attorneys' Fees. Any holder of Class H Preferred shall be entitled
to recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
8. No Adverse Actions. The Corporation shall not in any manner, whether
by amendment of the Certificate of Incorporation (including, without limitation,
any Certificate of Designation), merger, reorganization, recapitalization,
consolidation, sales of assets, sale of stock, tender offer, dissolution or
otherwise, take any action, or permit any action to be taken, solely or
primarily for the purpose of increasing the value of any class of stock of the
Corporation if the effect of such action is to reduce the value or security of
the Class H Preferred.
9. Anti-Dilution Previsions.
(a) The Conversion Rate shall also be subject to adjustment
from time to time as follows:
(i) In case of any merger of the Corporation
with or into any other corporation (other than a merger in which the Corporation
is the surviving or continuing corporation and which does not result in any
reclassification, conversion, or change of the outstanding shares of common
stock) then as part of such merger lawful provision shall be made so that
holders of Class H Preferred Stock shall thereafter have the right to convert
each share of Class H Preferred Stock into the kind and amount of shares of
stock and/or other securities or property receivable upon such merger by a
holder of the number of shares of common stock into which such shares of Class H
Preferred Stock might have been converted immediately prior to such
consolidation or merger. Such provision shall also provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for elsewhere in these resolutions. The foregoing provisions of this paragraph
shall similarly apply to successive mergers.
(ii) In case of any sale or conveyance to another
person or entity of the property of the Corporation as an entirety, or
substantially as an entirety, in connection with which shares or other
securities or cash or other property shall be issuable, distributable, payable,
or deliverable for outstanding shares of common stock, then unless the right to
convert such shares shall have terminated, lawful provision shall be made so
that the holders of Class H Preferred Stock shall thereafter have the right to
convert each share of the Class H Preferred Stock into the kind and amount of
shares of stock or other securities or property that shall be issuable,
distributable, payable, or deliverable upon such sale or conveyance with respect
to each share of common stock immediately prior to such conveyance."
(b) Subject to the provisions of this section, if the
Corporation at any time shall issue any shares of common stock prior to the
conversion for the entire Liquidation Preference Amount of the Class H Preferred
Stock (otherwise than as: (i) provided in Paragraphs (i) and (ii) of this
Section 9(b); or (ii) pursuant to options, warrants, or other obligations to
issue shares, outstanding on the date hereof as described in public filings made
by the Corporation prior to the date hereof with the Securities and Exchange
Commission ("SEC") including all shares reserved for issuance
6
pursuant to the Corporation's existing option and stock plans (i) and (ii)
above, are hereinafter referred to as the "Existing Option Obligations" for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of common
stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Corporation upon
such issue of additional shares of common stock; and (ii) the sum so obtained
shall be divided by the number of shares of common stock outstanding immediately
after such issue. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any qualified
stock option plan adopted by the Corporation, for purposes of this adjustment,
the issuance of any security of the Corporation carrying the right to convert
such security into shares of common stock or of any warrant, right or option to
purchase common stock shall result in an adjustment to the Conversion Price upon
the issuance of shares of common stock upon exercise of such conversion or
purchase rights."
10. Events of Default. The occurrence of any of the following events of
default ("Event of Default") shall cause the dividend rate of 12% described in
Paragraph 1 hereof to become 16% from and after the occurrence of such event,
and at the option of the Holder, the Class H Preferred Stock shall be redeemed
by the Corporation at $13.50 per share and accrued but unpaid dividends and any
amounts due under Section 1 hereof to be paid within ten (10) days of the
occurrence of the Event of Default. Additionally, the Holder may rescind any
unfilled Notice of Conversion:
(a) The Corporation fails to pay any dividend payment required
to be paid pursuant to the terms of Paragraph 1 hereof and such failure
continues for a period of ten (10) days.
(b) The Corporation breaches any covenant or other term or
condition of the Subscription Agreement entered into between the Corporation and
Holder relating to Class H Preferred Stock (the "Subscription Agreement") or in
this Resolution Establishing Rights, and such breach continues for a period of
seven (7) days after written notice to the Corporation from the Holder.
(c) Any representation or warranty of the Corporation made in
the Subscription Agreement, or in any agreement, statement or certificate given
in writing pursuant thereto shall be false or misleading.
(d) The Corporation shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.
(e) Any money judgment, writ or similar process shall be
entered or filed against the Corporation or any of its property or other assets
for more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
(f) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation.
(g) The delisting of the common stock from the NASDAQ SmallCap
Market or such other principal exchange on which the common stock is listed for
trading.
(h) A concession by the Company of a default under any one or
more obligations in an aggregate monetary amount in excess of $50,000.
(i) An SEC stop trade order or NASDAQ trading suspension,
if either applies for a period of ten (10) days or longer.
(j) The Corporation's failure to timely deliver common stock
to the holder pursuant to Paragraph 3 hereof or failure of the Company to timely
abide by the covenant to register set forth in Section 1.4 of the Subscription
Agreement.
7
11. Additional Restrictions. For as long as any shares of the Class H
Preferred Stock are outstanding, the Corporation will not issue any preferred
stock that is senior to the Class H Preferred Stock, and will not amend the
terms of the Class H Preferred Stock without the consent of the holders of the
Class H Preferred Stock.
8